Governor John R. KasichBWC Administrator/CEO Sarah D. Morrison

Fiscal Year 2017 Report

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Letter from the Administrator Dear Governor Kasich:

I am pleased to present the annual report of the Ohio Bureau of Workers’ Compensation for fiscal year 2017.

Over the last year, we increased our commitment to protect Ohio’s workers and employers, improved the lives of injured workers and worked with local businesses and governments to bolster economic development. Below are a few of our accomplish-ments.

• Our Board of Directors approved another $1 billion rebate for Ohio’s private and public employers, the third such rebate since 2013. Along with previous rebates, credits and rate reductions, our agency has saved Ohio employers $6.3 billion in workers’ compensation costs since 2011.

• In conjunction with our $1 billion rebate, we announced plans to invest $44 million over two years to improve wellness and safety for workers across Ohio. This includes a new wellness program for small employers, funding for specific programs to help firefighters and those who work with children and adults with disabilities, and an education campaign to address common injuries at work and in the home.

• Our board’s approval in 2016 of a private employer base-rate reduction of 8.6 percent became effective on July 1, 2016. With this latest reduction, private employers are paying $463 million less annually. Private employers have benefitted from an average 28.2 percent decrease in premiums since the beginning of 2011.

• In conjunction with our annual Ohio Safety Congress & Expo, we hosted our second Medical & Health Symposium. The combined event drew a record-setting crowd of more than 7,500. We offered free continuing education credits and participation in a combination of lectures and interactive panel discussions featuring leading national and state experts covering best practices related to the care of injured workers.

• Our new rule governing the prescribing of opioids to treat injured workers became effective on Oct. 1. The rule prevents opioid dependence by requiring appropriate prescribing by BWC certified physicians. Reimbursements for opioid prescrip-tions are limited to claims in which physicians follow best medical practices. Physicians who don’t follow best practices are subject to penalties that range up to decertification from our provider network.

We are working diligently on exciting improvements and initiatives to come in fiscal year 2018. We are more committed than ever to the safety, health and economic well-being of our state and its citizens.

Sincerely,

Sarah D. Morrison Administrator/CEOOhio Bureau of Workers’ Compensation

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Table of ContentsOhio Bureau of Workers’ Compensation

Letter from the Administrator ..........................................................................................................................................................................2Introduction ......................................................................................................................................................................................................4Accomplishments .............................................................................................................................................................................................4BWC year-end statistics ..................................................................................................................................................................................7

Investment Class Comments .............................................................................................................................................................................9

Outcomes and Savings of the Health Partnership Program ......................................................................................................................20

Division of Safety & Hygiene...........................................................................................................................................................................39

Ohio Industrial CommissionLetter from the Chairman ...............................................................................................................................................................................53About the IC ...................................................................................................................................................................................................54FY17 highlights ..............................................................................................................................................................................................54Commission performance highlights — FY17 ...............................................................................................................................................54DHO performance ..........................................................................................................................................................................................55SHO performance ...........................................................................................................................................................................................55

BWC Audited Financial Statements ..............................................................................................................................................................56

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IntroductionThis report documents some of the actions we took in fiscal year 2017 (FY17) to improve the quality of life for Ohio’s workers and to be a positive influence for economic growth in Ohio. Our focus on preventing workplace accidents, lowering rates and caring for those workers injured on the job is making Ohio a better place for businesses and workers. This focus and our commitment to the prin-ciples of service, simplicity and savings helped us operate efficiently during FY17.

With assets of approximately $28.9 billion, we are the largest state-fund insurance system in the U.S. In addi-tion, we’re one of the top 10 largest underwriters of workers’ compensa-tion insurance in the nation. Insuring 241,308 Ohio employers, we provide insurance coverage to approximate-ly 60 percent of Ohio’s workforce. In FY17, we approved 86,290 new claims, a decrease of 1,880 from FY16. Contributing reasons for this de-crease include:

• Continued safety funding; • Continued promotion of safe

and healthy workplaces; • More employers putting

safety education resources to work.

During FY17, we focused on providing our services in a cost-effective and ef-ficient manner. As a result, our admin-istrative cost budget of $280.7 million was 1.7 percent less than appropriated by the Ohio General Assembly.

AccomplishmentsA Third Billion BackGov. Kasich joined us in March to announce plans to distribute another $1 billion rebate to public and private employers this sum-mer. This was the third rebate of this mag-nitude since 2013. Our Third Billion Back initiative returned $879.5 million to private employers and $135.7 million to public em-ployers, which included $41.6 million to local schools.

Safety and WellnessAs part of Third Billion Back, we announced a $44 million health, safety and wellness initiative designed to create a culture of safety throughout Ohio.

This includes an investment of $6 million annually in a robust health and wellness program for Ohioans working for small em-ployers (50 or fewer employees) in specific high-risk industries. We are contracting with a third-party vendor to provide ser-vices such as smoking cessation programs,

health coaching and chronic disease man-agement.

We also extended the FY16 funding level of $15 million for the next two years for safety intervention grants. We set aside $4 million of those funds a year for two high-risk occupations:

1. $2 million for fire departments to purchase equipment and gear that minimizes exposure to dangerous environmental elements;

2. $2 million for employers that serve disabled children and adults; the funds will support training and equipment aimed at preventing injuries to workers providing these services.

In addition, we are investing $2 million to create a statewide safety awareness and educational campaign for slips, trips and falls, overexertion and motor vehicle acci-dents. These accidents are responsible for more than 60 percent of workplace injuries. The effort will include online and mobile training resources that address safety at work and at home.

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Safety grants paying offThe Safety Intervention Grant Program un-der our Division of Safety & Hygiene con-tinued to reap rewards for participating Ohio businesses. In FY17, 274 safety grant companies completed their one-year cost benefit analysis report. These companies reported $4 million in annual productivi-ty savings, $478,830 in annual claim cost savings and nearly $1.5 million in other sav-ings (improved quality, falling absenteeism, etc.).

In FY17, we awarded 662 grants totaling $12.6 million to 626 employers. Of those, 71 percent went to employers with 100 or fewer employees. Most employers were in the following sectors: manufacturing (21 percent); townships (14 percent); and con-struction (13 percent).

Private employer base-rate reductionAn 8.6-percent reduction in private em-ployer base rates became effective July 1, 2016. This reduction was possible thanks to sound fiscal management and strong investment returns. The reduction meant private employers paid $463 million less in premiums in FY17 than they did at the beginning of 2011. This represents a com-bined 28.2 percent decrease over the last six years.

Since 2011, reduced rates, rebates, credits and grants have resulted in $6.3 billion in combined savings for Ohio’s public and pri-vate employers.

Employer education and outreachOur Employer Services team created educa-tional webinars this year for new members of our employer community.

Titled, Top Five Critical Items to Know for New Policy Holders, these free webinars provide information employers can use to save money on workers’ compensa-tion costs and to be successful with their

new coverage. Topics include available discounts, the value of establishing e-ac-counts, premium installment schedules, elective coverage essentials, and how and who to contact at BWC for assistance and services.

From the convenience of their home or of-fice, employers can attend these webinars and interact with BWC risk management staff for immediate, on-demand and unlim-ited Q&A opportunities.

We started these 25-minute webinars in March and offer them twice each month. We had such an enthusiastic response, we decided to offer employers additional webi-nars each month on a variety of topics.

Ohio Safety Congress & Expo/Medical & Health SymposiumIn conjunction with our annual Ohio Safety Congress & Expo, we hosted our second Medical & Health Symposium. The com-bined event drew a record-setting crowd of more than 7,500. We offered free con-tinuing education credits and participation in a combination of lectures and interactive panel discussions featuring leading nation-al and state experts covering best practices related to the care of injured workers.

Spinal fusion ruleOur board of directors approved a rule that requires workers with lower back injuries to undergo at least 60 days of comprehen-sive conservative care before considering a surgical option. Conservative care includes:

• Physical therapy;• Chiropractic care and rest;• Anti-inflammatories;• Ice and other non-surgical

treatments.

The rule follows several studies of our data that found fusion patients suffered consid-erably worse outcomes, including chronic opioid dependence, increased disability and high rates of failed back syndrome, than non-fusion patients. One study in the

journal Orthopedics found nearly 77 per-cent of fusion patients did not return to work within two years.

Lower back injuries are among the top workplace injury types reported to BWC each year. If approved by the Joint Commit-tee on Agency Rule Review, the fusion rule will become effective Jan. 1, 2018.

Enhanced care pilot programOur enhanced care program (ECP) pilot that started in FY16 in 16 northeastern Ohio counties concluded this year. Researchers at The Ohio State University College of Public Health recommended we expand the program statewide.

With a focus on knee-only injuries for now, ECP is a physician-driven health-care mod-el that emphasizes quality and coordination of care to improve outcomes for injured workers. Under ECP, the injured worker’s physician of record focuses on the work injury while communicating with other phy-sicians to make sure he or she addresses comorbidities — other conditions that can impede recovery. Ohio State found the pro-gram structurally sound and welcomed by physicians (263 enrolled, exceeding our expectations). The researchers concluded further studies were needed to more specif-ically identify the determinants of medical outcomes.

We expect to implement ECP statewide by July 2018.

Innovative pharmacy management In FY17, our pharmacy department took on new challenges and improved operational efficiencies to better serve Ohio’s injured workers.

We traditionally relied on an outside pharmacy benefits manager to manage medication prior authorization requests, but we brought that service in house this year to improve customer service. A team of clinical nurses worked with department

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managers to build an efficient system that achieved fast and significant results.

We reduced prior authorization turnaround times from an average of three days to just 90 minutes. This helped injured workers get their medicine on the same day their physician prescribed them. This move also reduced by nearly half (45 percent) the number of injured workers paying for pre-scriptions out of pocket then seeking reim-bursement from BWC. In addition, our total number of prior authorizations declined in FY17, indicating that prescribers received correct and complete correspondence when they initially requested a prior autho-rization.

In other achievements, we further en-hanced customer service by bringing our pharmacy call center in house this year. A team of pharmacy technicians and clinical nurses fielded an average of 1,200 calls per month and received numerous compliments for answering inquiries accurately on the first call.

We also updated our drug coding system to better manage our formulary, and we con-tinued to closely track injured workers on opioids. Thanks to these and other changes implemented by the pharmacy department since 2011, we continued to see a reduction in the number of injured workers clinically dependent on opioids. We had 3,714 opi-oid-dependent injured workers at the end of June 2017, down from 8,029 in 2011, a 54-percent decline. Our efforts on this front earned Pharmacy Program Director John Hanna the Governor’s Award for Employee Excellence in April.

We also enhanced our leadership team this year by creating a new role, that of clinical operations manager, and hiring a full-time pharmacist for the position. The clinical operations manager works closely with the pharmacy program director to oversee all clinical aspects of our program, contribute to program policy and ensure the mainte-nance of current industry best practices.

Updating our infrastructure In November 2016, we implemented a new claims and policy management system fol-lowing an extensive testing and training period. PowerSuite modernized operations and improved customer service by replac-ing systems that were 20 years old. In its first full year of operation, completed just prior to the publication of this report, BWC created 122,000 claims, and processed 2.8 million medical invoices, 6.4 million policy transactions, and made 1.1 million indem-nity payments totaling $935 million.

Fraud efforts generate results Our special investigations department (SID) celebrated its 24th year of protecting the State Insurance Fund by investigating, detecting and deterring fraud. The depart-ment’s 122 dedicated members accom-plished several impressive results, includ-ing:

• 133 convictions;• $41.8 million in savings;• The highest percentage of closed

founded cases in its history at 50.3 percent.

SID also hit an important milestone when it surpassed the 5,000-mark for cases re-ferred for prosecution.

Since its inception in FY1994, SID has field-ed 119,573 allegations of fraud, secured 2,703 convictions and saved the State In-surance Fund $1.8 billion.

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2017 BWC year-end statistics

FY 2017 FY 2016 FY 2015

State-fund claims filed

Lost time 10,745 10,932 11,870

Medical only 75,030 76,648 81,348

Occupational disease 360 407 533

Death 155 183 185

Disallowed or dismissed 11,641 10,912 11,061

Total 97,931 99,082 104,997

Net allowed injuries 86,290 88,170 93,936

NOTE: Every claim is evaluated at 60 days after filing for purposes of claim type, state fund versus self-insured, combine status and allowance status. Values exclude combined and self-insured claims.

Open claims (Per statute)

Lost time 242,778 263,618 288,059

Medical only 461,978 488,694 503,579

Total 704,756 752,312 791,638

Benefits paid

Medical benefits paid $550,569,114 $580,294,319 $614,375,366

Compensation paid

Wage loss $8,371,994 $9,810,677 $12,764,857

Temporary total 204,141,166 219,298,295 220,766,392

Temporary partial 4,361 7,226 16,543

Permanent partial 19,632,350 19,708,785 19,269,456

% permanent partial 55,294,805 65,019,190 67,385,815

Lump sum settlement 134,602,047 159,289,682 179,185,086

Lump sum advancement 19,902,247 21,852,376 18,067,160

Permanent Total and DWRF 381,508,395 402,054,481 390,863,930

Death 83,177,378 85,945,428 83,090,326

Rehabilitation 30,083,940 33,080,852 35,492,795

Other 4,046,402 5,535,475 6,153,354

Total compensation paid $940,765,085 $1,021,602,467 $1,033,055,714

Total benefits paid $1,491,334,199 $1,601,896,786 $1,647,431,080

Managed care organization fees paid $170,797,091 $169,229,310 $170,688,324

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Fraud statistics

Fraud dollars identified $41,764,061 $56,571,121 $60,450,575

$$$ saved to $$$ spent ratio 3.48 to 1 4.61 to 1 5.34 to 1

Prosecution referrals 163 198 229

FY 2017 FY 2016 FY 2015

Active employers by type

Private 237,249 239,331 247,829

Public (local) 3,796 3,796 3,807

Public (state) 121 121 121

Self-insured 1,166 1,178 1,180

Black lung 28 31 34

Marine fund 114 138 135

Total 242,474 244,595 253,106

BWC personnel 1,785 1,842 1,866

BWC combined funds financial data (000s omitted)

Audited FY 2017 Audited FY 2016 Audited FY 2015

Operating revenues

“Premium and assessment income, net of provision for uncollectibles and ceded premiums”

$1,544,550 $1,439,143 $1,954,174

DWRF II unbilled assessment – (1,499,600) –

Other income 10,016 12,442 8,413

Total operating revenues $1,554,566 $(48,015) $1,962,587

Operating expenses

“Workers’ compensation benefits and compensation adjustment expenses” $1,199,363 $1,211,609 $1,394,939

Other expenses 143,572 119,419 118,372

Total operating expenses $1,342,935 $1,331,028 $1,513,311

Non-operating revenues

Net investment earnings $672,003 $633,497 $602,902

Increase (decrease) in fair value 1,205,642 731,967 (93,020)

Net investment income $1,877,645 $1,365,464 $509,882

Net dividends, rebates and credits $1,097,412 $(6,674) $1,051,952

DWRF I alternative funding expense $(16,348) $507,891 $–

Total assets $28,918,232 $27,439,254 $29,054,112

Total liabilities $19,240,643 $18,742,292 $19,800,028

Total net position $9,758,071 $8,753,885 $9,268,332

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Investment Class Comments

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Table of contents U.S. economy .......................................................................................................................................................................................................11

U.S. financial markets ..........................................................................................................................................................................................11

Portfolio returns ...................................................................................................................................................................................................12

Asset allocation revisions ....................................................................................................................................................................................12

Ten-year fiduciary investment performance audit ..............................................................................................................................................13

Portfolio compliance ............................................................................................................................................................................................13

Valuation and performance ..................................................................................................................................................................................14

Investment manager fees ....................................................................................................................................................................................14

Active manager performance...............................................................................................................................................................................15

Asset allocation mix.............................................................................................................................................................................................15

Asset class transfer activity.................................................................................................................................................................................15

Bond portfolio values and return .........................................................................................................................................................................16

Bond portfolio quality and duration .....................................................................................................................................................................16

Equity portfolio values and return........................................................................................................................................................................16

Real estate portfolio values and return ...............................................................................................................................................................17

Cash and cash equivalents ..................................................................................................................................................................................17

Portfolio interest rate sensitivity ........................................................................................................................................................................18

Summary table .....................................................................................................................................................................................................18

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U.S. economyThe U.S. economy continued to grow at a respectable rate in fiscal year 2017 (FY17), sustaining its eighth consecutive year of economic growth following the financial shocks and recessionary period of FY09. The current U.S. economic expansion beginning in July 2009 (99 months through September 2017) is the third-longest between reces-sions in U.S. history, covering 33 business cycles to date going back to 1854. Only the U.S. economic expansions from March 1991 to March 2001 (120 months) and from February 1961 to December 1969 (106 months) have been longer to date. Real gross domestic product (GDP) averaged 2.2-percent growth quarter-over-quarter for the four quarters of FY17. This was an improvement over the tepid 1.3-percent average quarter-to-quarter growth for FY16. However, it was less than exhibited in FY15 (+3 percent) and FY14 (+2.5 per-cent). The FY17 first quarter (calendar year 3Q2016) and last quarter (calendar year 2Q17) exhibited stronger real GDP growth of 2.8 percent and 3.1 percent, respectively. Whereas the two middle quarters of FY17 covering the autumn and winter periods of 4Q16 and 1Q17, had slower but still posi-tive real GDP growth of 1.8 percent and 1.2 percent, respectively.

