BILL ANALYSIS

Senate Research Center	H.B. 4389
88R12308 CJD-F	By: Cole (Zaffirini)
	Business & Commerce
	5/16/2023
	Engrossed

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

Texas has long had dedicated accounts to support funding for the regulation of workers' compensation insurance. Most of the tax rates that supply the applicable funding mechanisms, however, are below the maximum rates. Updating the manner of funding by using an aggregate tax rate to produce revenue for all functions would ensure adequate funding for workers' compensation insurance. Describing such an aggregate tax rate as a surcharge would protect an insurer domiciled in Texas from retaliatory taxes in other states, helping the insurers maintain their home office in Texas and potentially encouraging some carriers to redomesticate to Texas.

H.B. 4389 seeks to address these issues by providing for an aggregate surcharge to support the regulation of workers' compensation insurance.

H.B. 4389 amends current law relating to the funding mechanism for the regulation of workers' compensation and workers' compensation insurance and authorizes surcharges.

RULEMAKING AUTHORITY

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends the heading to Subtitle C, Title 3, Insurance Code, as follows:

TITLE 3.� DEPARTMENT FUNDS, FEES, SURCHARGES, AND TAXES

SECTION 2. Amends the heading to Subtitle C, Title 3, Insurance Code, as follows:

SUBTITLE C.� INSURANCE MAINTENANCE TAXES AND SURCHARGES

SECTION 3. Amends Section 251.001(a), Insurance Code, as follows:

(a) Requires the commissioner of insurance (commissioner) to annually determine the rate of assessment of each maintenance tax or aggregate workers' compensation surcharge imposed under Subtitle C (Insurance Maintenance Taxes).

SECTION 4. Amends the heading to Section 251.004, Insurance Code, to read as follows:

Sec. 251.004. DEPOSIT OF MAINTENANCE TAXES AND SURCHARGES.

SECTION 5. Amends Section 251.004(a), Insurance Code, as follows:

(a) Requires that maintenance taxes collected under this subtitle and aggregate surcharges collected under Chapter 255 (Workers' Compensation Insurance) be deposited in the general revenue fund and reallocated to the Texas Department of Insurance (TDI) operating account, except as provided by Subsection (b) (relating to requiring the Comptroller of Public Accounts of the State of Texas (comptroller), each state fiscal year, to reallocate to the floodplain management account the first $3.05 million of maintenance taxes collected and deposited to the general revenue fund).

SECTION 6. Amends Chapter 255, Insurance Code, as follows:

CHAPTER 255. WORKERS' COMPENSATION INSURANCE

Sec. 255.001. New heading: SURCHARGE IMPOSED. (a) Provides that a surcharge, rather than a maintenance tax, is imposed on each authorized insurer with gross premiums subject to the surcharge, rather than to taxation, under Section 255.003 (Premiums Subject to Taxation), including a:

(1)-(4) makes no changes to these subdivisions.

(b) Makes conforming changes to this subsection.

(c) Provides that the aggregate surcharge required by this chapter includes an amount necessary for funding the regulation of workers' compensation as described by this chapter and Chapter 403 (Division Financing), Labor Code.

Sec. 255.002. MAXIMUM RATE; ANNUAL ADJUSTMENT. (a) Prohibits the aggregate rate of assessment for surcharges set by the commissioner from exceeding 2.7 percent, rather than 0.6 percent, of the gross premiums subject to the aggregate surcharge, rather than taxation, under Section 255.003 and Chapters 403 and 405 (Workers' Compensation Research), Labor Code.

(b) Makes conforming changes to this subsection.

Sec. 255.003. New heading: PREMIUMS SUBJECT TO SURCHARGE.� (a) Makes a conforming change to this subsection.

(b) Requires that the rate of assessment for a surcharge be applied to the modified annual premium before application of a deductible premium credit.

Sec. 255.004. New heading: SURCHARGE DUE DATES. (a) Makes a conforming change to this subsection.

(b) Makes a conforming change to this subsection.

Sec. 255.005. RECOVERY OF SURCHARGE. Authorizes an insurer to recover a surcharge under this chapter by:

(1) reflecting the surcharge as an expense in a rate filing required under this code; or

(2) charging the insurer's policyholders.

SECTION 7. Amends Section 403.001(a), Labor Code, as follows:

(a) Requires that money collected under Subtitle A (Texas Workers' Compensation Act), including aggregate surcharges and advance deposits for purchase of services, be deposited in the general revenue fund of the state treasury to the credit of the TDI operating account, except as provided by certain sections, or as otherwise provided by law.

SECTION 8. Amends Section 403.002, Labor Code, to read as follows:

Sec. 403.002. New heading: SURCHARGES. (a)� Requires each insurance carrier, other than a governmental entity, to pay an annual surcharge, rather than maintenance tax, to pay the costs of administering this subtitle and to support the prosecution of workers' compensation insurance fraud in this state.

