BILL ANALYSIS

 

 

 

S.B. 1455

By: Hagenbuch

Trade, Workforce & Economic Development

Committee Report (Unamended)

 

 

 

BACKGROUND AND PURPOSE

 

The bill author has informed the committee that any Texas domestic insurer that writes workers' compensation insurance outside of Texas must pay retaliatory taxes and has also informed the committee that the use of maintenance taxes, which are not used in other forms of insurance, has caused the overall effective tax rate for Texas workers' compensation insurers to be substantially higher than effective tax rates for all other states. The bill author has further informed the committee that the use of a surcharge does not result in a retaliatory tax in other states. S.B. 1455 seeks to address this issue and help keep Texas-based insurers in Texas by providing for the currently imposed maintenance tax to be replaced by a surcharge that will not subject Texas workers' compensation insurers to out-of-state taxes.

 

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    

 

S.B. 1455 amends the Insurance Code and Labor Code to change the funding mechanism for the regulation of workers' compensation and workers' compensation insurance from the imposition of maintenance taxes to the imposition of surcharges to be assessed, collected, and paid in the same manner as the maintenance tax, except as otherwise provided by the bill.

 

Treatment of Certain Surcharges

 

S.B. 1455 establishes that a surcharge imposed by the bill's provisions relating to workers' compensation insurance or provisions relating to financing for Texas Department of Insurance's (TDI) division of workers' compensation, to workers' compensation research, to self-insurance regulation, or to group self-insurance coverage, as those provisions are amended by the bill, is considered to be a fee paid in Texas for purposes of retaliatory taxes imposed on foreign insurers authorized to do business in Texas.

 

Workers' Compensation Insurance

 

S.B. 1455 replaces a maintenance tax with a surcharge as the charge imposed on each authorized insurer for the correctly reported gross workers' compensation insurance premiums from writing workers' compensation insurance in Texas. The bill specifies that the requirement for the rate of assessment to be applied to the modified annual premium before application of a deductible premium credit applies to the rate of assessment for a surcharge. The bill accordingly replaces a maintenance tax with a surcharge for purposes of the applicable payment due dates.

 

S.B. 1455 removes  the cap on an assessment set by the commissioner of insurance of 0.6 percent of the gross premiums subject to taxation and instead caps the sum of the rates of assessment for the workers' compensation insurance premiums surcharge and the surcharges imposed by provisions relating to financing of the division of workers' compensation of TDI and to provisions relating to workers' compensation research set by the commissioner of insurance at 2.7 percent of the gross premiums subject to surcharges.

 

S.B. 1455 authorizes an insurer to recover a workers' compensation insurance premium surcharge by doing the following:

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

·         charging the insurer's policyholders.

 

Deposit of Surcharges

 

S.B. 1455 requires surcharges collected under the bill's provisions relating to workers' compensation insurance to be deposited in the general revenue fund and reallocated to the TDI operating account. The bill accordingly includes in the contents of the TDI operating account  surcharges received by the commissioner of insurance or comptroller of public accounts that are required by the Insurance Code or by other law to be deposited to the credit of the account and taxes and fees received by those persons that are required by other law to be deposited to the credit of the account.

 

Powers and Duties of Comptroller

 

S.B. 1455 revises the comptroller's powers and duties relating to collection of revenue and administration of funds as follows:

·         includes among those powers and duties administering and enforcing Insurance Code provisions and other state insurance laws that relate to the administration, collection, and reporting of surcharges;

·         makes Tax Code provisions that are applicable to those powers and duties applicable to the administration, collection, and enforcement of surcharges under the Insurance Code or another state insurance law; and

·         accordingly establishes that, except as otherwise provided by the Insurance Code, the powers granted to the comptroller under those Tax Code provisions do not limit and are exclusive of the powers granted to TDI or the commissioner of insurance in relation to other surcharges under the Insurance Code.

 

Financing for TDI's Division of Workers' Compensation

 

S.B. 1455 replaces a maintenance tax with a surcharge as the annual charge imposed on each insurance carrier, other than a governmental entity, to pay the costs of administering the Texas Workers' Compensation Act and to support the prosecution of workers' compensation insurance fraud in Texas. The bill does the following:

·         removes a prohibition against the assessment 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 applicable state law and instead establishes that the rate of assessment is applied to such premiums; and

·         authorizes an insurer to recover a surcharge under provisions relating to financing for TDI's division of workers' compensation by doing the following:

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

o   charging the insurer's policyholders.