The national unemployment rate continued its decline in FY17 from 4.9 percent in June 2016 to 4.4 percent in June 2017. This is a continuation of a more moderate decline from 5.3 percent in June 2015 after declin-ing from 7.5 percent in June 2013. There is an assertion that the U.S. is nearing full employment as there will always be a cer-tain amount of frictional unemployment. The Federal Reserve and others emphasize the mismatch in the labor market between a shortage of labor for skilled jobs and a still significant number of unemployed and part-time workers lacking the necessary skills to fill these more demanding jobs.

This predicament has led to a continued widening in the gap in compensation paid to skilled, highly educated knowledge workers and less skilled, less educated workers. The U.S. civilian worker employ-ment cost index showed a modest but higher 2.4 percent-increase over FY17 after increasing 2.3 percent for FY16. This is an improvement from an annual 2 percent or lesser increase during the prior several fis-cal year periods 2012 to 2015. This low lev-el of wage growth is also occurring within a broader context of even slower growth in labor productivity, which has increased an average of less than 1 percent in each of the past five years.

After finally raising the benchmark federal funds rate by 0.25 percent in December 2015 for the first time since before the Great Financial Crisis of 2008 to 2009, the Federal Reserve raised the federal funds rate on three occasions during FY17 by 0.25 percent each, including in June 2017 to a range of 1 percent-1.25 percent. This somewhat less accommodative monetary policy was the result of the Fed desiring to move toward a more normalization of inter-est rate levels and its belief its interest rate increases would not harm U.S. economic growth.

These interest rate increases made by the Fed contrast with the very accommodative monetary policies maintained by the two most important other central banks, the European Central Bank (ECB) and the Bank of Japan. These institutions want to stimu-late economic growth in their regions and prevent sliding back into recession. These accommodative policies, especially that of the ECB, have been successful in stimulat-ing economic growth in FY17 in the Euro-zone and in Japan.

Inflation continued to be benign over FY17 with the annualized growth in the consum-er price index (CPI) being 1.6 percent for all items and 1.7 percent for all items except food and energy. The CPI in FY17 was 0.9 percent for food and 2.3 percent for energy.

The Federal Reserve has stated it wants the U.S. inflationary rates to rise to its 2-per-cent target. The pace of hitting that target has been frustratingly slow.

U.S. financial marketsThe U.S. equity markets exhibited very strong performance in FY17. They had a consistent upward trajectory during each of the four quarters of FY17, with only small pullbacks exhibited. Investors quickly seized these as buying opportunities. The major U.S. equity market indexes hit more record highs as FY17 ended. The Fed inter-est rate hikes were perceived as represent-ing Fed confidence in a stronger U.S. econ-omy. This perception allowed the economy to easily absorb such hikes, which, in hind-sight, proved true. The U.S. equity markets reacted positively to the surprise election of Donald Trump as U.S. President in Novem-ber 2016 as investors projected the likeli-hood of corporate and individual tax cuts, significant deregulation and infrastructure spending. These projections fueled U.S. stock indexes to record highs.

In addition, the economies of important continental European countries began rebounding by exhibiting modest but ac-celerating growth. The Chinese economy maintained its strong economic growth near 7-percent GDP throughout FY17. These encouraging overseas developments resulted in higher export activity of goods and services by U.S. corporations. A U.S. dollar weakening in exchange values ver-sus the Euro by 8.5 percent from January to June 2017 fueled this increase. In addition to the strengthening European economy, the Dutch and French elections of pro-Eu-rozone, anti-populist candidates friendly to business interests also encouraged inves-tors throughout the world.

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Bond yields of U.S. government and cor-porate issues had an upward bias in FY17. After a relatively quiet 3Q2016 with only minor month-to-month movement, medi-um-term and long-term investment grade U.S. bond yields rose between 0.50 per-cent and 0.75 percent (50-75 basis points) in 4Q2016. Most of the yield increase occurred after the presidential election. Whereas equity investors viewed the prospect of tax cuts, deregulation and in-frastructure spending as positive, bond investors viewed these as a negative. This could result in higher economic growth and inflation. After the excitement of 4Q2016 events, U.S. market bond yields traded in a relatively narrow range during the first half of the calendar 2017 period with long-term maturity bond yields declining 0.20 per-cent-0.30 percent (20-30 basis points) and medium-term maturity bond yields being virtually unchanged.

In summary, FY17 exhibited strong and consistent U.S. equity market momentum throughout the period with the broad Rus-sell 3000 index up 18.5 percent, the large-cap S&P 500 index up 17.9 percent and the small-cap Russell 2000 index up 24.6 percent. The broad non-U.S. equity MSCI ACWI ex-U.S. index increased 20.4 per-cent for FY17. Although there was month-to-month currency exchange rate volatility for FY17, the overall currency exchange impact to this broad non-U.S. equity index was only a negative 0.7 percent in reduced performance for FY17 for the non-U.S. eq-uity portfolio owned by BWC. The BWC eq-uities portfolio exhibited positive monthly returns for 11 of the 12 months of FY17, the exception being October 2016. The three intermediate-term bond indexes serving as benchmarks for BWC fixed income portfoli-os returned between negative 0.2 percent to negative 0.6 percent. Whereas the most important long credit bond index represent-ing one-half of BWC fixed income assets at the end of FY17 returned a positive 3 per-cent in FY17.

Portfolio returnsThe BWC investment portfolio in FY17 pro-vided a total return (net of management fees) of 7.5 percent and net investment in-come of $1,878 million. The annualized net return of the BWC investment portfolio for the three-year and five-year fiscal periods ending June 30, 2017 were 5.1 percent and 6.5 percent, respectively. The net return was 6.9 percent for the 10-year fiscal pe-riod ending June 30, 2017. As a result, the FY17 portfolio return of 7.5 percent was above the annualized 10-year portfolio re-turn of 6.9 percent. Each of these returns exceeded the 4-percent discount rate ap-plied to future liabilities.

The BWC fixed income portfolio returned 1.4 percent in FY17 from a combination of bond interest income earned of 3.6 percent and market value depreciation of 2.2 per-cent, resulting from the slight increase in U.S. interest rate levels for the portfolio over the course of FY17. The BWC equity portfolio returned a very strong 19.3 per-cent in FY17. The equity portfolio was com-prised of an 18.8-percent net return for its U.S. equity portfolio and a 20.4-percent net return for its non-U.S. equity portfolio. The growing BWC real estate portfolio com-prised of 21 pooled real estate commingled funds at the end of FY17 provided a net re-turn after management fees of 7.6 percent in FY17, which was an expected modera-tion in performance of this asset class. The BWC real estate strategy has an emphasis on core real estate assets with only mod-erate leverage used. The real estate asset class provided strong but not continuously sustainable net returns of 10.2 percent in FY16, 14.5 percent in FY15 and 11.4 percent in FY14.

Asset allocation revisionsBWC investment consultant RVK complet-ed and presented asset-liability modeling studies on four of the five specialty funds (all but the Self-Insured Employers Guar-antee Fund) during the months of April to July 2015 for review by the Investment Committee. The studies resulted in one as-set allocation strategy change that involved the Disabled Workers’ Relief Fund II (DWRF II) that the Investment Committee and the BWC Board of Directors (Board) approved in October 2015. This change involved revis-ing the DWRF II targeted 34-percent asset allocation from a passive managed inter-mediate-duration benchmarked fixed in-come mandate to a new passive managed long-duration U.S. long government/credit index benchmarked fixed income mandate.

Due to the very long-term DWRF II liabili-ties that have an estimated average dura-tion of 18 years with few liability payments projected over the next 10 years, converting this 34-percent asset allocation target from an intermediate-duration benchmarked mandate to a long-duration benchmarked mandate results in an improved duration matching of DWRF II assets and liabilities. It also results in increased interest income earned. BWC implemented and completed this DWRF II fixed income portfolio tran-sition involving $560 million of assets in September 2016. BWC accomplished this action with the chosen commingled fund manager of this new mandate selected because of the BWC Passive Index Man-agement RFP issued in June 2016 with manager recommendations approved by the Investment Committee and Board in August 2016.

The second investment policy asset alloca-tion change occurring in FY17 involved the Minority and/or Women-Owned Business Enterprise (MWBE) investment program of the State Insurance Fund (SIF). The Invest-

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ment Committee and Board did approve in June 2017 the recommendation of RVK to convert the SIF MWBE investment pro-gram, representing a targeted 1 percent of SIF assets (approximately $250 million) to passive management from active manage-ment (via manager-of-managers oversight). In addition, the Investment Committee and Board approved changing its U.S. equity benchmark from the All-Cap Russell 3000 index to the Large-Cap Russell Top 200 in-dex. The committee and Board made this decision largely due to the consistent un-derperformance of the active management MWBE program compared to the returns of its broad benchmark index (Russell 3000 All-Cap U.S. Equity index) during its five-year period from its April 2012 inception through March 2017.

The Investment Committee and Board also approved in June 2017 the issuance by BWC staff of a RFP for MWBE passive investment management services. This RFP was subsequently issued in late June 2017 with bids received in mid-July 2017. After completing its review of the bids and its due diligence, the BWC RFP Eval-uation Committee recommended a MWBE finalist manager at the August 2017 In-vestment Committee meeting. BWC Board members also heard a presentation of the finalist manager. The Board approved the recommended finalist manager as the new MWBE investment manager for SIF assets. BWC anticipates it will complete the tran-sition of assets from the current 14 active MWBE sub-investment manager accounts to a single passive MWBE investment man-ager account in 4Q2017.

Ten-year fiduciary investment performance auditThe presentation of the BWC Fiduciary Investment Performance Audit conducted during several months by Clark Schaefer Hackett (CSH) occurred at the August 2016 BWC Audit Committee meeting. Ohio Re-vised Code 4121.125(l) requires a fiduciary performance audit of the BWC investment program every 10 years. CSH represented there were zero internal control deficiency findings in their fiduciary audit with BWC showing great improvement in policies, procedures and governance.

CSH presented in its fiduciary audit several suggested improvements directed toward specific policies and procedures. The CIO and Co-CIO presented their responses and recommendations at the December 2016 Investment Committee meeting regarding the five fiduciary audit comments assigned by the BWC Board to the Investment Divi-sion or Investment Committee for review and recommendation. The Investment Committee at this December 2016 meeting accepted each of these respective recom-mendations addressing these five fiduciary audit comments that the CIO and Co-CIO made. These recommendations consisted of two accepted action items that BWC will address and three suggested items that, in the opinion of the CIO, Co-CIO and BWC directors, no action need occur as the BWC investment program is satisfying such suggestions by processes, procedures or reports already in place.

The two approved fiduciary audit action items involve (1) the inclusion of a specif-ic benchmark index for the cash and cash equivalents investment category for all BWC trust fund portfolios and (2) the cre-ation of a written termination policy for underperforming investment managers. The Board approved the specific benchmark for the cash and cash equivalents catego-

ry (Bank of America Merrill Lynch 3-Month Treasury Bill Index) in April 2017. The BWC Investment Policy Statement (IPS) reflects these changes. The Investment Division created the Outside Investment Manager and Investment Consultant Termination Pol-icy in January 2017 with comments provid-ed by investment consultant RVK and BWC Internal Audit.

Portfolio complianceThe investment portfolios complied with the BWC investment policy at the end of each month of FY17 except for three matters. One of these matters involved an external investment manager and two involved a specific asset class slightly exceeding its defined upper limit ownership range per the BWC investment policy. It is also un-derstood that the Investment Division will not complete the SIF MWBE 1-percent as-set allocation investment strategy change from an active to passive managed U.S. equity mandate approved in June 2017 and reflected as the SIF investment policy until sometime in 4Q2017 with the transition of approximately $250 million in assets.

The SIF active managed long credit fixed income portfolio managed by PIMCO had a market value of approximately $1,693 mil-lion on Sept. 30, 2016. PIMCO is one of six SIF active long credit managers. One of the investment guidelines of the PIMCO man-aged long credit portfolio for SIF is a restric-tion whereby below investment-grade high-yield securities are limited to a maximum of 5 percent of total portfolio market value. At the end of September 2016, the market value of high-yield securities owned in the PIMCO managed long credit portfolio of SIF was 5.12 percent of portfolio total market value of $1,693 million or approximately $2 million above the 5-percent limit. The CIO discussed this slight investment guideline violation with PIMCO on Oct. 5, 2016. PIM-CO quickly addressed the violation with the sale of one high-yield bond holding

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on Oct. 6, 2016, that brought the portfolio back in compliance with this below invest-ment-grade limit guideline.

The U.S. equity asset class portfolio alloca-tion for the Coal Workers’ Pneumoconiosis Fund (CWPF) has a 13-percent ownership target with an ownership limit range of 10 percent to 16 percent. It exceeded it upper limit target of 16 percent by 0.03 percent or by approximately $100,000 at the end of December 2016. This development was attributable to the positive return of 4.2 percent for its U.S. equity assets in 4Q2016 combined with the negative 2.7-percent re-turn for its fixed income assets in 4Q2016. Fixed income assets comprised 77 percent of total CWPF assets on Dec. 31, 2016.

As a result, the BWC Senior Officers Review Team Portfolio Rebalancing Committee met to consider a portfolio rebalancing recom-mendation whereby it was also indicated that $280,000 would be needed in cash to fund projected 1Q2017 CWPF operating expenses. After discussion, the committee approved a rounded $300,000 redemption from the CWPF U.S. equity commingled fund. The Investment Division executed the redemption on Jan. 11, 2017. This redemp-tion enabled the U.S equity class of CWPF to be back in compliance and meet opera-tional cash requirements.

Due to the continued outperformance of the U.S. equity asset class compared to the fixed income asset class of CWPF in 1Q2017, the U.S. equity asset class of CWPF again exceeded its 16-percent up-per limit ownership range by 0.5 percent or by approximately $1.8 million at the end of March 2017. The BWC Senior Officer Review Team Portfolio Rebalancing Com-mittee met on April 12, 2017, to consider the CIO’s portfolio rebalancing recommen-dation whereby a targeted amount of funds ($6 million) would be sold from the U.S. eq-uity asset class to achieve an allocation for U.S. equity of 14.5 percent. This percentage was midway between its targeted portfolio

allocation of 13 percent and its upper limit of 16 percent as consistent with the rebal-ancing policy stated in the BWC investment policy statement.

The CIO recommended the Investment Di-vision redeem this $6 million from U.S. eq-uities and reinvest it in each of U.S. TIPS ($3.5 million) and U.S. Aggregate fixed income ($2.5 million) as both CWPF fixed income asset classes were under allocat-ed to their respective target allocations of 40 percent and 39 percent by 1.6 percent and 1.4 percent, respectively, on March 31, 2017. Upon this recommended reinvest-ment of the $6 million to be redeemed from the U.S. equity class, both fixed income as-set classes would be below their respective target asset allocations by only 0.6 percent each. After some discussion, the BWC Port-folio Rebalancing Committee approved this CIO portfolio rebalancing recommendation for CWPF. The Investment Division subse-quently executed this portfolio rebalancing activity for CWPF on April 18, 2017.

Valuation and performanceAs reflected in Columns A and B of the ta-ble provided at the end of this Annual Re-port, total investment assets at fair value held by BWC were $26,795 million on June 30, 2017. This represented an increase of $1,547 million when compared to $25,248 million on June 30, 2016. SIF invested as-sets were $24,704 million at fair value on June 30, 2017. This represented 92.2 per-cent of total BWC invested assets at FY17 year-end. As stated earlier, the total rate of return on invested assets of BWC for FY17 ended June 30, 2017 was 7.5 percent net of management fees. The total rate of re-turn on SIF invested assets for FY17 was 7.8-percent net of management fees.

BWC net investment income was $1,878 million for FY17, comprised of:

• $522 million of interest income;• $104 million of stock dividend

income;• $101 million of real estate

dividend income;• $6 million of miscellaneous invest-

ment income (from corporate and legal actions);

• $1,206 million appreciation in fair value of investments;

• Offset by $61.1 million investment expenses, including $59.8 million in investment manager fees.

Investment manager feesThe investment manager fees for FY17 total-ing $59.8 million represented an annual fee of between 23 to 24 basis points (23/100 of 1 percent) of total average month-end mar-ket value of fixed income equity and real estate assets (all invested assets excluding cash and cash equivalents).

The investment expenses of $61.1 million for FY17, including $59.8 million in invest-ment management fees, compares to $51.4 million of total investment expenses for FY16, including $50.1 million in investment management fees (21 basis points of aver-age month-end investment assets exclud-ing cash). The increase in investment man-agement fees of $9.7 million in FY17 was largely attributable to the following:

(a) An additional $446 million of new capital invested in SIF commingled real estate funds, led by $313 million invested in five new core plus real es-tate funds in FY17 that had no capital invested by SIF in FY16, plus the $125 million PRISA II core plus fund that had only one quarter of management fees in FY16 but a full 12 months in FY17. Total commingled real estate manage-

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ment fees were $27.1 million in FY17 and $19.8 million in FY16, an increase of $7.3 million of which an increase of $5 million was attributable to the sig-nificant increase in the core plus real estate fund portfolio due to commit-ments being funded in FY17;

(b) An increase in active manager U.S. equity management fees (based on month-end market values) of $1.6 mil-lion from $12.7 million in FY16 to $14.3 million in FY17 due to the significant market value increase during FY17 of these portfolios which comprised the 13 active mid-cap and small-cap U.S. equity managers and the MWBE active U.S. equity managers.