(b) Prohibits the assessment from exceeding the aggregate amount provided by Section 255.002 (Maximum Rate; Annual Adjustment), Insurance Code, of the correctly reported gross workers' compensation insurance premiums, including the modified annual premium of a policyholder that purchases an optional deductible plan under Subchapter E (Optional Deductible Plans), Chapter 2053, Insurance Code. Deletes existing text prohibiting the assessment from exceeding an amount equal to two percent of the correctly reported gross workers' compensation insurance premium, including the modified annual premium of a policyholder that purchases an optional deductible plan under Article 5.55C (Optional Deductible Plans), Education Code.

(c) Provides that a workers' compensation insurance company is assessed at the aggregate rate established under Section 403.003 and Section 255.002, Insurance Code. Requires that the surcharge be collected in the manner provided for collection of other surcharges on gross premiums from a workers' compensation insurance company as provided in Chapter 255, Insurance Code. Deletes existing text providing that a workers' compensation insurance company is taxed at the rate established under Section 403.003. Deletes existing text requiring that the tax be collected in the manner provided for collection of other taxes on gross premiums from a workers' compensation insurance company as provided in Chapter 255, Insurance Code.

(d) makes no changes to this subsection.

SECTION 9. Amends the heading to Section 403.003, Labor Code, to as follows:

Sec. 403.003. RATE OF SURCHARGE.

SECTION 10. Amends Section 403.003(a), Labor Code, as follows:

(a) Requires the commissioner to set and certify to the comptroller the aggregate rate of assessment, rather than maintenance tax assessment, provided by Section 255.002, Insurance Code, taking into account:

(1)-(2) makes no changes to these subdivisions;

(3) makes a conforming change to this subdivision; and

(4)-(5) makes no changes to these subdivisions.

SECTION 11. Amends Section 403.004, Labor Code, as follows:

Sec. 403.004. New heading: COLLECTION OF SURCHARGE AFTER WITHDRAWAL FROM BUSINESS. Makes a conforming change.

SECTION 12. Amends Section 403.005, Labor Code, as follows:

Sec. 403.005. New heading: SURCHARGE RATE. Makes conforming changes.

SECTION 13. Amends Chapter 403, Labor Code, by adding Section 403.0055, as follows:

Sec. 403.0055. RECOVERY OF SURCHARGE. Authorizes an insurer to recover a surcharge under this chapter by:

(1) reflecting the surcharge as an expense in a rate filing required under the Insurance Code; or

(2) charging the insurer's policyholders.

SECTION 14. Amends the heading to Section 405.003, Labor Code, as follows:

Sec. 405.003. FUNDING; SURCHARGE AND RECOVERY OF SURCHARGE BY INSURERS.

SECTION 15. Amends Section 405.003, Labor Code, by amending Subsections (a), (b), (c), and (d) and adding Subsection (g), as follows:

(a) Provides that the Workers' Compensation Research and Evaluation Group's (group) duties under this chapter are funded through the assessment of a surcharge, rather than maintenance tax, collected annually from all insurance carriers, and self-insurance groups that hold certificates of approval under Chapter 407A (Group Self-Insurance Coverage), except governmental entities.

(b) Requires TDI to set the rate of the surcharge based on the expenditures authorized and the receipts anticipated in legislative appropriations. Provides that the surcharge rate for insurance companies is included in the aggregate rate provided by Section 255.002, Insurance Code, and is based on the correctly reported gross workers' compensation insurance premiums. Provides that the surcharge rate for certified self-insurers is included in the aggregate rate provided by Section 255.002, Insurance Code, and is based on the total tax base of all certified self-insurers, as computed under Section 407.103(b) (relating to calculating the tax base for a certified self-insurer). Provides that the surcharge rate for self-insurance groups described by Subsection (a) is included in the aggregate rate provided by Section 255.002, Insurance Code, and is based on the group's gross premium for the group's retention, excluding premium collected by the group for excess insurance.

Deletes existing text prohibiting the tax rate for insurance companies from exceeding one-tenth of one percent of the correctly reported gross workers' compensation insurance premiums. Deletes existing text prohibiting the tax rate for certified self-insurers from exceeding one-tenth of one percent of the total tax base of all certified self-insurers. Deletes existing text prohibiting the tax rate for self-insurance groups described by Subsection (a) from exceeding one-tenth of one percent of the group's gross premium for the groups retention, excluding certain collected premiums. Makes conforming changes to this subsection.

(c) Provides that the surcharge, rather than tax, imposed under Subsection (a) is in addition to all taxes imposed on those insurance carriers for workers' compensation purposes. Makes a conforming change.

(d) Makes conforming changes to this subsection.

(g) Authorizes an insurer to recover a surcharge under Section 405.003 (Funding; Maintenance Tax) by:

(1) reflecting the surcharge as an expense in a rate filing required under the Insurance Code; or

(2) charging the insurer's policyholders.

SECTION 16. Makes application of this Act prospective.

SECTION 17. Effective date: January 1, 2024.