REGULATORY ANALYSIS
FOR AMENDMENTS TO RULE 2-5
OF THE WORKERS' COMPENSATION RULES OF PROCEDURE
7 CCR 1101-3

1.	Description of classes of persons who will be affected by the rules, including classes that will bear the costs of the rules and classes that will benefit from the rules.

The classes of persons affected by the rules are all persons and entities involved in the Colorado Workers’ Compensation system.  This includes, but is not limited to, injured workers, health care providers, insurance carriers, third party administrators and employers.

2.	Description of the probable quantitative and qualitative impact of the proposed rule, economic or otherwise, upon the classes of affected persons.

The rule amendments concern audits of workers’ compensation claims files and reported policy information.  The amendments will improve the ability of the Division to identify non-compliant employers while reducing the number of investigations into compliant employers.  

3.	Probable costs to the agency and other agencies of the implementation and enforcement of the proposed rules and any anticipated effect on state revenues.

No net impact on costs is anticipated as a result of the rule changes.  

4.	Comparison of the probable costs and benefits of enacting the proposed rules to the probable costs and benefits of inaction. 

The proposed rule change will streamline enforcement of the Workers’ Compensation Act, particularly with regard to requirements to maintain insurance coverage.  Locating uncovered employers will help the Division promote a competitive economic environment by eliminating the unfair advantage of those employers who do not comply with the law.  Also, as the Division investigates employers who appear to be uninsured, policyholders will not be burdened with the costs in both time and resources associated with responding to an investigation that could have been avoided had the insurance carrier reported the policy in a timely manner.
	
The costs of administering the proposed changes can be absorbed with current resources.  While audits of policy reporting will be a new process, the administrative burden will be offset by the efficiencies in investigations into employers.  Failure to meet specific thresholds in the audits will result in imposition of fines against insurers; however, the primary goal of the Division is always compliance rather than fines.  The Division will be offering educational opportunities to insurers in order to avoid violations and fines, as well as the opportunity for an initial “educational audit” to provide information about an insurer’s compliance level with an opportunity to rectify any problems prior to an actual audit where fines will be imposed. 
There will be no new costs to businesses to implement the rule, as the requirement to timely and accurately report policy information already exists.  The proposed rule change merely introduces an enforcement mechanism for existing requirements.  There will be potential costs to non-compliant insurers as a result of fines imposed for any violations.  The Division is hopeful the use of voluntary educational audits prior to enforcement will allow insurers to resolve any issues preventing compliance prior to the imposition of fines.    

   

5.	Determination of whether there are less costly or less intrusive methods for achieving the purpose of the proposed rules.

There are no known less costly or less intrusive means.   

6.	Description of any alternative methods for achieving the purpose of the proposed rules that were seriously considered by the agency.

The agency can limit enforcement to issues discovered during the course of investigations into employers.  That is the current method that has been used for several years, but has not resulted in any changes in the timeliness of policy reporting and thus, is an ineffective means of increasing compliance.

A second alternative is to provide education to carriers on timeliness standards and ask for voluntary compliance.  This avoids any fines to carriers, but also does not create accountability for failing to timely report. It also creates a disincentive for change, as carriers who choose to invest in training and process change to meet timeliness standards would be at a disadvantage to carriers who choose not to do so. It also creates an unequal environment for policyholders, as those who are customers of an insurance company that does not voluntarily comply are at risk of appearing to be uninsured, possibly resulting in having to resolve an investigation that could have been avoided.     

Copies of the Notice of Public Hearing were provided to the:

Colorado Association of School Boards, 
Colorado Counties, Inc.
Colorado Municipal League
Special District Association of Colorado
Colorado Health and Hospital Association
Colorado Association of Commerce and Industry
Mountain States Employers Council
Colorado Self-Insurers Association