Active manager performanceThe six active long credit bond managers in the aggregate provided a combined re-turn for FY17 on SIF assets of 3.70 percent before management fees and 3.54 percent after management fees. This exceeded the long credit benchmark index return of 2.98 percent by 0.72-percent gross of fees and 0.56-percent net of fees. The Investment Division estimates this excess net return of 0.56 percent above the benchmark in the aggregate provided incremental net income for SIF of $40 million in FY17. This estimat-ed incremental net income is based on an average-month-end balance of $7.14 billion in asset market value under management for long credit bonds in FY17. These six ac-tive long credit managers have collectively outperformed the benchmark index by an annualized 0.60-percent net of fees from their inception date of June 1, 2012.

The four SIF active core plus intermediate duration bond managers provided a com-bined total return of 2.11-percent gross of fees and 1.96-percent net of fees in FY17. This exceeded the U.S. Aggregate bench-

mark return of negative 0.31 percent by 2.42-percent gross of fees and 2.27-percent net of fees. Based on an average month-end balance of asset market value of $3.13 billion under management for this asset class, the Investment Division estimated the excess net return of 2.27 percent above the benchmark in the aggregate provided incremental net income for SIF of $71 mil-lion in FY17.

The 13 SIF active mid-cap and small-cap U.S. equity managers provided a combined total return for FY17 of 19.97-percent gross of fees and 19.31-percent net of fees. This exceeded the Russell composite small/mid cap custom blended index return of 18.14 percent by 1.83-percent gross of fees and 1.17-percent net of fees. The nine active mid-cap U.S. equity managers provided a combined total return of 19.13-percent gross of fees and 18.57-percent net of fees for FY17. This exceeded the Russell mid-cap U.S. equity benchmark index of 16.48 percent by 2.65-percent gross of fees and 2.09-percent net of fees. The four-active small-cap U.S. equity managers provided a combined total return of 23.33-percent gross of fees and 22.30-percent net of fees. This trailed the Russell 2000 small-cap eq-uity benchmark return of 24.60 percent by 1.27-percent gross of fees and 2.30-percent net of fees.

Based on an average month-end market value of assets under management of $2.33 billion for these 13 SIF equity managers for FY17, the Investment Division estimated the aggregate net excess performance of these managers to the BWC custom blend-ed benchmark represented an incremental increase of SIF net investment income of $27 million for FY17.

Asset allocation mixThe asset allocation mix of the BWC invest-ment portfolio based on represented fair value on June 30, 2017, was:

• 55.1 percent bonds• 32.8 percent equities;• 10.5 percent real estate;• 1.6 percent cash and equivalents.

This asset mix compares to:

• 58.8 percent bonds;• 31.1 percent equities;• 8.9 percent real estate;• 1.2 percent cash and equivalents

on June 30, 2016.

Asset class transfer activityColumns D, E and F of the table provided at the end of this Annual Report summarizes the asset class transfer activity occurring over FY17. These activities are important to highlight because they had a material im-pact on the respective fair value levels of the bond, equity and real estate portfolios over the course of FY17.

The asset transfer activity shown in Column D reflects that the Investment Division re-deemed a net of $169 million of U.S. TIPS government bonds and $160 million of net U.S. equities to fund real estate invest-ments. The Investment Division made these U.S. equity redemptions as this exception-ally high performing asset class for FY17 was nearing its upper ownership asset al-location target range of 25 percent for the SIF portfolio.

Column E reflects the redemption activ-ity initiated by the Investment Division to provide cash needed to fund operational requirements of BWC. The division em-phasized redemptions from U.S. equity

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accounts in FY17 to fund BWC operations as this asset class had the highest portfo-lio ownership asset allocation percentage above its target allocation percentage. The Investment Division executed a total of $267 million of U.S. equity redemptions to fund BWC normal operational needs. In ad-dition, it redeemed an additional $95 million from active managed U.S. equity accounts (including $70 million from the MWBE port-folio) at the end of June 2017 to be prepo-sitioned to fund the first stage of the Third Billion Back premium rebate program. The $140 million of bond redemptions shown in Column E for operational needs consisted of $90 million of U.S. TIPS redemptions and $50 million of long credit bonds, with these long credit bonds redeemed from one ac-tive manager at the end of June 2017 also to be prepositioned to fund the Third Billion Back Program. There was only one quar-ter-end actual asset class rebalancing ac-tion required during FY17. That action, was for the CWPF account whereby the Invest-ment Division redeemed and transferred $6 million of U.S. equities to bonds.

Bond portfolio values and returnThe total fair value of the BWC bond port-folio was $14,763 million on June 30, 2017, compared to $14,852 million on June 30, 2016. The bond portfolio had net outflows totaling $309 million during FY17 (see Col-umn F of table), resulting largely from (a) $265 million of SIF U.S. TIPS redemptions to fund real estate investments and op-erations and (b) $50 million of long credit bond redemptions for the Third Billion Back Program. Adjusted for these net bond sale outflows, the fair value change of the BWC bond portfolio was an increase of $220 mil-lion, which represented a total return of 1.4 percent for FY17.

The BWC bond portfolio return of 1.4 per-cent in FY17 consisted of bond interest income yielding an average of 3.6 percent and market value decline of 2.2 percent. The bond portfolio in FY17 earned $520 million in interest income and had net real-ized/unrealized losses of $292 million that resulted from interest rate levels for the total BWC portfolio being slightly higher at the end of FY17 compared to the start of the fiscal year.

The SIF long duration credit portfolio that represented 50 percent of total market val-ue of the BWC bond portfolio as of June 30, 2017, was the best performing bond asset class sector for BWC in FY17. The active-ly managed long credit portfolio returned 3.54-percent net of fees in FY17. The sec-ond-best bond asset class performance came from the actively managed SIF inter-mediate-duration U.S. Aggregate portfolio, which provided a net return of 1.96 percent and represented 21 percent of the BWC bond portfolio market value as of June 30, 2017.

The U.S. government portfolio of both long duration U.S. governments (negative 7.05-percent return) and U.S. TIPS (nega-tive 0.65-percent return) dragged down the overall return of the BWC bond portfolio for FY17. These bond asset classes represent-ed 7 percent and 17 percent of the BWC bond portfolio, respectively, as of June 30, 2017.

Bond portfolio quality and durationThe BWC bond portfolio had an average quality of between “AA” and “A” at the end of June 30, 2017, with 35 percent of the fair value of bonds held on June 30, 2017, being U.S. government issues of “AAA” quality (by credit rating agencies Moody’s and Fitch) and “AA” rated (by Standard & Poor’s notable downgrade in August

2011). A total of 31.7 percent of fair value of bonds owned on June 30, 2017, were U.S. Treasury issues, including 18.2 per-cent represented by U.S. TIPS. Issues held on June 30, 2017, rated below investment grade represented 4.3 percent of total fair value of bonds owned. These were owned mostly in the active core plus fixed income managed accounts with a modest amount owned in active long duration credit man-aged accounts.

BWC permits these specified accounts to own such below investment grade bonds within BWC imposed percentage owner-ship limits. The weighted average effective duration of the bond portfolio on June 30, 2017, was 10.7 years. This is based on the individual asset class duration calculations of the BWC investment accounting vendor as represented in the FY17 audited finan-cial statements. This effective duration of the bond portfolio matches well with the projected duration of future liabili-ty payments of the SIF portfolio, which is between 10 to11 years as provided by the BWC Actuarial Division.

Equity portfolio values and returnThe total fair value of the BWC equities portfolio was $8,794 million on June 30, 2017, an increase of $950 million compared to $7,844 million on June 30, 2016. There were net outflows of $522 million (see ta-ble Column F) from the BWC equities port-folio, which were all from its U.S. equities portfolio during FY17. There were $154 million of U.S. equities redemptions to fund real estate investments and $6 million in redemptions to rebalance the CWPF port-folio. There were U.S. equities redemptions of $362 million to fund BWC operations, including $95 million redeemed at the end of June 30, 2017, prepositioned to fund a portion of the Third Billion Back Program. Accounting for these significant outflows,

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the adjusted fair value increase in the BWC total equities portfolio was $1,472 million in FY17. The total net return of the BWC eq-uities portfolio was 19.3 percent for FY17.

The total fair value of the BWC U.S. equities portfolio was $6,112 million on June 30, 2017, an increase of $495 million compared to the fair value of $5,617 million on June 30, 2016. Accounting for the $522 million of net outflows during FY17, the adjusted fair value increase of the U.S. equities portfolio was $1,017 million during FY17 which rep-resented a net return of 18.8 percent. The U.S. equities portfolio represented 69.5 percent of the fair value of the BWC total public equities portfolio on June 30, 2017.

The total fair value of the BWC non-U.S. eq-uities portfolio was $2,682 million on June 30, 2017, an increase of $455 million in fair value compared to $2,227 million on June 30, 2016. There were no inflows or outflows of funds during FY17 involving the passively managed non-U.S. equity commingled fund utilized by each of SIF, DWRF II and CWPF for all assets owned by BWC in this asset class. The BWC non-U.S. equities portfolio had a total net return of 20.4 percent for FY17.

Like FY16 and unlike FY15, the U.S. dollar strengthened slightly (+0.7 percent) from the beginning to end of FY17 versus the composite basket of foreign currency stocks of the BWC owned commingled fund port-folio for this asset class. The BWC passive investment manager replicates the bench-mark index holdings of foreign currency denominated stocks. As a result, the total net return of 20.4 percent was comprised of a 21.1 percent in increased fair value of all local currency stocks owned in this passive commingled fund that was reduced by 0.7 percent due to the modest negative foreign currency translation impact to the U.S. dollar. The BWC commingled fund portfolio owned stocks were denominated in 39 separate foreign currencies as of June 30, 2017. The most prominent currencies

represented in the BWC non-U.S. equities portfolio are the Euro, Japanese Yen and British Pound in that order. These curren-cies combined represented 50.7 percent of this portfolio’s fair value as represented in the FY17 audited financial statements.

Real estate portfolio values and returnThe total fair value of the BWC real estate portfolio was $2,806 million on June 30, 2017, an increase of $553 million in fair val-ue compared to $2,253 million on June 30, 2016. There were additional capital invest-ments totaling $447 million made toward real estate funds in FY17. The Investment Division made new capital investments totaling $313 million toward four core plus real estate funds, with $84 million made toward six value-added real estate funds and $50 million made toward one core real estate fund that completed the fundings of all capital committed toward core real es-tate funds.

There was also one core real estate fund full redemption made in FY17 that totaled $71 million in proceeds, initiated by the In-vestment Division with approval provided by the Board due to significant concerns about the new restructuring strategy of that fund. This core real estate fund full redemption resulted in a realized capital gain of $13.5 million and an internal rate of return of 9.58 percent.

BWC also received $15 million in distri-butions from four closed-end value-add-ed real estate funds in FY17 that are not subject to reinvestment within these funds. As a result, total net inflows towards real estate funds amounted to $361 million (see table Column F) during FY17. Due to this investment activity, the adjusted fair val-ue increase for real estate assets in FY17 is $192 million as reflected in Column G of the table.

The real estate portfolio achieved a total return net of fees of 7.6 percent in FY17. This was an anticipated reduction from the unsustainable high real estate net returns achieved by BWC of 10.2 percent for FY16, 14.5 percent for FY15 and 11.4 percent for FY14. BWC first invested in real estate funds at the end of calendar year 2012, with FY14 being the first full fiscal year of owning real estate assets in the BWC investment portfolio. The $192 million of adjusted fair value increase of real estate assets for FY17 was comprised of $101 mil-lion of dividend income and $118 million of realized/unrealized capital gains, reduced by $27 million of management fees paid.

The total fair value of the BWC real estate portfolio on June 30, 2017, of $2,806 mil-lion, represented 10.5 percent of total BWC invested assets. Seven core funds with to-tal fair value of $2.1 billion, six core plus funds at $479 million and eight value-add-ed real estate funds at $221 million repre-sented the real estate portfolio. On June 30, 2017, core real estate funds comprised 7.9 percent of total fair value of BWC as-sets. Core plus and value-added real es-tate funds comprised 1.8 percent and 0.8 percent, respectively, of total fair value of BWC assets.

Cash and cash equivalentsTotal BWC cash and cash equivalents had a fair value of $431 million on June 30, 2017, (1.6 percent of total assets at fair value) compared to $298 million on June 30, 2016. BWC used an institutional U.S. government money market fund offered by its custodian bank (JP Morgan Bank) during FY17 to earn interest income on its short-term invested assets. This included all overnight cash held by its outside investment managers in all managed separate accounts.

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After the Federal Reserve Bank finally ini-tially raised its target federal funds rate by 0.25 percent in December 2015 from a range of 0 percent to 0.25 percent that existed since the Great Financial Crisis, the Fed raised its federal funds rate three addi-tional times by 0.25 percent each in FY17. These actions resulted in the seven-day yield on the JP Morgan government money market fund to steadily increase from 0.30 percent on June 30, 2016, to 0.85 percent on June 30, 2017. BWC earned $1.9 mil-lion in interest income from cash and cash equivalents (via JP Morgan government money market fund) in FY17. This repre-sented an average month-end net return on daily cash balances of 0.49 percent.

Portfolio interest rate sensitivity BWC investment consultant RVK prepared an updated SIF fixed income portfolio sen-sitivity analysis based on the market value and composition of the SIF bond portfolio as of June 30, 2017. This annual sensitiv-ity analysis examined estimated changes in the aggregate market values of the SIF fixed income portfolio for given hypotheti-cal increases in interest rate levels.

The SIF bond portfolio with a market value of $13.4 billion on June 30, 2017, had an estimated effective duration of 10.8 years on that date. The estimated duration of SIF total liability payments is approximately 10 years. This close matching of the du-ration of SIF fixed income assets with its duration of liability payments is intentional and consistent with the stated investment policy. Because of the long-term nature of its liability payments and its supporting long duration bond portfolio, the SIF bond portfolio market value is quite sensitive to movements in interest rate levels in both directions.

Below are some observations made from the RVK fixed income sensitivity analy-sis on the June 30, 2017 SIF fixed income portfolio. These observations are based on defined interest rate movements during a one-year (12 month) time frame across the entire yield curve from 0 year to 30+ year maturities.

If interest rate levels remain unchanged, the total SIF fixed income portfolio could earn a return of +3.7 percent, resulting in an increase in market value of +$491 million.

If interest rate levels increase by +0.50 percent, the total SIF fixed income portfo-lio could decline in value by -1.5 percent, resulting in a decrease in market value of -$198 million.

If interest rate levels increase by +1 per-cent, the total SIF fixed income portfolio could decline in value by -6.1 percent, re-sulting in a decrease in market value of -$821 million.

If interest rate levels increase by +2 percent the total SIF fixed income portfolio could de-cline in value by -14 percent, resulting in a decrease in market value of -$1,872 million.

Summary tableAs referenced throughout this Annual Re-port, the table that follows provides a sum-mary of asset class valuations, asset class sales to fund operations, transfers of funds involving transition activity, and perfor-mance returns of asset classes of the total portfolio for FY17.

Prepared by: Bruce Dunn, CFABWC Chief Investment OfficerOct. 16, 2017

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(A) (B) (C) (D) (E) (F) (G)($millions)

Asset ClassFair Value 6/30/17

Fair Value 6/30/16

Actual Fair Value Change

Net from Portfolio

Transitions

Net for Operations Fundings

Total Inflow/

(Outflow)

Adjusted Fair Value Change

FY 2017 Annual

Net Return

Bonds $ 14,763 $ 14,852 $ (89) $ (169) $ (140) $ (309) $ 220 + 1.4 %

U.S. Equities 6,112 5,617 495 (160) (362) (522) 1,017 + 18.8 %Non-U.S. Equities 2,682 2,227 455 455 + 20.4% Total Public Equities 8,794 7,844 950 (160) (362) (522) 1,472 + 19.3 %

Real Estate 2,806 2,253 553 329 32 361 192 + 7.6 %Micellaneous 1 0 1 470 470 1 + 0.5 %Cash and Cash Equivalents

431 299 132 (338)

Net Change 0 0 0 1,547

Total Invested Assets $ 26,795 $ 25,248 $ 1,547 *1,885 + 7.5 %

Asset Class Fair Value/Performance SummaryFiscal Year 2017 Ending June 30, 2017

*Represents all fair value Asset Class changes except Cash & Cash Equivalents

Asset Class fair values shown include accrued investment income and Cash includes net trade payables/receivables

Amounts rounded to nearest $1 million

Column DefinitionsC = A minus BF = D plus EG = C minus F

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Outcomes and Savings of the Health Partnership Program

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Table of contentsThe Health Partnership Program ..........................................................................................................................................................................22

How HPP works ....................................................................................................................................................................................................22

BWC Medical Services’ objectives ......................................................................................................................................................................22

HPP rules ..............................................................................................................................................................................................................23

Benefits plan design.............................................................................................................................................................................................24

Managed-care processes.....................................................................................................................................................................................29

Medical providers ................................................................................................................................................................................................31

Medical and vocational service administration support .....................................................................................................................................32

Medical bill processing ........................................................................................................................................................................................37

Selected HPP measurements ...............................................................................................................................................................................37

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The Health Partnership ProgramThe Health Partnership Program (HPP) has operated as BWC’s system for providing managed care services since its implementation in March 1997.

