BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 677 (Yee) Hearing Date: 5/26/2009 Amended: 5/19/2009 Consultant: Bob Franzoia Policy Vote: Labor 4-2 _________________________________________________________________ ____ BILL SUMMARY: SB 677 would, until January 1, 2013, exclude any person employed by his or her parent, child, spouse, or registered domestic partner in a farming operation, as defined, from having to secure the payment of workers' compensation, including medical treatment for injuries incurred by their employees that arise out of, or in the course of, employment if they meet certain conditions. This bill would require the owner or owners of the farming operation to submit specified information when registering with the Department of Industrial Relations (DIR) for the exclusion. This bill would specify that a violation of the conditions shall constitute good cause for DIR to cancel the farming operation's registration. This bill would limit registrations within a calendar year to no more than 3,000 and would provide that registration shall be in effect for one year, except as specified. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund Administration of workers' Up to $198 Up to $360Up to $360 General compensation coverage exclusion Health care coverage Unknown, potentially major and ongoingGeneral costs to state health programs to treat work related injuries _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. It appears there are conflicting interpretations of statutes and regulations as to whether workers' compensation coverage is required for family members working in a farming operation. Registration for the exclusion proposed by this bill would require the farming operation to provide the following: - Proof that any persons that the owner of the farming operation seeks to exclude from being an employee are covered by health insurance. - Proof of the amount (up to $10,000) of the owner's taxable state income during the 12 month period preceding registration. - A signed affidavit that no occupational injures or illnesses have occurred on the farm during the 12 month period preceding registration. - Proof that the owner of the farming operation cannot afford the workers' compensation policy premium that would apply to the operation in the year for which exclusion is sought. Page 2 SB 677 (Yee) - A verified quote from a licensed insurer for the workers' compensation policy that the owner of the farming operation cannot afford. Staff notes the bill does not specify criteria for determining affordability. Presumably, DIR would adopt regulations to address this and any other implementation procedures. There are 27 agricultural classifications used when determining workers' compensation premiums. For the purposes of this analysis, it is proposed that the owner of the farming operation is growing strawberry crops or field crops. The premium rate for strawberry crops is $8.63 per every $100 of payroll and the rate for field crops is $14.01 per every $100 of payroll. These two classifications provide a range of costs under the following scenarios: 1) One part time employee, $8.00 an hour, 20 hours a week, year round. 2) One full time employee, $8.00 an hour, 40 hours a week, year round 3) Two full time employees, $8.00 an hour, 40 hours a week, year round. These estimates should be typical of the number of employees the owner of the farming operation would use since the acreage farmed is small. The yearly premiums for these scenarios are: 1) Strawberry crops = $718 - field crops = $1,165 2) Strawberry crops = $1,436 - field crops = $1,630 3) Strawberry crops = $2,872 - field crops = $3,260 These estimates are based on current rates and will change in July 2009. The coverage and benefits are the same for all workers' compensation, that is, there are no deductibles, etc. (In contrast to Medi-Cal and private health insurance, workers' compensation pays for medical care, temporary disability benefits, permanent disability payments, supplemental job displacement benefits or vocational rehabilitation and death benefits.) Under the exclusion proposed by this bill, if the owner of the farm seeks to exclude any person from being an employee, and thus, not subject to the requirement that they obtain workers' compensation coverage, proof must be provided that person is covered by health insurance. Preliminary information indicates a person may be able to obtain an individual health insurance policy at a monthly cost of $220 to $300, subject to medical underwriting. If the person's spouse was employed full time in the farming operation, small group market coverage (a group of two) would be available on a guaranteed issue basis at a monthly cost per person of $350 to $380. These amounts can vary by up to ten percent ($315 to $418) and can vary by age, geography and family status and by level of Page 3 SB 677 (Yee) benefits, that is, high deductable coverage is less costly, comprehensive coverage is more expensive. Comparing minimum individual health insurance coverage ($220 x 12 = $2,640) to the equivalent workers' compensation premiums ($1,630) and minimum small group market coverage ($315 x 2 x 12 = $7,560) to the equivalent workers' compensation premiums ($3,260), it does not appear at this time that a person or persons could readily obtain private health insurance for less than the cost of equivalent workers' compensation coverage. However, for employees under age 18 and for employees over age 18 whose income is less than 250 percent of the federal poverty level, these persons may have health insurance under state programs such as Healthy Families, the Medical Risk Medical Insurance Program (out-of-pocket maximum per calendar year is $2,500 for individuals and $4,000 for an entire household), or Medi-Cal. Based on the above comparison of the costs of private health insurance and workers' compensation, the number of owners of farming operations applying for the exclusion is likely to be low. However, if eligibility for a state health insurance program can be proof of health insurance, the number of owners of farming operations applying is likely to be high. The impacts on state health insurance programs under that scenario are unknown, but would be major and ongoing. Based on data from the 2007 US Department of Agriculture's agricultural census, there are approximately 7,000 limited income family farms in the state. Under this bill, up to 3,000 would be eligible to apply for the exemption. DIR staff would need to process applications and verify information such as health insurance coverage, workers' compensation quotes, and ensure that all necessary documentation has been provided. If 2,500 owners of farming operations applied for the exemption, up to five personnel years would needed, at a cost of up to $394,500 for 2009-10, and $360,000 for 2010-11, and thereafter. There are potential costs to the Labor Commissioner for violations of limitations on the exclusion and potential and unknown costs to the Uninsured Employers Benefits Trust Fund for claims that are filed when the conditions for the workers' compensation exclusion are not met. It is unclear if DIR's Division of Labor Standards Enforcement would continue to visit or inspect these farms which may result in workload reduction savings.