 

Funding for the Workers' Compensation Research and Evaluation Group

 

S.B. 1455 replaces the assessment of a maintenance tax collected annually from all insurance carriers, and self-insurance groups that hold the applicable certificates of approval, except governmental entities, with the assessment of a surcharge collected annually from those entities as the funding source of the workers' compensation research and evaluation group's duties under applicable Texas Workers' Compensation Act provisions. The bill accordingly does the following:

·         replaces the requirement for TDI to set the rate of the maintenance tax based on the expenditures authorized and the receipts anticipated in legislative appropriations with a requirement for TDI to set the rate of the surcharge on that basis; and

·         subjects the surcharge rate for certified self-insurers and the rate for self-insurance groups to the cap on the sum of applicable surcharge rates under the bill's provisions.

 

The bill accordingly replaces the provision establishing that the currently applicable annual maintenance tax is in addition to all other taxes imposed on those insurance carriers for workers' compensation purposes with a provision establishing that the annual surcharge is in addition to all taxes or other surcharges imposed on those insurance carriers for such purposes.

 

S.B. 1455 authorizes an insurer to recover a surcharge under these provisions by doing the following:

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

·         charging the insurer's policyholders.

 

Self-Insurer Surcharge and the Effect on the General Surcharge

 

S.B. 1455 replaces a self-insurer maintenance tax with a self-insurer surcharge as the charge that each certified self-insurer must pay for the administration of TDI's division of workers' compensation and the office of injured employee counsel and to support the prosecution of workers' compensation insurance fraud in Texas. The bill accordingly applies the two-percent cap on the amount of the total tax base of all certified self-insurers that may be assessed to the amount of the total surcharge base, as computed by TDI. The replaces the tax base with the surcharge base as the base established as the surcharge liability of the certified self-insurer and subjects the surcharge rate for certified self-insurers to the cap on the sum of applicable surcharge rates under the bill's provisions. The bill revises the prohibition against the commissioner of insurance considering revenue or expenditures related to the operation of the self-insurer program under the applicable Texas Workers' Compensation Act provisions in setting the rate of the maintenance tax assessment for insurance companies by prohibiting the commissioner of insurance from considering such factors in the surcharge for insurance companies.

 

Surcharge for TDI's Division of Workers' Compensation and Research Functions of TDI

 

S.B. 1455 replaces a self-insurer maintenance tax with a self-insurer surcharge as the charge that each workers' compensation self-insurance group that holds an applicable certificate of approval must pay for the following:

·         the administration of TDI's division of workers' compensation;

·         the prosecution of workers' compensation insurance fraud in Texas;

·         TDI's workers' compensation research functions under provisions of the Texas Workers' Compensation Act; and

·         the administration of the office of injured employee counsel.

The bill accordingly replaces the provisions basing the tax liability of each applicable group on gross premium for the group's retention multiplied by the rate assessed insurance carriers under the bill's provisions with provisions basing the surcharge liability of each such group on the product of that multiplication, as limited by the bill's provisions relating to the cap on the sum of applicable surcharge rates under the bill's provisions.

 

Collection and Payment of Surcharges

 

S.B. 1455 replaces the requirement for a workers' compensation self-insurance group that holds an applicable certificate of approval to remit the currently applicable maintenance taxes for deposit in the TDI operating account to the credit of TDI's division of workers' compensation with a requirement for such a group to remit the surcharges under the bill's provisions for deposit in the TDI operating account to the credit of TDI's division of workers' compensation. The bill accordingly makes the provision establishing that the group commits an administrative violation if the group does not pay the currently applicable taxes in a timely manner applicable instead to the surcharges imposed under the bill's provisions.

 

Saving Provision

 

S.B. 1455 establishes that the bill's provisions relating to surcharges on gross workers' compensation premiums or certified self-insurers' liabilities and expenses apply only to the gross annual premiums reported or liabilities and expenses incurred for an annual period beginning on or after the bill's effective date. Maintenance taxes imposed on gross annual workers' compensation premiums or liabilities and expenses before the bill's effective date are governed by the law as it existed before the bill's effective date, and the former law is continued in effect for that purpose.

 

EFFECTIVE DATE

 

January 1, 2026.