Per Ohio Revised Code (ORC) 4121.44 (H)(3), BWC must publish a report on the mea-sures of outcomes and savings of the HPP. BWC submits the report to the president of the Senate, the speaker of the House of Representatives and the governor. BWC prepares the annual report under division (F)(3) of section 4121.12 of the ORC. BWC’s chief medical services and compliance offi-cer directs the program. The chief medical services and compliance officer coordinates management of the HPP with the chief medical officer and the chief of medical operations, appropriately using and making available a network of providers and man-aged care organizations (MCOs).

How HPP worksWhile determining compensability and pay-ing indemnity benefits, BWC contracts with MCOs to manage the medical component of workers’ compensation claims. MCOs educate employers and injured workers on HPP. They also process First Report of an In-jury, Occupational Disease or Death (FROI) applications. In addition, MCOs help em-

ployers establish transitional/early return-to-work programs. Finally, MCOs process medical bills and make provider payments.

BWC monitors MCOs’ managed care per-formance. For example, it measures the effectiveness of the MCOs’ return-to-work efforts using the Measurement of Disabili-ty (MoD) metric. BWC also measures MCO FROI timing, FROI data accuracy, bill timing and bill data accuracy. Further, it publishes most of these measures in an annual MCO Report Card, available on www.bwc.ohio.gov. BWC encourages employers to view this report before selecting an MCO. Four-teen MCOs serve Ohio’s employers and in-jured workers.

BWC Medical Services’ objectivesBWC strives to ensure prompt, quality, cost-effective health care for injured work-ers to facilitate their early, safe and sus-tained return to work and quality of life. BWC’s Medical Services and Compliance

Division, the Chief Medical Officer Division and the Medical Operations Division coor-dinates health-care delivery through a net-work of certified providers and MCOs. BWC accomplishes this by using management, pricing and payment strategies that bene-fit injured workers and employers. Specific supporting responsibilities include:

• Developing, maintaining and ex-ecuting quality and cost-effective medical and vocational rehabilita-tion benefits plans and associated fee schedules;

• Developing and supporting the appropriate managed-care processes, including contract management and training;

• Establishing and maintaining a quality pool of medical and voca-tional service providers to ensure injured workers have access to quality, cost-effective and timely care;

• Developing and implementing ap-propriate medical and vocational policies, rules and training, which

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address the management from in-ception to resolution of all medical and vocational issues arising out of an allowed claim;

• Evaluating and processing medical bills, guaranteeing proper and timely payment consistent with benefits plan criteria.

During FY17, BWC made positive progress on initiatives undertaken to support exist-ing divisional and BWC enterprise business objectives and strategies. The remainder of this report provides selected highlights of HPP activities and outcomes.

HPP rules Ohio Administrative Code (OAC) 4123-6-02.3 Provider Access to HPP – provider ap-plication and certification criteria

As BWC strives to be a world-class orga-nization, Medical Services took steps in enhancing the provider application and certification criteria rule OAC 4123-6-02.3 where BWC may enter into an addendum to a physician’s provider certification applica-tion and agreement or recertification appli-cation and agreement. In this process, BWC offers appropriate performance incentives to enhance physician proficiency in patient care. This bold step takes BWC among the leaders in health-care delivery by offering such an innovative model. Furthermore, this engages our providers to participate in our system by rewarding the physicians who agree to:

1. Perform enhanced duties as the treatment team leader in the care of injured workers, as set forth in the addendum;

2. Enhanced provider outcome measurement.

BWC’s proposed changes to this rule en-gaged the various stakeholders and asso-ciations by allowing them to weigh in with their thoughts and ideas. Among those in-volved were:

• MCOs;• Health Care Quality Assurance

Advisory Committee;• Ohio Association for Justice;• Council of Smaller Enterprises;• Ohio Manufacturer’s

Association(OMA);• National Federation of

Independent Business(NFIB);• Ohio Chamber of Commerce;• Self-Insured Division;• Ohio Medical and Pharmacy

Board.

Ohio Administrative Code (OAC) 4123-6-32 Payment for Lumbar Fusion Surgery

Medical Services began to look at the re-search, internally and externally, relative to lumbar fusion surgeries. BWC discovered that upon an injured worker having this type of surgery, the results often yielded were often less than optima. Therefore, this rule promotes a comprehensive conser-vative approach toward care for the injured worker. Also, it enhances the informed de-cision-making process and provides state-wide consistency among providers. In this way, we can assure injured workers that the approaches taken amongst those elect-ing to have lumbar fusion surgery will be the same in northwest Ohio as they are in southeast Ohio. Finally, the rule helps so-lidify communication between the surgeon, provider of record (POR), and the injured worker. BWC accounted for this in its fee schedule by addressing the Global Fee for Surgery, so the POR and surgeon are guar-anteed payment six months post-operative-ly since those providers must follow the injured worker during that period.

Initially, BWC developed lumbar fusion guidelines through the Spine Care Sub-

committee and the Health Care Quality Assurance Advisory Committee and unan-imously approved. Also, BWC looked at evidence-based approaches by various systems and payers nationwide. BWC used the Official Disability Guidelines (ODG) as a base upon which we built more robust guidelines. Finally, BWC developed a rule from these guidelines to secure better coor-dination of care and communication among injured workers, providers and surgeons.

BWC’s goal in developing a rule was to:

1. Promote the highest quality of care for spinal fusions;

2. Validate the appropriateness of both the guidelines and rules by subject matter experts (i.e., ortho-pedic surgeon/neurosurgeon);

3. Improve alignment in the expec-tations of all those involved to maximize outcomes and minimize disability.

This rule considers prerequisites to con-sideration of lumbar fusion surgery where the injured worker must undergo 60 days of conservative care, the operating sur-geon must personally evaluate the injured worker on at least two occasions prior to requesting authorization for surgery and the injured worker must undergo a compre-hensive evaluation prior to surgery.

The rule indicates what the injured work-er’s file must contain as it pertains to con-servative care. Not to mention the specific prerequisites prior to authorizing lumbar fu-sion surgery when the injured worker has a history of lumbar surgery or no prior history of lumbar surgery.

The document, What BWC Wants You to Know About Lumbar Fusion Surgery, must be in the injured worker’s file along with the copy signed by the injured worker, the POR and the operating surgeon. We feel this is a best practice when injured workers elect to have lumbar fusion surgeon, and this aids them in their decision making.

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Benefits plan design Prompt, effective medical care is crucial for those injured on the job. Such care is often the key to a quicker recovery, timely return to work and quality of life for injured workers. Maintaining the right benefit plan design and service level reimbursement ensures access to quality, cost-effective service.

Access for injured workers means the avail-ability of appropriate treatment. Having ac-cess to appropriate treatment facilitates faster recovery and a prompt, safe return to work. For employers, it also means the availability of appropriate, cost-effective treatment provided based on medical ne-cessity.

Implementing a sound and effective pro-vider fee schedule is a critical component of maintaining an effective benefit plan. Pursuant to required rules and law and to ensure injured workers access to quali-ty care, BWC establishes discounted yet competitive fee schedules. BWC annually reimburses more than 28,000 providers for medical and vocational services rendered to Ohio’s injured workers. An equitable and competitive fee for the right medical service is essential to maintain a quality provider network across the wide range of necessary provider disciplines.

BWC continuously improves its medical, vocational rehabilitation and pharmaceu-tical services offerings. This results from executing quality methodologies and pro-tocols for revising benefits plans and their corresponding fee schedules. We strive to review all fee schedules annually.

For medical and vocational services ren-dered during Fiscal Year 2016 (FY16), as of early November 2016, BWC paid providers nearly $578.8 million, which is $33.8 mil-lion less than payments made in FY15. For FY17, as of early November 2016, BWC paid $549.3 million, which is $29.5 million less than payments made in FY16. Given

providers have 12 months to bill for ser-vices rendered, the estimated difference in medical spending between FY17 and FY16 will likely be less than BWC’s current cal-culation.

Providers have 12 months to bill for ser-vices rendered, so total outlays for medical and vocational services during FY17 have not yet been finalized. However, as of early November 2017, we predict expenditures of $549.3 million for FY17, which follows a continued downward trend. This is $29.5 million less than FY16 expenditures and $63.3 million less than in FY15.

BWC achieved those reductions while con-tinuing to follow four objectives:

1. To maintain stability in the environment and reimbursement methodologies;

2. To ensure injured workers have access to quality care;

Chart 1

Fee schedule Effective dateBoard presentation and approval periods Fee schedule description

Medical providers and services

Jan. 1, 2018 Aug. 24, 2017

Sept. 27, 2017

Dec. 20, 2017

Covers all medical providers and medi-cal services not covered by any of the other schedules (OAC 4123-6-8)

Projected 2018 impact: 0.18 percent spending increase

Hospital outpatient

May 1, 2018 Nov. 17, 2016

Dec. 15, 2016

Covers facilities for outpatient services (OAC 4123-6-37.2)

Projected 2018 impact: 2 percent spending increase

Hospital inpatient

Feb. 1, 2018 Aug. 24, 2017

Sept. 27, 2017

Covers facilities for inpatient services (OAC 4123-6-37.1)

Projected 2018 impact: 1.84 percent spending decrease

Ambulatory surgical centers (ASC)

May 1, 2018 Nov. 17, 2016

Dec. 15, 2016

Covers surgical procedures not requiring inpatient hospitalization (OAC 4123-6-37.3)

Projected 2018 impact: 3 percent spending increase

Vocational rehabilitation services

TBD TBD Covers all vocational rehabilitation services (OAC 4123-18-09)

3. To promote efficiency in the provi-sion of quality services;

4. To maintain a competitive environ-ment where providers can render safe, effective care.

Those four objectives also continued to guide BWC’s evaluation of Ohio’s reim-bursement methodologies and the devel-opment of recommendations for FY17-18. As a result, BWC made minimum changes to most of the agency’s reimbursement methodologies and protocols. Pursuant to adopted recommendations for FY16 and FY-17, BWC expects total medical and vo-cational services reimbursements to remain relatively stable, depending upon injury mix and services utilization mix and rates. Above is a summary of the fee schedules, their effective dates and projected impacts on the medical and vocational service ex-penditures.

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Chart 2

Medical Services performs routine audits to maintain the integrity of the system, clar-ifying or adjusting benefits and policies as needed to promote the objectives outlined. The hospital review unit audits approximate-ly 1,200 hospital bills annually of which 17 percent, or 200 of those bills yielded an error in payment or an omission of data elements. BWC repriced 11 high dollar hospital bills af-ter the audit resulting in a payment variance of approximately $1.1 million.

The reimbursement and coding department provides policy support to MCOs, BWC de-partments and providers. During the past year, the department addressed 333 inqui-ries. In addition, the department processed another 43 requests for payment above the fee schedule. Payment above fee sched-ule requests offer BWC the opportunity to consider and to provide a second level of authorization for special circumstances when an injured worker has unique needs that require payment above the fee schedule. We also use that opportunity to consider if factors occur often enough that the fee schedule may need adjusted for the items most frequently requested for above the fee schedule consideration.

Ambulatory surgical centers’ (ASC) arthroplasty programBWC continues to evaluate and undertake initiatives to improve access to care for Ohio’s injured workers. As part of the 2016 ASCs’ reimbursement develop-ment activities, BWC ini-tiated actions to develop a certification program that begins allowing phy-sicians to perform certain joint arthroplasties within ASCs. An arthroplasty is a

surgical replacement or reconstruction of a joint. This expansion of services for the ASC setting is an exercise of a unique de-parture from BWC’s normal determination of which services physicians will perform at ASCs. BWC will generally follow Medi-care’s determination of which services physicians can perform in the ASC setting. However, when appropriate, BWC deviated from Medicare in not only reimbursement methodologies but also services available for injured workers.

This willingness to deviate from Medicare when it’s appropriate occurred in 2014 when BWC, with the BWC Board of Direc-tors’ approval, began to allow physicians to perform the service of lumbar microdiscec-tomies in ASC facilities. In 2014, Medicare did not allow physicians to perform that procedure in the ASC setting. It changed that position in 2015.

Guiding BWC’s determination to deviate from Medicare is the fact that Ohio’s work-ers’ compensation population is quite dif-ferent from the Medicare population. The injured worker population is younger and generally in better condition than Medicare patients. This presents a greater opportuni-ty for physicians to perform other types of services safely and effectively in the ASC setting.

BWC will eventually include 10 procedures in the arthroplasty program. As illustrated in Chart 2, physicians perform two of the procedures in hospital inpatient and out-patient settings. Physicians perform the remaining eight only in an inpatient setting.

ASCs provide a safe and convenient al-ternative to having these procedures performed in a hospital setting. Allowing physicians to perform these procedures in

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ASCs will improve access to care by giving injured workers additional treatment op-tions. It also potentially reduces costs for the system. ASCs are a more cost-effective alternative, as they have much lower cost structures than hospitals. In 2011, Medi-care reimbursements as a percentage of hospital outpatient department reimburse-ment were about 56 percent.

For the program’s initial phase, BWC on May 1, 2016, implemented two hospital outpatient procedures — a partial shoulder replacement (CPT 23470) and a revision of a total shoulder replacement (CPT 23473). As of May 1, ASC facilities that BWC certified to perform arthroplasty procedures could also undertake those two procedures.

Phase two of the arthroplasty expansion included two additional procedures, which BWC will permit in the outpatient and ASC settings. BWC included total hip (CPT 27130) and total knee (CPT 27447) in the 2017 implementation of the Outpatient and ASC fee schedule updates effective May 2017. BWC will complete phase three with the fee schedule updates scheduled for May 2018 and will include the remaining six services from Chart 2.

BWC wants to make sure it has adequate requirements in place to ensure physicians perform these procedures safely and effec-tively. Thus, as part of the program setup, ASC facilities will need additional certifi-cation to have physicians perform these services at their facilities. As detailed in the proposed rule, ASCs that apply to par-ticipate in this program must meet the fol-lowing criteria:

• BWC-certified;• Joint replacement program in

place for at least one year;• Target procedure(s) previously

performed at the ASC;• Adequate physician credentialing

criteria;

• Adequate patient selection criteria;

• Reports Medicare and the Ohio Association of Ambulatory Surgery Centers OAASC quality measures (data potentially used to develop quality thresholds in the future).

Medical Services will collect data on the program to ensure injured workers receive quality medical care. The division will re-view the outcomes of each BWC injured worker against the established quality measures for Medicare and the OAASC. It also will track other measures such as return-to-work time frames to determine program impacts. In addition, the Medical Services and Compliance Division will track and monitor overall program outcomes such as:

• Number of and credentials of surgeons performing the service;

• Numbers of participating ASCs;• Volume of services performed;• Individual ASC performance (i.e.,

report cards);• Estimated cost savings;• Feedback and suggestions from

ASCs, physicians, MCOs on work-flows and administrative issues.

If any BWC claimants experience an MCO- or ASC-reported or BWC-identified com-plication or perceived negative outcome, Medical Services will send the case to a BWC clinical review committee and/or the Health Care Quality Assurance Advisory Committee (HCQAAC) to assess the sever-ity of the outcome and recommend action.

Finally, BWC will re-credential and recertify these facilities every two years to ensure these facilities and the treating physicians continue to provide high quality care for our injured workers.

Executing per the direction of the our HC-QAAC, the Medical Services and Compli-ance Division worked with the Ohio ASC

Association and five ASC facility represen-tatives to develop the program parameters. The five ASC facilities involved are:

• Wooster Surgery Center;• Orthopedic Surgery Center• Taylor Station Surgery Center;• Dublin Surgery Center;• Ohio Orthopedic Surgery Institute.

Prosthetics reimbursementMedical Services continued its efforts with implementation of the new prosthetic pric-ing methodology. The rule change addresses issues identified during an audit performed on 319 treatment authorization requests for prosthetic devices. The audit showed sig-nificant differences in turnaround time of processing prosthetic requests associated with by-report reimbursement codes versus codes with set fees. The reason for this extended period is associated with how BWC’s system handles by-report codes.

There are no established by-report codes do not have established fees. They require negotiation with the vendors. MCOs must negotiate with the vendor to reach an op-timal price to pay for the associated pros-thetic device. MCOs try to determine a base from which to start the negotiation. In the absence of any market pricing from which to start their negotiations, MCOs work to get the manufacturer’s invoice for the base device provided to the injured worker. They then negotiate an add-on component to cover not only a prosthetist’s device ac-quisition and prep cost, but also a profit for the prosthetist. However, prosthetists are in many instances reluctant to provide the invoice due to their manufacturers not wanting the information discoverable by other prosthetists. Thus, the back and forth actions between the MCOs and prosthe-tists led to challenges in turnaround times.

To address those issues, BWC on Jan. 1, 2016, we implemented a new prosthetic reimbursement negotiation methodology.

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Since the implementation of this method-ology, Medical Services worked with the Ohio Orthotics and Prosthetics Association and prosthetic service providers to develop a workgroup to assist with developing pol-icies and procedures that will improve the new methodology’s execution. Workgroup members included:

• OSU Orthopedics/Amputee Rehab;• Optimus Prosthetics;• The Ohio Orthopedic and Prosthet-

ics Association;• Hanger Prosthetics; • CareWorks MCO;• 3Hab MCO.

