BILL ANALYSIS

H.B. 4389

By: Cole

Business & Industry

Committee Report (Unamended)

BACKGROUND AND PURPOSE

Texas has long had dedicated accounts to support the funding of regulation of workers' compensation insurance. However, most of the tax rates that supply the applicable funding mechanisms 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. Additionally, describing such an aggregate tax rate as a surcharge would protect an insurer domiciled in Texas from retaliation 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.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

H.B. 4389 amends the Insurance Code to replace the imposition of a maintenance tax on each authorized insurer with correctly reported gross workers' compensation insurance premiums from writing workers' compensation insurance in Texas with the imposition of a surcharge tax on such premiums. The bill establishes that the aggregate surcharge includes an amount necessary for funding the regulation of workers' compensation and requires the commissioner of insurance to annually adjust the surcharge rate of assessment to produce that amount. The bill gives the commissioner the option to annually determine the aggregate workers' compensation surcharge as an alternative to annually determining the rate of assessment of each insurance maintenance tax, and the bill caps the aggregate rate of assessment for surcharges set by the commissioner at 2.7 percent of the gross premiums subject to the surcharge. The collected aggregate surcharges  must be deposited in the general revenue fund and reallocated to the Texas Department of Insurance operating account.

H.B. 4389 authorizes applicable insurers to recover a surcharge by reflecting the surcharge as an expense in a rate filing or by charging the insurer's policyholders.

H.B. 4389 amends the Labor Code to require each insurance carrier, other than a governmental entity, to pay an annual surcharge to pay the costs of administering the Texas Workers' Compensation Act. The assessment is capped at the aggregate rate set by the commissioner of insurance with respect to the surcharge on workers' compensation insurance premiums. The bill requires the commissioner of insurance to set and certify the aggregate rate in a specified manner and to annually adjust the rate of assessment so that the surcharge produces the amount necessary to pay the expenses of administering the act. The bill provides for the collection of surcharges from an insurance carrier that withdraws from business in Texas and authorizes an insurer to recover a surcharge by reflecting the surcharge as an expense in a rate filing or by charging the insurer's policyholders.

H.B. 4389 replaces the assessment of a maintenance tax with an assessment of a surcharge tax on gross workers' compensation premiums as the mechanism through which the duties of the workers' compensation research and evaluation group are funded. The bill includes the surcharge rate for insurance companies, certified self-insurers, and self-insurance groups in the aggregate rate of workers' compensation insurance premiums and specifies the basis of those rates as follows:

· for insurance companies, the correctly reported gross workers' compensation insurance premiums;

· for certified self-insurers, the correctly reported gross workers' compensation insurance premiums; and

· for self-insurance groups, the group's gross premium for the group's retention, excluding premium collected by the group for excess insurance.

The bill authorizes an insurer to recover a surcharge by reflecting the surcharge as an expense in a rate filing or by charging the insurer's policyholders.

H.B. 4389 applies only to the gross annual premiums reported for an annual period beginning on or after the bill's effective date. The bill provides for the continuation of the law in effect before the bill's effective date for purposes of maintenance taxes imposed on those premiums.

EFFECTIVE DATE

January 1, 2024.