State Capitol Week in Review

State Capitol Week in Review
From Senator Larry Teague
January 10, 2020

LITTLE ROCK – Thanks to legislation enacted in 1993, Arkansas continues to experience a competitive market for workers’ compensation insurance.

The state Insurance Department performs an annual study of the market and reports to the Senate Committee on Insurance and Commerce.

According to the latest study, “Arkansas’s voluntary workers’ compensation market would have disappeared and many employers would have found themselves unable to afford workers’ compensation coverage, facing the choice of either closing down their business or operating outside the law, had Act 796 not become reality.”

To emphasize its conclusion, the report states that “the impact of the Act on workers’ compensation premiums is clear and significant. Prior to its enactment rates were increasing significantly.”

In the two years immediately before the legislature approved Act 796 of 1993, rates increased 15 % and 18 %.

However, the year in which the act passed was the first time in 10 years that workers’ comp rates did not go up.

The act created a division within the Insurance Department assigned to investigate fraud, and set financial penalties for fraudulently making workers’ comp claims. In 2005 the division’s authority was expanded to investigate all forms of insurance fraud, and it was renamed the Criminal Investigation Division of the Insurance Department.

Workers’ comp fraud makes up four % of the total number of insurance fraud cases investigated by the division.

Since 1993, when the investigation division was created, it has referred 166 cases to local prosecutors. Those referrals resulted in 123 convictions and three acquittals. The remaining cases were not acted on by prosecuting attorneys.

Arkansas companies can get workers’ comp from two categories. The most affordable plans are in the voluntary market. The other plan is an assigned risk pool for companies that do not generally qualify for the more affordable coverage available on the voluntary market.

The Insurance Department annual report concludes that without the changes made by the legislature in Act 796 of 1993, it is doubtful that a voluntary market would still exist in Arkansas. The assigned risk pool, which is typically considered the market of last resort, would likely have become the Arkansas workers’ comp market of “only resort,” the insurance officials reported.

Deficit Spending
The state’s chief fiscal officer recently appeared before a Congressional committee in Washington, D.C. He briefed federal officials on the history of the Arkansas balanced budget amendment, and how state government can operate efficiently under a balanced budget every year.

The U.S. government is expected to run a deficit of $984 billion this fiscal year.

Arkansas voters approved Amendment 20 to the state Constitution in 1934, which prohibits the state from borrowing money without approval by citizens in a statewide vote. Amendment 20 was placed on the ballot by the 1933 legislature.

In 1945 the legislature approved the Revenue Stabilization Act, which prioritizes state spending. If revenue declines due to a slowdown in the economy, state agency spending is reduced accordingly.