The workgroup agreed to have ongoing quarterly meetings to continue in vetting ideas that improve the delivery of prosthet-ic devices in the face of increasing speed in the changing prosthetic technology land-scape. BWC held five workgroup meetings during the past 18 months. The discussions centered on cost issues, which the pros-thetics providers felt BWC and the MCOs should consider in executing the new ne-gotiation methodology. The group provided input on the BWC Prosthetic Policy alert, which published in the beginning of 2017 that clarifies MCO processes relating to by-report prosthetic codes and bundled items included in the device’s fitting and delivery.

As a means of driving consistency and ex-pediting the approvals (and reimbursement) of high end prosthetics, we compiled a list of questions that would facilitate collec-tion of supportive medical documentation. The workgroup vetted both the upper and lower prosthetic tools, which BWC finalized and released in August 2017. In addition, from concerns raised during the workgroup meetings, BWC’s reimbursement and cod-ing unit resolved billing issues with The Ohio State University and certification is-sues with a prosthetist.

The meetings successfully allowed BWC to create a reimbursement strategy that was responsive to some of the concerns raised by the providers. BWC developed a base methodology and has been working with the workgroup to understand and appreci-ate situations that would result in payment above the fee schedule. This discussion is leading BWC into developing an option for performance based outcome payments to high quality providers.

There continue to be multiple internal meetings and external discussions to clar-ify items such as:

1. What is included in the base service component of furnishing a prosthetic device, and how is that to be quantified?

2. What should be considered as part of the negotiation process?

3. What are the most common by re-port devices that are fit to injured workers and can a price point be determined for those?

Performance based metricsMedical Services’ goal is to include perfor-mance based metrics embedded in each fee schedule methodology. Currently, BWC uses these metrics for reimbursement of the inpatient prospective fee schedule and has done so since 2013. One of those per-formance outcome components was the hospital readmissions reduction program which penalized hospitals that have an excess of patient readmissions after dis-charge. BWC chose in 2013 not to adopt this outcome measure at that time as the program was new and somewhat contro-versial. However, we reevaluated the appli-cability of this measure in 2015 and chose to recommend adoption. Since 2015, BWC implemented all CMS quality metrics for this fee schedule.

Chart 3 below graphically demonstrates the financial impacts to hospitals from not waiving the penalties associated with qual-ity indicators for inpatient care in both 2017 and the proposed impact for 2018.

Chart 3

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Chart 4 includes all relevant quality metrics currently incorporated in the inpatient fee schedule.

Policy coordinationMedical Services initiated a process to de-velop symmetry between the look and feel of reimbursement and coding policy. The Billing and Reimbursement Manual under-went a complete review and update with a scheduled release in FY2018. This manual set forth the relevant policies governing what providers must do to receive reim-bursement for services rendered.

The MCO Policy and Reimbursement Guide is also under review to incorporate more appropriate complementary language refer-ring to the Billing and Reimbursement Man-ual. This manual set forth the policies gov-erning MCO execution of various actions under the HPP system. In many instances, various components of the provider billing and reimbursement manual repeated in-formation found in the MCO policy guide. Addressing the language will reduce the risk of contradictory information between the guides.

During the past year, BWC released four policy alerts. These addressed:

• Drug coding clarification;• Appropriate application of proto-

cols for determining relatedness (EOB776);

• Clarification to prosthetic coding and reimbursement;

• Final clarification for the service code limits in the vocational reha-bilitation fee schedule.

BWC is progressing in the development of comprehensive reimbursement policies for upper and lower limb prosthetics; tele-medicine; detoxification programs; health behavior and risk assessment and interven-tion services and treatment plans involving lumbar fusion.

Pharmacy programBWC’s pharmacy program implemented a formulary for prescription drugs that be-came effective Sept. 1, 2011. When com-paring FY17 with the base FY11 before the formulary became effective, the agency experienced:

• An 82 percent reduction in prescriptions for skeletal muscle relaxants;

• A 56 percent decline in prescrip-tions for opioids (Chart 5);• This represents a drop of 23

million doses of opioids covered by BWC;

• An 85-percent reduction in pre-scriptions for anti-ulcer agents.

In January 2010, the BWC pharmacy pro-gram initiated a monitoring program fo-cused on opioid use among injured workers. The total average opioid load (as measured in milligrams of morphine equivalent dos-es) of injured workers has consistently declined for the past 32 quarters. Average total opioid load per injured worker was 27 percent lower in the last quarter of FY2016

Chart 4

compared with the first quarter CY2010. During this period, the total amount of opioids (as measured by milligrams of mor-phine equivalent doses) covered by BWC during this period has declined by 62 per-cent or 118,000gm. This equates to nearly 250 pounds of opioids that BWC did not cover.

BWC experienced a $49.6 million (-37 per-cent) reduction in total prescription drug costs in FY2017 compared with FY2011.

To improve the prescription review process for providers, in August 2016, the phar-macy program assumed responsibility for processing manual prior authorization re-quests. Response time has improved from an average of 2.5 days to less than four hours.

To enhance the health care of injured work-ers, in October 2016, the pharmacy program enacted a new rule (OAC 4123-6-21.7) that requires the use of best practices as defined in national and Ohio prescribing guidelines when prescribing opioids for longer than 12 weeks. The rule also allows for treatment of opioid dependency without that condi-tion allowed in the claims.

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Chart 5

Managed-care processesIn June 2017, BWC approved the merger of two MCOs, bringing the total number of MCOs under contract with BWC to 14. Throughout any merger process, we give the employers assigned to the non-surviv-ing MCO the option to select a different MCO. This ensures employers maintain their right to select an MCO of their own choice. The surviving MCO inherits the per-formance of the non-surviving MCO, which also ensures that all claims remain actively managed, regardless of whether the claim originated with the surviving MCO or not.

MCO 2016-2017 contractBWC and the MCOs executed a contract that became effective on Jan. 1, 2016, and remains effective through Dec. 31, 2017. The terms of the contract continue to build on the work begun under the most recent BWC-MCO contracts and reflect following BWC goals:

• A greater focus on quality outcomes for injured workers and employers;

• Increased effectiveness of the MCOs in execution of their respon-sibility for the management of the medical portion of a claim;

• Increased effectiveness of the MCOs in execution of their respon-sibility for return-to-work and remain-at-work management;

• Increased collaboration between BWC’ claims staff and the MCOs’ medical management staff in:• Capturing and exchanging

relevant medical documentation and information;

• Reducing redundancy in commu-nicating with medical services providers, employers, and injured workers;

• Increased focus of the MCOs in providing on-site case manage-ment to Ohio’s most seriously injured workers;

• Increased MCOs’ incorporation of innovative approaches to manag-ing medical care; and

• Reduction of redundancy and duplication of efforts.

With the execution of the 2016-2017 MCO Agreement and the adoption of a new On-Site Case Management policy in March 2016, MCOs began performing on-site case management visits with injured workers, their families, and providers in furtherance of the medical management of claims. While the policy developed a strong fo-cus on the use of this tool for catastrophic claims, there was also an acceptance of the utility of on-site visits in non-catastrophic cases when certain barrier to recovery or return-to-work were noted. BWC’s expecta-tions are that effective on-site case man-agement will:

1. Result in an improvement in track-ing of injured worker progress and treatment compliance;

2. Facilitate the sharing among providers of critical information such as medications, diet, and upcoming medical appointments; and

3. Help reduce complications and errors, which cost both time in recovery to the injured worker and increased expenditures to the compensation system.

BWC reimbursed on-site visits at $250 per visit. BWC recognized that not all MCOs might have the infrastructure to execute this task in-house. Thus, BWC implemented a rule change that provided the MCOs the opportunity to outsource this service, once BWC has given approval to the MCO, while maintaining their requirements to medical-ly manage the claim. To gain this approval, the MCOs must submit a detailed request to BWC for consideration.

Between July 1, 2016, and June 30, 2017, BWC authorized payment for 96 on-site case management visits in 95 separate claims.

Also, with the 2016-2017 MCO Agreement, BWC developed a series of exceptional performance incentive programs designed to improve the quality of life for an injured worker, reduce the risks associated with

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medication usage, and/or increase the po-tential for an injured worker to return to the workforce. Under the terms of the contract, MCOs could earn incentive monies for ex-ceptional performance in the following four key areas:

a. Medication management – 15-percent opportunity;

b. Transitional work – 30-percent opportunity;

c. Vocational rehabilitation – 30-per-cent opportunity;

d. Legacy claim management (RTW) – 25-percent opportunity.

The total incentive opportunity available to the MCOs is $3.4 million dollars during each year of the contract. BWC allocates that amount across the four areas based on a consideration of the challenge, im-pact opportunity and optimal end-objective. BWC issued the first Exceptional Perfor-mance payment in February 2017. This covered the measurement period of Jan. 1, 2016, through Sept. 30, 2016. In total, BWC paid over $930,000 across the four measurements.

A summary description below provides ad-ditional insight on each of the measures and the overall impact during 2016.

Exceptional performance measures description1. Medication managementMedication management consists of two primary areas of focus: elderly injured workers and injured workers on high-risk drug regimens. In both instances, an expec-tation to see that injured workers take ap-propriate medications and are monitored to ensure the medications that they take are not harmful or place the injured workers at greater risk of death due to an overdose drive the incentive measures.

For the elderly injured workers, the popula-tion includes those more than 70 years of age who take a medication on the Beers Criteria for Potentially Inappropriate Med-ication Use in Older Adults (2015) as pub-

lished by the American Geriatrics Society. To earn incentive payments for this mea-sure, BWC requires MCOs to intervene with prescribers to either eliminate the medica-tion from the injured workers regimen or provide guidance in the selection of a more suitable medication not on the Beers list.

For injured workers prescribed high-risk drug regimens, the population includes any injured worker who takes four or more of eight therapeutic drug classes known to increase the risk of patient death when taken in combination. To receive incentive payments for this measure, MCOs must work with prescribers to reduce the num-ber of therapeutic classes prescribed to an injured worker to three or fewer or reduce the dosage amounts by 15 percent or more.

Five MCOs earned payment for the Medi-cation Management measure during 2016. The MCOs efforts resulted in a positive change to 386 injured workers’ medication therapy. The efforts included over 160 in-terventions with prescribers to educate and inform the prescribers of the risks noted in each case.

2. Transitional workThe transitional work measurement con-sists of two key areas:

• Increasing the award of transition-al grants to employers;

• Increasing the use of transitional return to work.

Recognizing a need to grow BWC’s Transi-tional Work Grant Program, BWC designed this measure to incentivize MCOs to assist employers to develop complete transitional work grant applications, which BWC may approve and award a grant. With more transitional work programs in place, BWC expects injured workers will have a better path to return to the workforce earlier in the life of a claim and in jobs that can accom-modate any restrictions until the injured worker has recuperated.

The second key component of the tran-sitional work measurement is the use of

transitional return to work, regardless of whether an employer has an approved tran-sitional work grant program. For this mea-surement, MCOs will need to work closely with providers to determine whether an in-jured worker may safely return to work with restrictions. The MCO will then work with an employer to see that an injured worker returns to work in a light duty/transitional work capacity and remains at work for at least 30 days. As experience has shown, the longer an injured worker remains out of the workforce, the more difficult it becomes for him or her to return to work. BWC de-signed this measurement to encourage the safe, effective return to work early in the life of a claim and to remove any barriers that may impede an injured worker’s ability to return to work.

Ten MCOs earned payment for the transi-tional work measurement, which represent-ed BWC awarding 35 new transitional work grants and more than 1,440 injured workers returning to work and remaining at work in a transitional work setting.

3. Vocational rehabilitationUnlike the transitional work incentive, BWC aimed the vocational rehabilitation incentive at increasing the use of voca-tional services when it is unlikely that an injured worker can return to his or her same employer or same job and has been out of the workforce for three years or less. This measurement also has two key areas: ap-propriate decision-making and positive out-comes.

BWC’s noted experience with the use of vo-cational rehabilitation indicates only about 2 percent of eligible claims are referred for vocational rehabilitation. BWC wants to see that percentage increase. Therefore, we designed this measurement to increase the number of appropriate referrals while ensuring staff assigns referrals to a voca-tional rehabilitation case manager, result-ing in the development of vocational reha-bilitation plans. Conversely, BWC does not expect to see an increase in the percentage of pre-plan closures, which would other-

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wise indicate the injured workers referred were not appropriate for using vocational rehabilitation services.

With appropriate claim selection for refer-rals, BWC expects the outcomes in those claims will result in more injured workers returning to the workforce for sustained pe-riods of 30 days or more.

Thirteen MCOs received payment based on their efforts in the vocational rehabilitation measure, with more than 150 injured work-ers returning to the workforce and remain-ing at work for sustained periods of time.

4. Legacy claim return to workAs the last measurement piece on the re-turn-to-work continuum, BWC aimed the legacy claim return-to-work measure at addressing injured workers who have been out of the workforce for three or more years. BWC gives MCOs broad discretion to determine what tools they may best use to assist an injured worker with returning to the workforce. MCOs will receive credit for each injured worker that they successfully return to work for at least 30 days. BWC recognizes these claims may be the most difficult to resolve. However, these claims have the greatest impact on the workers’ compensation system and on the lives of injured workers. The ability to return even one injured worker to the active workforce:

• Reduces the compensation paid;• Improves the opportunities for the

injured worker to increase her or her earnings and receive benefits; and

• Facilitates the injured worker in becoming a productive member of society once again.

For these reasons, this measurement con-sists of 30 percent of the possible payments for all exceptional performance payments.

Although BWC did not issue payments to any MCOs for this measure during 2016, we have recognized that BWC needs a thorough re-examination of the graduated earning methodology around this measure.

BWC remains committed to seeing that injured workers who have been out of the workforce for more than three years remain an area of focus and that these claims con-tinue to be actively managed by the MCOs.

Medical providers Education, outreach and communicationQuality providers meeting the needs of Ohio’s injured workers are critical to man-aging a positive return to work and quality of life. One activity to ensure BWC retains a strong panel of providers is a statewide effort of face-to-face meetings with the provider office staff by going out to BWC offices in provider’s neighborhoods and in-viting new and seasoned office staff to a presentation. There were 10 BWC office meetings scheduled and started in June 2017. Information discussed covered all areas from the point when an injury hap-pens at work, and the worker presents themselves. Discussions are participatory and informal, to allow these front-line col-leagues to share provider concerns and find resources to assist.

BWC communicates regularly with our pro-viders, their professional associations and interested parties. Each month we release a two to four-page electronic newsletter to a provider list serve containing approx-imately 1,800 members and growing. BWC distributes it via email and is our just-in-time method to share pertinent updates of policies, processes, rules or other relevant information to our providers. In addition, we hold biannual stakeholder meetings in the spring and fall that are open to associa-tions and all providers. BWC began offering access to these meetings via webinar in the spring.

Network volumeA continued focus of BWC is to support the HPP goal of having and maintaining a strong, effective network of certified pro-

viders. BWC’s system reflects providers in two ways — certified providers and en-rolled providers. Enrolled providers have rendered service at least once to an injured worker. However, they have not taken steps to become BWC-certified or are ineligible types for certification. Enrolled providers cannot generally render ongoing care to an Ohio injured worker. Certified providers who have completed the BWC provider ap-plication process and have agreed to abide by the Ohio workers’ compensation fees, laws, and policies, can render ongoing treatment to an injured worker. There are 78,709 certified and 25,761 enrolled provid-ers captured in the BWC system.

In FY17, our provider relations business unit managed the following enrollment/certifi-cation provider activities:

• New provider enrollments: 3,297;• Providers that were recertified:

7,928;• Providers whose certification

lapsed and were not recertified: 8,867;

• Providers who were decertified from the system: 5,523;

• Annual number of providers enrolled and certified in FY2017: 9,039.

To further promote our simplicity and ser-vice goals for providers, the provider enroll-ment and credential review areas began a multi-year, multi-step plan for modernizing our provider system. These enhancements will result in online option to our providers for applying for enrollment and certification and demographic updates of their informa-tion. Provider programs that are optional within the HPP will also become available for online sign-up.

The Ohio Auditor’s office completed an au-dit of our current certification processes, with a review of the multi-step plan for re-visions. They recommended to move ahead with this plan. This business modernization will increase access and efficiencies for all our provider customers.

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Ohio Workers’ Compensation Medical & Health Symposium BWC held its second annual Ohio Workers’ Compensation Medical & Health Sympo-sium in March 2017 at the Hyatt Regency Hotel in downtown Columbus. The sym-posium is a free, world-class educational opportunity for health-care professionals. It was a resounding success based on the par-ticipants’ survey results and feedback. The symposium ran concurrently with BWC’s Ohio Safety Congress & Expo, which draws more than 7,000 attendees each year.

The 2017 Medical and Health Symposium Theme is Comprehensive Care for an Injured Worker. BWC designed the symposium to accomplish several goals, including:

• Enhance the partnership between BWC and providers to achieve a common goal of high quality care;

• Enhance awareness and collabo-rative support of BWC’s strategic initiatives;

• Provide access to quality continu-ing education that is convenient, cost effective and geared towards workers’ compensation topics;

• Support the DEP educational requirements.

The symposium offered two full days of continuing education sessions designed for physicians and health-care profession-als involved in the care and management of work-related injuries. There were 13 education sessions offering experts in pain management, physical medicine and reha-bilitation, alternative medicine, chiropractic medicine, neuromodulation, radiology, psy-chology, ergonomics, neurology and ortho-pedic surgery.

