BILL ANALYSIS

Senate Research Center	C.S.H.B. 4389
88R28863 CJD-F	By: Cole (Zaffirini)
	Business & Commerce
	5/19/2023
	Committee Report (Substituted)

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 a surcharge to support the regulation of workers' compensation insurance.

C.S.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 Title 3, Insurance Code, to read as follows:

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

SECTION 2. Amends the heading to Subtitle C, Title 3, Insurance Code, to read 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 workers' compensation surcharge imposed under this subtitle.

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 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, including a:

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

(b) Makes conforming changes to this subsection.

Sec. 255.002. MAXIMUM RATE; ANNUAL ADJUSTMENT. (a) Prohibits the sum of the rates of assessment for the surcharge imposed by this chapter and the surcharges imposed by Chapters 403 (Division Financing) and 405 (Workers' Compensation Research), Labor Code, set by the commissioner, from exceeding 2.7 percent, rather than 0.6 percent, of the gross premiums subject to surcharges, rather than subject to taxation under Section 255.003. Makes a nonsubstantive change.

(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, 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) Provides that the rate of assessment is applied to, rather than prohibited from exceeding an amount equal to two percent 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, rather than Article 5.55C (Optional Deductible Plans), Insurance Code.

(c) Provides that a workers' compensation insurance company is assessed at the rate established under Section 403.003 and as limited by Section 255.002(a), Insurance Code. Makes conforming changes.

(d) Makes no changes to this subsection.

SECTION 9. Amends the heading to Section 403.003, Labor Code, to read 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 rate of the surcharge, rather than the rate of maintenance tax assessment, 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, rather than maintenance tax, based on the expenditures authorized and the receipts anticipated in legislative appropriations. Prohibits the surcharge rate, rather than tax rate, for insurance companies from exceeding the limitation in Section 255.002(a), Insurance Code. Provides that the surcharge rate is applied to the correctly reported gross workers' compensation insurance premiums. Prohibits the surcharge, rather than tax, rate for certified self-insurers from exceeding the limitation in Section 255.002(a), Insurance Code. Provides that the surcharge rate is applied to 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). Prohibits the surcharge rate for self-insurance groups described by Subsection (a) from exceeding the limitation in Section 255.002(a), Insurance Code. Provides that the surcharge rate is applied to the group's gross premium for the group's retention, excluding premium collected by the group for excess insurance.

Deletes existing text providing that the tax rate for insurance companies is prohibited 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, as computed under Section 407.103(b). 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 group's retention, excluding premium collected by the group for excess insurance. Makes conforming changes.

(c) Provides that the surcharge, rather than tax, imposed under Subsection (a) is in addition to all taxes or other surcharges 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 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.

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