Planning is underway for the 2018 Med-ical and Health Symposium scheduled for March 8 and 9 at the Greater Columbus Convention Center. In keeping with Com-prehensive Care for an Injured Worker, the 2018 symposium will provide a provider clinical education track for health-care pro-fessionals and offer continuing education

credits. New this year, based on feedback, BWC’s planning committee added a provid-er staff forum track designed specifically for office support staff. The 2018 symposium is limited to 700 attendees for the provider clinical education track and 125 attendees for the provider staff forum track.

Medical and vocational service administration supportIncreasing the quality of services to injured workers that will drive increased positive outcome has been a key focus for BWC during the past year. That focus underlies BWC’s continued evaluation of the care ini-tiatives such as catastrophic claims, transi-tional work, health and wellness support, health behavior and assessment services and others.

Catastrophic claimantSeventy-three new catastrophic injuries oc-curred during FY 2017 in the state funded population that MCOs managed. This statis-tic does not include catastrophic accidents that resulted in the death of the injured worker. Chart 6, below, shows the types of injuries that occurred during FY 2017.

Case management is essential in cata-strophic claims management. During FY16, BWC established policy that would in-crease the use of on-site case management services and became a required component

Type of injury Number of claims % of total claims

Multiple trauma (fractures, internal organ damage, other) 26 36%

Traumatic brain injuries 24 33%

Amputations, major extremity 17 23%

Spinal cord injuries (quadriplegia, paraplegia) 6 8%

Chart 6

of the catastrophic case management mod-el. Effective medical management of cata-strophic injuries will continue to be a focus during FY 2018 to ensure that Ohio’s most severely injured workers receive well-coor-dinated medical care and management.

To illustrate the level of medical manage-ment required, as well as some of the entrepreneurial approaches undertaken to achieve optimal outcomes, let’s look at a catastrophic injury that occurred in 2014 and remains in active medical management today.

A young male construction worker sus-tained very severe traumatic injuries after an excavator truck ran over him at his work site. The injured worker has undergone more than 38 surgical procedures, including a rare hemi-pelvectomy with virtually com-plete muscle loss on his right side up to the middle of his back. A hemi-pelvectomy is an amputation of one leg together with remov-al of half of the pelvis on the same side of the body. The injured worker was the third person in the United States fitted with a custom designed prosthesis that incorpo-rates a bionic hip and knee joint, multi-axial ankle joint and a dynamic foot. The pros-thesis uses artificial intelligence, motion sensors and wireless communication to learn and adjust to the walking style of its user. It is now nearly three years since the accident occurred. Most people would nev-er walk again with this type of injury, but this injured worker is able to ambulate with his prosthesis 100 yards at a time. He can also drive independently, after completing driving instruction and having modifications made to his vehicle.

33

In last year’s HPP report, BWC provided an overview of the catastrophic claim program pilot that began in January 2013 and con-cluded at the end of calendar year 2016. The objective of the pilot was to evaluate the effectiveness of an outcomes based medical management model. The vendor BWC selected through an RFP process was Paradigm Management Services. As re-ported last year, the pilot concluded in 2016 after BWC medical leadership determined that BWC would not integrate the pilot model into the HPP system. The decision did not impact claims in active Paradigm management. At the end of FY2017, there were 16 catastrophic claims that remained in active Paradigm management. Upon achievement of the clinical outcomes for each injured worker, BWC will transition these claims to the MCO for continued medical management.

Health and Wellness Program Studies have shown that wellness programs reinforce workplace injury prevention and enhance workers’ compensation outcomes. Furthermore, the future of workplace safety involves integrating employee’s protection with health and wellness promotion. In 2017, BWC took steps to design a Health and Wellness Program (HWP) that benefits Ohio’s workforce by:

1. Preventing injuries by improving workforce health;

2. Potentially reducing the severity of an injury;

3. Increasing the speed of recovery;4. Reducing time away from work

due to an injury.

BWC’s intent is to have the ability to study best practices by improved health-care outcomes and impact the health of Ohio’s workforce, specifically those areas that prove to be at high risk.

In June 2017, BWC issued a request for proposal (RFP) through the Department of Administrative Services to contract with a vendor who specializes in population health

management. From this BWC expects a vendor to offer:

1. Health and wellness awareness/education/training;

2. Health risk assessments (HRA) and biometric screenings;

3. Health coaching and nurse advice line;

4. Lifestyle management;5. Disease management.

BWC plans to offer these types of services to two distinct populations:

1. Employers who have 50 employ-ees or less who do not offer a HWP;

2. Injured workers invited to partici-pate in consultation with MCOs/employers.

BWC has identified high risk industries where those individuals may benefit from such a program like. These include:

1. Agriculture;2. Automotive repair and service;3. Construction;4. Firefighters;5. Health-care;6. Manufacturing;7. Police and Public Safety;8. Public Employer;9. Restaurant and Food Service;10. Transportation and Trucking;11. Trash Collection;12. Wholesale and Retail.

BWC will offer funding of up to $6 million for these services that will be provided by a vendor. BWC expects to award the RFP in September 2017. The program will officially kickoff after the first of the year in 2018.

Health and behavioral assessment intervention BWC began to consider ways to take a more comprehensive, holistic approach toward caring for the injured worker. Medical Ser-vices sought to clarify and strengthen ser-

vices geared toward impacting behavioral barriers or poor coping skills that an injured worker may have. These issues ultimately may impede their recovery from their physi-cal injury of the allowed condition. The divi-sion began to meet with several stakehold-ers and associations to educate and inform them on this initiative. Those entities BWC met with were:

• NFIB;• Ohio Chamber of Commerce;• Ohio Association for Justice;• OMA;• Plaintiff’s Council;• Ohio Farm Bureau;• AFL-CIO.

BWC uses health and behavioral assess-ment intervention (HBAI) procedures and treatment protocols to appropriately assess and identify cognitive, emotional, social, behavioral, and psychological factors im-portant to physical health problems and treatments. HBAI services do not focus on mental issues but on factors tied to the physical injury in the claim. Potential risk factors leading to negative behavioral is-sues that may be addressed are:

1. Inadequate coping skills;2. Fear of movement or re-injury;3. Perceptions of injustice;4. Catastrophic thinking.

BWC included HBAI CPT services’ codes in its reimbursement methodology since 2008. Historical claims data shows these services have been rarely used, or in in-stances where providers have billed these codes, used improperly. Thus, the system has failed to properly use the HBAI services in addressing behavioral barriers impacting the injured worker’s recovery of an allowed physical injury. Therefore, BWC will use CPT codes 96150, 96151 and 96152 for assessments and intervention services. The POR will request these services after deeming such as appropriate for the injured worker healing and/or progression in med-ical care.

34

BWC intends to identify and implement pol-icy changes that appropriately outline the application of codes and services as well as provide clear indicators as to who may perform these services. BWC will articulate the benefit and utilization of these interven-tion strategies by outreach and education amongst providers and MCO.

Transitional work grant and bonus programsTransitional work grants provide a 3-to-1 matching grant for employers ranging from 11 to 200+ employees. Employers work with a transitional work developer to develop customized policies and procedures, work with their union and establish a relation-ship with health care providers. Employers received job analyses performed in the job classification they select and training on how to identify appropriate transition-al work tasks workers can perform based on their medical restrictions. In 2016, the BWC Board of Directors approved changes to Ohio Administrative Code 4113-17-55 Transitional work development grant and performance bonus removing the require-ment of a lost-time claim in the employer’s experience to be eligible for a grant. This requirement discouraged businesses from investing in transitional work program and did not align with BWC’s goal and strate-gies of early return to work. Prior to the rule change BWC saw a steady decline in the number of grants paid to employers. Since the rule change the downward trends in transitional work grants paid as indicated in Chart 7 took a reversal with an increase of 55.1 percent from the previous year.

Destination: Excellence contains a bundle of programs that can help employers im-prove workplace safety, enhance injured worker care and save money on workers’ compensation costs. BWC created Destina-tion: Excellence to give employers choices in developing a comprehensive discount program. The program encourages employ-ers to use BWC’s valuable complimentary safety services and implement strategies

that prevents injuries and can help their injured employees recover faster. Since its introduction in July 2012, thousands of employers have enrolled for at least one of the safety or care programs of Destination: Excellence. By doing so, they saved tens of millions of dollars through incentives and possible much more in the future when their premiums decline because of fewer accidents and lower claim cost.

One program in Destination: Excellence is the Transitional Work Bonus Program. This program provides up to a 10-percent bonus for using an established transitional work plan to return workers back to work. It is a

Chart 7

Fiscal year Number of TW grants paid Loss/Gain Percentage change

2012 126 – -–

2013 86 -40 -31.75%

2014 57 -29 -33.72%

2015 49 -8 -14.04%

2016 76 +27 +55.10%

yearlong program in which BWC evaluates all the claims with injury date that occurs during the program period in which the employer participates. Employers must be willing to accommodate the injured work-er’s restrictions with appropriate transition-al work tasks when released to return to work by his or her physician before return-ing full duty. BWC calculates an employer’s performance bonus based upon the per-centage of claims eligible and successful in transitional work. BWC multiplies the percentage by a percentage of the employ-er’s pure premium. On the next page, Chart 8, is a summary of the financial successes employers participating in the Transitional

Chart 8

Destination: Excellence Transitional Work Bonus Program

Bonus periodEligible employers

Employers with eligible claims

Employers receiving a TW bonus

Bonus Amount paid in the period

Largest Bonus paid to employer

Employers receiving over $5,000

Employers receiving 10%

July 2012 PA 858 447 330 $3,086,602.13 $138,284,66 205 225

January 2013 PEC & PA 422 232 187 $1,943,678.91 $48,364.90 131 127

July 2013 PA 837 442 357 $3,749,979.77 $99,768.25 245 261

January 2014 PEC & PA 587 349 291 $3,979,045.57 $123,690.89 201 231

July 2014 PA 731 413 339 $3,135,625.37 $121,059.63 249 245

January 2015 PEC (PA moved to July 2015)

454 259 195 $801,550.65 $47,076.09 80 99

July 2015 PA 1,326 587 490 $4,043,306 $101,703 268 405

Total $16,696,482.39

35

Work Bonus Program have realized since the program began in July 2012.

Employers participating in the program have received substantial rebates on their premium for every year they participat-ed in the program, with many employers receiving the full 10 percent. The results demonstrate a substantial return on their investment for employers who invest in a transitional work grant program and par-ticipate in the transitional bonus program. Chart 9 illustrates the results.

Enhanced Care Program pilotOn July 1, 2015, BWC implemented the En-hanced Care Program (ECP) pilot. The ECP is a natural reflection of an underlying princi-ple and goal of the HPP. That principle and goal is to ensure injured workers receive the right care at the right time that results in an optimal outcome of returning or keep-ing an injured worker at work. The ECP is piloting new operational steps to managing an injured worker’s medical needs.

In each year, approximately 75 percent to 85 percent of Ohio’s workers’ compensa-tion claims are low intensity. This means the injured worker receives treatment and quickly returns to work. For the remaining claims, BWC’s health-care model doesn’t encourage coordination. This often results in delayed care for claimants at a higher cost for employers. During the July 1, 2013, policy year, nearly 80 percent of paid and incurred losses were associated with just 16 percent of the claims.

The ECP Pilot reflects a health-care model that meets the following three prongs:

1. Claimants at risk of poor outcomes should have their care managed by a high-quality POR;

2. The POR should establish a com-prehensive treatment plan that considers the claimant’s work-place injuries and other physical, behavioral and social factors that could impede the claimant’s path back to work;

Employer TW grant

BWC Reimbursement

75%

Employer Contribution

25%TW

BonusTW Bonus Payment

Return on Investment

Paving company $7,800 $5,850 $1,950 10% $60,922.01 3024%

Leasing company $1,620 $1,215 $405 10% $45,962.39 11248%

Construction company $6,300 $ 4,725 $1,575 10% $33,683.88 2038%

3. The MCO supports the POR through coordinating the exchange of information and removing barriers that prevent the claimant from returning to work.

The specific claims covered under the pilot must meet the following criteria:

• Have only a knee condition allowed in their claim at initial determination;

• Have a home address in the pilot region, which includes 16 counties in northeastern Ohio;

• Choose to treatment by a POR participating in the program.

BWC calls PORs participating in the pro-gram enhanced-care PORs. To be eligible, a physician must:

• Practice in or near the pilot region;• Agree to abide by all aspects

of the Enhanced-Care POR agreement;

• Enroll in the program by submit-ting a signed agreement.

After thoroughly examining the injured worker, the enhanced-care POR must sub-mit a comprehensive care plan to the MCO responsible for the claim that addresses the following:

• Allowed conditions;• Other injuries to or issues with

the knee believed to be causally related to the workplace injury;

• Other general health issues or so-cial factors impacting the optimal path back to work.

The POR can begin rendering care (with ex-pectation of appropriate compensation) be-fore receiving MCO approval for services if the services fall within the Official Disabil-ity Guidelines (ODG). Proposed treatment that falls outside of ODG will still require MCO approval.

Key to the effective implementation of the pilot program was the approval and adop-tion of OAC 4123-6-01.2: Provisional Treat-ment Pilot Program. In summary, the rule provides:

• BWC the authority to implement the pilot program and allow one or more MCOs without disclaimer to authorize medical treatment re-imbursement requests for the first 60 days from the initial allowance of a claim. The MCO can take this action for any conditions that fall within the same body part or parts as the conditions initially allowed in the claim. This is provided those conditions are presumed to be causally related to the same industrial injury or occupational disease;

• Allows that action where BWC has not yet allowed the condi-tions in the claim, but is under consideration for allowance or in adjudication;

Chart 9

36

• Maintains the right of an employ-er to appeal a claim, additional allowance or medical treatment reimbursement determination for claims included in the pilot;

• Allows the pilot program for a pe-riod of one year from the effective date of July 1, 2015. It provides the Administrator the discretion to either terminate the pilot early or extend the pilot for up to one additional year.

BWC hypothesizes this approach will ben-efit employers’ workers’ compensation policies by ensuring employees receive high-quality care. This should facilitate a faster return to work while minimizing premium costs. Potential direct benefits include:

• Minimizing lost productivity – more than 2 million days were lost during the July 1, 2013, policy year;

• Shortening the average duration of a lost-time claim, approximately 45 days for the July 1, 2013, policy year;

• Lessening costs for employers, since this model should allow lost-time claimants to move more quickly through treatment and return to work faster;

• Reducing opiate addictions, which afflict nearly one in six lost-time claimants today.

Per the rule, the BWC Administrator in June extended the ECP pilot for another year, which ended on June 30, 2016. An identified critical next step was to have an external party assess the ECP pilot and provide objective insights and strategy on the next steps. Therefore, on July 22, 2016, BWC issued a RFP, and entered into a con-tract in October 2016 with The Ohio State University (OSU). OSU analytical staff exe-cuted a 240-day project with the following deliverables:

A. Review the design of the pilot program and evaluate the integrity of how BWC implemented the pilot program;

B. Identify next step improvement opportunities and strategies to include;i. Identify potential gaps or limita-

tions of the pilot program and provide distinct analysis and specific approaches to improve upon the pilot program;

ii. Provide and/or recommend tools/strategies to make im-provements to the existing pilot program;

iii. Recommend and/or design tools/strategies to effectively capture, collate and evaluate pilot program data to identify opportunities to improve claim-ant outcomes;

iv. Provide recommendations/suggestions to consider in measuring the performance of pilot program physicians;

C. Take the BWC approved recom-mendations from Biii. and Biv. above, and present a model that demonstrates the successful application of the approved recom-mendations and BWC’s ability to maintain the model.

To achieve the objectives above, OSU com-pleted several key study actions. It conduct-ed key participant interviews/surveys with managed care organization (MCO) staff and 150 ECP physicians and led a focus group study involving MCO and BWC staff. Ad-ditionally, they completed a comparative analysis of the ECP-Tx treatment form against other states treatment plan forms and completed a statistical evaluation on the program.

OSU pointed to some key distinctive ECP Program features, which support the course BWC has taken to change how injured workers receive comprehensive

quality care. Key features include the use of financial incentives, physician account-ability through performance measurement, attention to injured worker co-morbidities impacting recovery and return to work, and comprehensive treatment planning.

While OSU provided many deliverables, BWC believes some of the excerpts from the final work product report sum up the program and are key to keep in mind during expansion and years to come.

• “… ambitious attempt by BWC to create novel and innovative pro-cesses for improving the delivery of health care to injured workers.”

• “From a structural standpoint, there is no other program national-ly we are aware of that combines these elements . . .”

• “If done correctly, this can break down some of the barriers that often interferes with achieving true care coordination.”

• “In most respects, the program is achieving its initial goals . . .”

• “. . . OSU consultants recommend that expansion proceeds carefully and gradually, . . .”

• “An initiative like ECP cannot be measured over the course of a year or two. The real results will require continuing effort over a three- to five-year period. . .”

To date, there are 263 physicians enrolled as an ECP POR. During the period of July 1, 2015, to Nov. 9, 2016, the time frame OSU evaluated the program, 777 injured workers met all the program eligibility criteria with 207 of these injured workers classified as a lost-time claim.

During BWC’s evaluation of the program, BWC learned while old habits are hard to break, the ECP approach and tools are sound, and that providers will adjust their approach in providing quality care. While there have been many injured workers benefit from the comprehensive approach

37

of the program, continued education and outreach is important to solidify the desired health-care delivery change.

Based on the success of the program to date and under the recommendation of OSU, BWC will begin to implement the ECP concepts statewide during the next fis-cal year. To facilitate this action, the BWC Board of Directors approved a revision to the rule to allow the ECP Pilot to continue through June 30, 2019.

Medical bill processingADR ProcessingOn Nov. 15, 2016, BWC launched Power-Suite, BWC’s new Core Integration combin-ing BWC’s claim and policy management into one systems. This change also brought about a new alternative dispute resolution 9ADR0 application for the MCOs. BWC

closed the web functionality MCOs used since 2009 Nov. 15. BWC gave the MCOs the necessary security access to create Legal-ADR and Medical-Exam Schedul-ing cases in PowerSuite. MCOs access PowerSuite via an internet interface. This new system has increased the efficiency to track treatment reimbursement decisions that injured works and employers appeal throughout the life cycle of the claim from creation to completion. The case also inter-faces with the Ohio Industrial Commission (IC) to capture the case jurisdiction, venue location, notice of hearing date, proceeding type, date and time of hearings including cancellations and continuances.

The MCO creates the exam scheduling case in the claim when it has been determined an independent medical exam is needed to reach the most appropriate decision. When the MCO creates the exam case through PowerSuite, BWC systematically sends the Claimant Notice of Exam letter to the claimant and parties to the claim regarding details of the exam location, date and time.

Measurement FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Active employers (1) 227,619 227,487 227,370 225,466 225,513 219,840

Active claims (2) 326,264 316,935 306,268 294,326 288,379 262,781

FROI timing (3) 15.61 16.28 14.28 15.18 15.63 16.07

% of FROIs filed within seven days of date of injury (4) 74.40% 74.61% 75.94% 75.17% 74.38% 74.43%

% of claims determined within 14 days of filing date (5) 61.52% 57.88% 57.44% 55.02% 63.71% 71.12%

Bill timing (6)LDOS–MCOMCO–BWCBWC–MCOMCO–Provider

79.9264.486.247.251.95

86.2871.196.537.161.39

76.0161.985.467.181.39

77.1962.865.827.211.31

75.5261.595.477.151.31

75.2761.435.327.211.31

Total regular medical payments (7) 724.395 682,401 640,525 593,827 559,396 529,619

Payments for file reviews and IMEs (8) 19,687 18,930 17,754 17,569 17,410 16,165

MCO fees (9) 168,403 169,815 169,581 170,688 169,229 170,797

Total medical payments, plus MCO fees 912,485 871,147 827,859 782,084 746,035 716,582

Total indemnity payments (10) 1,065,739 1,062,656 1,048,049 1,019,954 1,009,016 925,928

Grand total (11) Benefits paid (Total regular medical payments, plus MCO fees, plus total indemnity payments) 1,958,537 1,914,872 1,858,155 1,784,469 1,737,641 1,626,344

When the professional review is com-plete, the MCO systematically submits the recommended decision to the dispute in PowerSuite. Twenty-four hours later, BWC batches the letter and mails it. This new system has integrated more of the appeal process between BWC, the MCOs and the IC, resulting in greater sharing of informa-tion and improved efficiency.

Selected HPP measurementsAll dollar amounts are shown in $1,000s.The figures below are limited to the HPP.

The table below reflects a historical trend of selected HPP performance data by Ohio fiscal year. Data for certain measurement variables can differ based on the impact of new information received before or subse-quent to the compiling of the data for this report.

38

(1) Average number of employers in an active, reinstated or debtor in possession status assigned to an MCO during the time frames noted.

(2) Average number of active claims (claims with a payment or application submitted to us within a specified length of time) as-signed to an MCO during the periods noted.

(3) Average time, in calendar days, from date of injury to date BWC received a FROI for all FROIs received during the time frames noted for claims assigned to an MCO.

(4) Percent of claims assigned to an MCO where BWC receipt of the FROI is within seven calendar days from the date of injury where BWC received the FROI during the periods noted.

(5) Percent of claims assigned to an MCO determined within 14 calendar days of the filing date where the determination was during the time frames indicated regardless of date of injury or filing date. BWC consid-ers a claim determined when we place it in allow/appeal or disallow/appeal status.

During FY16, BWC expanded the list of di-agnosis codes that are eligible for automat-ic claim adjudication. This contributed to the increased percent of claims determined within 14 days.

(6) Average time, in calendar days, between the last date of service being billed (LDOS) to a check being issued to the provider for bills processed by the MCOs. This does not include bills for prescription drugs pro-cessed through BWC’s pharmacy benefits manager. It is further broken down into the component steps of the process:

• LDOS–MCO: LDOS to MCO receipt;

• MCO-BWC: MCO receipt (for re-view and payment determination) to BWC receipt;

• BWC-MCO: BWC receipt (for re-view and final payment determina-tion) to date monies are deposited into the MCO’s provider account;

• MCO-Provider: MCO receipt of the final payment information and monies to the MCO issuing the check to the provider.

BWC bases the MCO-Provider information on a desk audit of the MCOs’ check issu-ance timing which was updated in CY2014.

(7) Payments for medical services made on claims assigned to an MCO during the time frames noted. Amounts include pay-ments on claims associated with bankrupt self-insured claims assigned to the MCOs. It also includes payments for prescription drugs processed through BWC’s pharma-cy benefits manager. Regular denotes this category includes payments for physicians, hospitals, therapies, diagnostic testing, etc. It excludes payments made for file reviews and independent medical examinations (IMEs) requested to facilitate administra-tive decisions in the claim.

(8) Payments made during the time frames noted for file reviews and IMEs requested to facilitate administrative decisions in the claim.

(9) Payments issued to the MCOs during the time frames noted per the MCO Agreement for their services. BWC bases MCO con-tracts on calendar years. Fluctuations in the amounts paid to the MCOs between fiscal years are attributable to several factors, including:

• Changes in the overall amount available to the MCOs from year to year;

• Timing of different types of pay-ments (administrative payments are monthly, outcome payments are quarterly, and in the past, we made exceptional performance payments annually).

(10) Payments for salary compensation made on claims assigned to an MCO during the time frames noted. This includes pay-ments for temporary total, living mainte-nance, wage loss, lump sum settlements, etc. Amounts include payments on claims associated with bankrupt self-insured claims assigned to the MCOs.

(11) Excludes payments for file reviews and IMEs as these are not benefits paid to or on behalf of an injured worker but are conduct-ed to facilitate administrative decisions in the claim.

39

Division of Safety & Hygiene

40

Table of Contents

Division of Safety & Hygiene financials ........................................................................................................................................................41

BWC’s occupational safety and health services .........................................................................................................................................43

Education and training services .....................................................................................................................................................................43

Safety Council Program .................................................................................................................................................................................43

Ohio Safety Congress & Expo ........................................................................................................................................................................43

Safety grant programs ...................................................................................................................................................................................44Safety Intervention Grant Program ..........................................................................................................................................................44Drug-Free Safety Program Grant .............................................................................................................................................................44Workplace Wellness Grant Program .......................................................................................................................................................44

Loss prevention consulting services ..............................................................................................................................................................44OSHA On-Site Consultation Program ......................................................................................................................................................44Public Employment Risk Reduction Program ...........................................................................................................................................45Specialized field operations consulting services .....................................................................................................................................45

Library services ..............................................................................................................................................................................................45

Quality assurance & technical support unit ..................................................................................................................................................46Industrial hygiene instrument laboratory ................................................................................................................................................46Industrial hygiene analytical laboratory ..................................................................................................................................................46

New DSH initiatives for FY17 and FY18 ........................................................................................................................................................46

Research activities and initiatives .................................................................................................................................................................47

Survey of Occupational Injuries and Illnesses ...............................................................................................................................................48

Census of Fatal Occupational Injuries ...........................................................................................................................................................48

Ohio occupational fatalities for calendar years 2012 through September 2017 ..........................................................................................492016 fatalities according to source of injury/illness (causation) ............................................................................................................502016 fatalities according to industry sector ............................................................................................................................................50

Market value of BWC’s safety services and programs ..............................................................................................................................51

41

Division of Safety & Hygiene financialsBWC’s Division of Safety and Hygiene (DSH) budget appropriation for Fiscal Year 2017 (FY17) was approximately $22.1 million. This figure excludes safety grants, Bureau of Labor & Statistics (BLS) federal grants, National Institute for Occupational Safety and Health (NIOSH) federal grant and Occupational Safety and Health Administration (OSHA) On-Site federal grant.

Additionally, DSH appropriated $15 million for safety grants (safety intervention, work-place wellness and drug-free workplace training). Additional funding came from federal BLS grants amounting to about $191,000, a federal NIOSH grant amount-ing to $200,000 and a federal OSHA On-Site grant amounting to about $1.7 million. The total premium assessment for DSH for FY17 was approximately $15.1 million. Table A describes FY17 premium assess-ments according to employer type.

Employer type Assessments ($)

Private $12,002,826

Public taxing districts $2,003,002

Public state $495,888

Self-insured $554,888

Total assessments $15,056,604

Table A: FY17 DSH premium assessments

As of June 30, 2017, DSH disbursements for safety services and programs amounted to about $20.4 million. This included about $1.1 million in research grants to Ohio higher education institutions. Safety grants disbursements amounted to approximately $12.7 million. Disbursements for the BLS, OSHA On-Site and NIOSH federal grants amounted to about $1.8 million. DSH safety services and programs include:

• Education and training services in 12 statewide locations;

• Eighty-three safety councils across Ohio;

• Ohio Safety Congress & Expo (OSC);

• Safety grants;• Specialized occupational safety

and health, workers’ compen-sation and rehabilitation library services;

• Field consulting services in occupational safety and health, industrial hygiene and ergonomics;

• Public Employment Risk Reduction Program (PERRP);

• BLS Survey of Occupational Inju-ries and Illnesses (SOII);

• BLS Census of Fatal Occupational Injuries (CFOI);

• Ohio Occupational Safety and Health Research Program;

• OSHA On-Site Consultation Program.

Table B provides general description of the DSH disbursements as of June 30, 2017.

Dep

artm

ent

Safe

ty

adm

inFi

eld

co

nsul

tatio

ns

Out

reac

h pr

ogra

ms

and

serv

ices

Educ

atio

n an

d tr

aini

ng

serv

ices

Mee

tings

and

co

nven

tions

(s

afet

y co

unci

ls

and

cong

ress

)

Libr

ary

Tech

nica

l ad

viso

rs

OSH

A

stat

e- fu

nd

mat

ch (1

4%)

PERR

PTr

aini

ng

over

head

(e

xtra

s)

BLS

st

ate-

fund

m

atch

es (5

0%)

Tota

lsSa

fety

gr

ants

NIO

SH

fede

ral

gran

t

BLS

fede

ral

gran

ts (5

0%)

OSH

A

fede

ral

gran

t (86

%)

Tota

ls

incl

udin

g

gran

ts

10-P

ayro

ll $

537,

198

$10

,505

,804

$

553,

899

$668

,309

$4

13,2

87

$231

,123

$

948,

768

$213

,980

$

955,

557

$0 $

110,

618

$15,

138,

543

$0 $

54,1

56

$110

,611

$1,4

99,1

77

$16,

802,

487

10-O

verti

me

$215

$3

,066

$0

$2,

712

$0$0

$0$0

$188

$0

$31

2 $

6,49

3 $0

$0$3

12$0

$6,8

05

13-P

urch

ased

ser

vice

s $

1,56

5 $

208

$30,

911

$58

9,71

5 $2

7,97

0 $1

,661

$

6,98

8 $3

64

$68

4 $0

$6,9

60$6

67,0

26

$0$0

$6,9

60 $

3,27

9 $

677,

265

15-O

ther

per

sona

l se

rvic

es $

27,7

71

$2,

189

$0$5

55

$549

$

3,23

4 $

2,20

8 $

35

$39

5 $0

$0$3

6,93

6 $0

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Tabl

e B:

Div

isio

n of

Saf

ety

& H

ygie

ne d

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rsem

ents

(Dis

burs

emen

ts in

$)

43

Table C: FY17 occupational safety and health services statistics by policy type

Service type Private employers

Public employers

State agencies

Self- insured

Marine fund

Black lung

Undeter-mined Total

Training and education 6,496 397 24 242 0 0 9 7,168

Safety congress 1,998 234 31 305 0 0 26 2,594

Safety council 7,064 935 6 408 0 1 18 8,432

Safety grants* 424 202 0 0 0 0 0 626

Video library 893 107 12 91 0 0 2 1,105

Specialized field operations consulting – visit only

3,322 730 30 220 0 0 0 4,302

OSHA On-Site 530 0 0 0 0 0 0 530

PERRP field consulting – visit only

38 228 6 12 0 0 0 284

* = 662 grants awarded to 626 employers.

BWC’s occupational safety and health servicesDSH provides a variety of occupational safety and health services to Ohio employ-ers and employees. Primarily, DSH’s ser-vices include safety education and training, safety councils, safety congress, safety grant programs, loss prevention consulting services, PERRP, the OSHA On-Site Consul-tation Program and library services. Table C provides general statistics about the num-ber of employers who benefited from these services in FY17.

Education and training services BWC’s safety education and training ser-vices include classroom and web-based safety courses. BWC offers classes covering:

• Industrial and construction safety;• Industrial hygiene;• Ergonomics;• Risk and safety management.

Course completions for classroom, web-based and on-site training totaled 19,408 completions by 12,812 students, repre-senting 7,168 employers. BWC offered 86 courses through 378 classes at 12 locations. Field staff conducted 51 additional on-site classes to 1,166 students representing 179 employers. BWC’s learning management system offered 16 online courses, resulting in 10,212 completions by 6,709 students representing 4,511 employers.

Safety Council ProgramThrough monthly meetings, the Ohio Safety Council Program provides a forum for more than 8,400 Ohio employers for promoting:

• Occupational safety and health;• Loss prevention;• Workers’ compensation cost

control and management;• Health and wellness;• Networking.

BWC co-sponsors 83 safety councils throughout the state, organized through chambers of commerce, trade and manu-facturing associations, safety education providers and other local community orga-nizations.

BWC provided $1,052,250 in subsidies to-ward the direct costs of these councils. In addition, BWC paid $9.6 million (FY16) in premium rebates to employers who met the safety councils’ enrollment, active partici-pation and performance requirements. Be-yond subsidies and rebates, BWC present-ed awards to 4,500 employers through a structured program to recognize companies for their efforts in injury and accident pre-vention. Safety councils held 1,198 meet-ings during FY17.

Ohio Safety Congress & Expo The annual OSC continues to be the largest occupational safety and health state con-ference in the United States. This year’s safety congress hosted a record number of participants, 7,610 individuals, representing

2,594 Ohio businesses. The free, three-day event offered general sessions, workshops, lectures, panel discussions, simulations and demonstrations. Additionally, the event featured an exposition marketplace and a Safety Innovation Awards Program with cash awards for top contenders. The safety congress also co-hosted the second annual Ohio Workers’ Compensation Medical & Health Symposium. This program offered educational sessions on the comprehensive care of injured workers for physicians and health-care providers.

A record-setting 268 product and service providers participated in the exposition. They provided $327,049 in event revenue to BWC. These providers displayed the lat-est advances in safety and health training, equipment, technology and services. Local and national experts presented 198 educa-tional sessions and workshops.

Of those who attended safety congress, 96 percent indicated they were “completely satisfied” or “satisfied” with the event. In addition, 98 percent indicated they intend

44

to participate in the future. Furthermore, 17 types of continuing education credits were available for professional development and professional certifications. These included certified medical education credit for phy-sicians, chiropractors and health-care pro-viders.

Safety grant programsThe primary focus of BWC’s safety grant programs is to assist employers in man-aging the financial costs associated with implementing safety measures to prevent accidents and injuries in the workplace. Another major goal is to establish safety best practices in the field of occupational safety and health.

The grant programs include the Safety In-tervention Grant (SIG) Program, the Drug-Free Safety Program (DFSP) Grants and the Workplace Wellness Grant Program (WWGP). In FY17, BWC awarded 662 grants totaling $12,650,128 to 626 employers.

Safety Intervention Grant Program The SIG Program, now in its 18th year, provides financial assistance to employ-ers to purchase equipment to make their workplaces safer. The program provides 3-to-1 matching funds, up to a maximum of $40,000 per employer eligibility cycle. The total payroll report for the last full policy year determines the eligibility cycle. Employers can only use funds toward the purchase or improvement of equipment to significantly reduce or eliminate the risk of injury. The program requires employers to evaluate their interventions and share their results with BWC.

In FY17, BWC awarded 492 SIG grants totaling $12,273,706 to 471 employers. In comparison, BWC awarded 528 SIG grants totaling $14,576,707 to 511 employers in FY16. This year, 71 percent of the awards went to employers with 100 or fewer em-ployees. Most employers who participated in the program were in the manufacturing (21 percent), townships (14 percent) and construction (13 percent) industry sectors.

To establish industry best practices in oc-cupational safety and health, employers receiving grant funds through the SIG pro-gram must provide two year-end case stud-ies and provide quarterly reports to docu-ment their experience with the equipment purchased through the grant. BWC uses the collected data to establish baseline best practices in safety, advance knowledge in occupational safety and health, and bene-fit other employers with similar hazards at their workplaces.

Last fiscal year, 274 safety grant compa-nies completed their one-year cost benefit analysis report. These companies reported $4,005,226 in annual productivity savings, $478,830 in annual claim cost savings and $1,487,885 in other savings (quality, absen-teeism, etc.). The return on investment on the cost of the interventions based on this reported information is 1.91 years.

Drug-Free Safety Program GrantIn FY17, BWC awarded 30 DFSP grants amounting to $34,698 to 29 employers. In comparison, in FY16, BWC awarded 45 grants amounting to $47,396 to 44 employ-ers.

Workplace Wellness Grant ProgramDesigned to assist Ohio employers with the development and implementation of workplace wellness programs, the WWGP is now in its fifth year. The program’s goal is to control the escalating cost of workers’ compensation claims through addressing health-risk factors. The WWGP’s collateral goals are to reduce health-care costs for employers and improve the health of the workforce.

Participating employers may receive $300 per participating employee during a four-year period, up to a maximum amount of $15,000 per policy. Employers participat-ing in the WWGP must use wellness grant funds to conduct health-risk assessments (HRAs), biometric screenings and subse-quent activities designed to address the re-sults of the HRAs and biometric screenings.

Participating employers receive grant funds after completing the HRAs and biometric screenings, and providing BWC the ag-gregate results of the HRAs and biometric screenings of the participating employees.

During FY17, BWC approved 25 employers to participate in the WWGP, bringing the participating employers’ total to 326. BWC gave $341,725 to 140 employers in the pro-gram during FY17.

Loss prevention consulting servicesBWC’s loss prevention consulting services include:

• OSHA On-Site Consultation Program;

• PERRP;• Specialized Field Operations con-

sulting services in these areas;• Industrial safety;• Construction safety;• Ergonomics;• Industrial hygiene.

BWC’s loss prevention consultants work di-rectly with employers on:

• Hazard and risk assessment and mitigation;

• Safety-management system enhancements;

• The introduction of safety and health interventions in the work-place.

OSHA On-Site Consultation ProgramThe OSHA On-Site Consultation Program is 86-percent funded by a federal OSHA grant amounting to $1,653,900. BWC funds the remaining 14 percent ($271,825). BWC dis-tributes this money during the federal fiscal year.

The program provides highly specialized services to relatively small employers (work sites with fewer than 250 employees) in high hazard/risk private industries. The program also administers the Safety and

45

Health Achievement Recognition Program (SHARP), which is an OSHA cooperative program providing recognition and exemp-tions for small employers with exemplary safety and health management systems. During state FY17, eight SHARP partici-pants renewed their participation in the program and two new employers became participants in SHARP. There are 28 em-ployer sites in the Ohio SHARP.

Program field consultants conducted 1,201 visits to workplaces throughout Ohio be-longing to 530 employers with 141,227 employees. There were 5,079 hazards dis-covered, including 3,996 serious hazards. Employers corrected these serious hazards, and eliminated the risks for injury among employees.

In addition, the program provided on-site safety training for 3,406 employees.

Public Employment Risk Reduction Program Ohio legislation passed in 1992 requires the adoption and application of federal oc-cupational safety and health standards to Ohio public employers and employees. The PERRP enforces adopted safety and health standards. It also assists the public-sector workforce in creating safe and healthful workplaces.

During FY17, PERRP provided 612 on-site services to 284 employers. PERRP conduct-ed 147 enforcement activities, including one fatality investigation. PERRP compli-ance assistance and enforcement inspec-tions resulted in public employers correct-ing more than 972 workplace hazards. This resulted in improved working conditions for Ohio public employees.

PERRP worked with BWC legislative liaison and stakeholder groups on amendments to Ohio Revised Code Chapter 4167. The amendments signed by Governor Kasich on

June 29, 2017, include the following pro-visions:

• Creation of a Safety Partnership Agreement program that will encourage voluntary compliance with adopted standards and recog-nize public employers with high performing occupational safety and health programs;

• Expanded coverage for public safety personnel, specifically firefighters, emergency medical technicians, emergency medical technician – paramedics and correctional officers in local and regional jails;

• Clarification on right-of-entry for risk reduction inspections and investigations;

• Protection of confidential informa-tion provided by public employees that file occupational safety and health complaints.

PERRP assisted 45 public employers en-rolled in the Industry-Specific Safety Pro-gram (ISSP) in completing the program requirements. It also provided enrolled employers with risk reduction services that qualified for 101 ISSP activity credits.

Specialized field operations consulting servicesSpecialized consulting services provided through local loss prevention offices help employers:

• Implement safety programs;• Identify workplace ergonomics,

environmental and physical hazards;

• Develop and execute hazard abatement plans;

• Establish workplace safety and ergonomics committees;

• Use the SIG Program and WWGP.

These field activities include thousands of noise measurements, air quality sam-pling, ergonomic surveys and safety audits

in workplaces throughout Ohio. In FY17, BWC’s field operations consultants made 12,420 visits to Ohio workplaces belonging to 4,302 employers. They provided consult-ing services in industrial hygiene, industrial and construction safety, and ergonomics.

Library servicesThe BWC library offers access to informa-tion, training materials and videos and ex-perienced librarians to help employers with their workplace safety and health activities, workers’ compensation and risk manage-ment, and rehabilitation. In addition, BWC librarians provide training on researching web-based and media resources for safety and health, rehabilitation and public safe-ty information. Additionally, the librarians provide support to the BWC research and development department and researchers. They do this by conducting specialized and detailed literature searches in a variety of literature databases and resources along with preparation of literature summaries. BWC’s library is the only library of its kind in Ohio and among a few in the nation with such specialized services.

Library resources include:

• Safety codes and standards;• Sample charts, forms, templates

and written safety programs;• Chemical safety information;• Occupational disease and injury

management;• Research studies and statistics;• Training resources; • Historical BWC materials.

Employers, local and state government, attorneys, health-care professionals, re-searchers, union members and students, as well as the public and BWC employees use the library services. The library’s book collection is part of the statewide OHIO-LINK library network. This year the library circulated 292 books and 780 periodicals, provided 1,893 articles, and responded to 723 reference search requests.

46

The video library houses a video collection, which includes more than 843 workplace safety and health DVDs and training aids, including many titles in languages besides English. It is a convenient and popular source for Ohio employers to obtain quality workplace safety and health training aids for their employees. The video library has partnered with a streaming video vendor, offering 263 titles in electronic format for Ohio employers. This year, the video library served 1,105 Ohio employers. The video library circulated 5,321 DVDs. In addition, online safety and health streaming titles were streamed by 680 users.

Quality assurance & technical support unitBWC’s quality assurance & technical sup-port unit provides specialized technical support to BWC loss prevention operations staff in these areas:

• Industrial and construction safety and health;

• Ergonomics;• Industrial hygiene.

The technical advisors serve as subject matter experts in establishing, develop-ing and maintaining policy relative to the BWC safety programs and services. These include rebate programs such as the ISSP, DFSP, SIG Program and WWGP. Additional-ly, in FY17, the industrial hygiene technical advisor provided subject matter expertise to the BWC claims policy department that was integral in the development of the claims policy and job aid for the firefighter cancer presumption rule (4123.68(x)).

The unit assists loss prevention operations management staff with reviewing job ap-plications, interviewing candidates and mentoring new safety, ergonomics and in-dustrial hygiene field consultants as well as assuring the quality of loss prevention service delivery and work products. They also arrange professional development events and discipline-specific staff meet-

ings. In addition, they lead special projects and safety initiatives and serve as safety congress liaisons.

This unit also maintains and updates the specific safety requirements codes in the Ohio Administrative Code. In FY17, none of the codes that are applicable to all work-shops and factories were scheduled for review; the rule review cycle will resume in late FY18. The unit partners with internal and external stakeholders to disseminate information on new advancements in safe-ty research, consulting tools, standards and technology. Finally, the technical advisors provide technical support for the develop-ment and revision of:

• The BWC safety services website;• Safety publications;• Training courses;• Presentation modules.

The technical advisors also teach several occupational safety, ergonomics and indus-trial hygiene courses.

Industrial hygiene instrument laboratoryBWC’s industrial hygiene instrument lab-oratory provides a variety of support ser-vices to BWC consultants. The laboratory handles the inventory repairs, maintenance and calibration of more than 900 measure-ment devices and tools used by DSH staff. Last year, the laboratory performed certified calibration of 799 devices, with estimated savings of approximately $143,100.

Industrial hygiene analytical laboratoryBWC industrial hygienists, working with an accredited external laboratory, coordinated 12,225 specialized tests of air quality sam-ples to measure workers’ exposures to a variety of chemicals at 664 Ohio workplaces.

New DSH initiatives for FY17 and FY18DSH has several new initiatives beginning in FY17 and FY18 to continue to improve occupational safety and health services to Ohio employers and employees.

In February of 2017, BWC integrated our safety and health operations in the field into DSH. This change brings our organi-zational structure in line with the best op-erational practices of insurance carriers by aligning our operations according to func-tionality and the needs of our stakeholders: the workforce, injured workers and employ-ers. The reorganization optimizes DSH’s in-frastructure and increases DSH’s efficiency and agility by allowing loss prevention op-erations employees to focus exclusively on occupational safety and health.

In March 2017, BWC became a NIOSH Total Worker Health® (TWH) Affiliate. The mis-sion of the NIOSH TWH Affiliate Program is to foster an integrated approach to pro-tecting and promoting worker well-being through collaborations with academic, labor, nonprofit and government organiza-tions. BWC has committed to advancing this mission by:

• Advancing the principles, policies and practices of the NIOSH Office for TWH;

• Participating in activities to support the NIOSH Office for TWH such as conducting joint research, developing programs, interven-tions and other work products, collaborating on seminars, meet-ings, trainings and educational events, creating and disseminating publications and other communi-cation products, cross-promoting individual and joint activities, and engaging in related activities;

• Meeting with NIOSH no less frequently than on an annual basis to review responsibilities, current activities and progress;

47

• Engaging in other activities as identified and mutually agreed upon by BWC and NIOSH.

Also in FY17, DSH implemented the Di-vision of Safety & Hygiene Fellowship Program. The objective of this program is to provide recent college graduates in the fields of occupational safety and health, engineering, industrial hygiene, and/or or physical/natural sciences an opportunity to receive on-the-job training to build a pro-fessional career in the fields of occupation-al safety and health, ergonomics, industrial hygiene and risk management. BWC hired six fellows in FY17. The fellows are under-taking several different tasks including:

• Receiving hands-on training on the operation, maintenance and cali-bration of various equipment and tools used by DSH consultants;

• Completing training classes;• Working side by side with DSH

consultants during on-site inspec-tions and evaluations of occupa-tional safety and health hazards in workplaces;

• Preparing and drafting preliminary consultation reports of on-site inspections and evaluations;

• Engaging in various research and operational projects undertaken by DSH;

• Participating in the preparation and instruction of training courses;

• • Participating in steering committees for the BWC Safety Council Program and program committees for the OSC;

• In the second year of their employment, DSH will require the fellows to select a focus area in occupational safety, ergonomics or industrial hygiene for the remain-der of the fellowship duration.

In FY18, on July 1, 2017, BWC rolled out two new grant programs: The Firefighter

Exposure to Environmental Elements Grant (FEEEG) and the Employers Working with Persons with Developmental Disabilities Grant (EWPDD). BWC has set aside $2 million each for the FEEEG and EWPDD programs.

BWC uses the FEEEG Program to partner with Ohio employers to minimize exposure to dangerous environmental elements. The program is available to eligible Ohio employers who wish to purchase diesel exhaust systems, extractors/washing ma-chines for turn-out gear, hoods with barrier protection and washable gloves for optimal protection against these exposures.

BWC uses the EWPDD Grant Program to assist Ohio employers with ensuring the safety of their staff when carrying out the services they provide to developmentally disabled children and adults. The program is available to eligible Ohio employers who wish to purchase training and/or equip-ment to substantially reduce or eliminate injuries or illnesses associated with work-ing with developmentally disabled children and adults.

Also for FY18, BWC will invest $2 million to create a statewide safety awareness and educational campaign for slips, trips and falls, overexertion and motor vehicle accidents, which are responsible for more than 60 percent of workplace injuries. The effort will include online and mobile train-ing resources that address safety at home and at work.

Additionally, for FY18, BWC plans to roll out the Health and Wellness Program. BWC will invest $6 million annually in a robust health and wellness program for Ohioans working for small employers (50 or fewer employees) in specific high-risk industries, as well as injured workers with certain types of injuries. BWC will contract with a third-party vendor to provide services such as smoking cessation programs, health coaching and chronic disease management.

Research activities and initiativesDSH administers the Ohio Occupation-al Safety and Health Research Program launched in FY15. The program is a compet-itive research program. It emphasizes maxi-mizing the impact of research efforts in the areas of occupational safety and health on the overall safety, health, productivity and competitiveness of Ohio’s workforce. BWC modeled the program, with minor modifi-cations, after the NIOSH National Occupa-tional Research Agenda (NORA). The pro-gram provides funding for research projects up to $250,000, per project. BWC limits the duration of each research project to 12 to 24 months.

The program is an open competition for researchers in Ohio’s not-for-profit higher education institutions and research organi-zations. BWC funded two projects in FY 17. These included projects involving:

• Biomechanically-determined risk limits for one-handed lifting exposures;

• Implementing a series of micro and macro-ergonomic interven-tions to reduce work-related musculoskeletal disorders.

In FY17, BWC and NIOSH continued to col-laborate on projects and use their respec-tive strengths and resources on projects that will improve public policy. BWC and NIOSH will achieve this goal by using work-ers’ compensation information as part of research that will inform better decisions about occupational safety and health risks and workers’ compensation systems.

During FY17, BWC renewed a grant from the Centers for Disease Control and Pre-vention to expand efforts to study injury trends using workers’ compensation data. The cooperative agreement compiles, ana-lyzes and disseminates workers’ compen-sation data to promote the prevention of

48

occupational injuries, illnesses, fatalities and exposures to hazards within Ohio and throughout the nation.

BWC and NIOSH co-authored a journal article published in September 2016 in the American Journal of Industrial Med-icine titled, “Development of methods for using workers’ compensation data for sur-veillance and prevention of occupational injuries among state-insured private em-ployers in Ohio”. The article demonstrates BWC, NIOSH and other insurers can use workers’ compensation claims data linked to employment data to prioritize industries for injury research and prevention activities among state-insured private employers.

BWC and NIOSH collaborated to develop a Safety Pays in Mining tool to demonstrate how avoiding occupational injuries impacts the success of your company.

Additionally, several safety and health ex-perts from BWC serve on NORA sectors and cross-sector councils. NIOSH is the steward of these councils. NORA councils are a national venue for individuals and organizations with common interests in oc-cupational safety and health topics to come together.

Survey of Occupational Injuries and IllnessesBWC renewed the cooperative agreement with the BLS for the SOII for FY17. The sur-vey is the only comprehensive measure of work-related injuries and illnesses in U.S. workplaces. The agreement allows BWC to continue to administer the survey for Ohio.

This federally mandated survey was devel-oped as part of the Occupational Safety and Health Act of 1970. The BLS provides 50 percent of the funding and BWC provides 50 percent.

The survey provides information on the number and frequency of non-fatal injuries and illnesses occurring in workplaces. It

also provides demographic and case char-acteristics information for serious injuries requiring time away from work. The BLS uses the information gathered through this report to generate state and national benchmarks for incidence of occupational injuries and illnesses. The report is a valu-able research tool for the development of prevention policies and training toward im-proving safety standards in workplaces at both state and national levels.

The survey gathered data on occupational injuries and illnesses for the 2016 calendar year. The BLS randomly selected 4,600 es-tablishments (both private and public) as a representative sample for the entire Ohio workforce. The survey achieved a 99-per-cent response rate with more than 5,700 cases of occupational injuries and illnesses reported. This number includes a sampling of cases with job restriction and transfer and all recordable cases involving days away from work. BWC coded all reported cases using the Occupational Injury and Illness Classification System and the Stan-dard Occupational Classification System for comparison and analysis.

The BLS and BWC will make comprehensive statistics and publishable data available to the public later this year. In preparation for FY18 survey cycle, the BLS pre-notified 4,600 establishments of their inclusion in the SOII program. The FY18 survey will gather occupational injury and illness data for the 2017 calendar year.

Last year, the program successfully pub-lished the survey statistics available from the BLS survey for calendar year 2015 for Ohio. Results from the survey for the past two years show lower incidence rates of occupational injury and illness in Ohio in comparison to the nation and Ohio’s neigh-boring states.

To ensure accessibility of the survey data, BWC created a web page for the program at www.bwc.ohio.gov. BWC updates the

page with educational articles on safety and prevention using results from the sur-vey.

The department facilitated two education-al presentations related to the SOII at the 2017 OSC. The first presentation provided information on occupational injury and ill-ness statistics in major private industry sectors in Ohio from 2012 to 2015 using data from the SOII and other sources. The second presentation provided information on injury and illness statistics in the Ohio health-care industry. BWC will offer these presentations and more at the upcoming 2018 OSC.

Census of Fatal Occupational Injuries BWC acquired a grant from the BLS to administer the CFOI program in Ohio for FY17. The grant is under a cooperative agreement between BWC and the BLS re-quiring commitment from both agencies to split the cost of administration equally with expectation that all defined deliverables within the agreement be met. CFOI is an occupational health and safety surveillance program designed to identify, verify and meticulously document important variables associated with cases of fatal occupational injury toward providing robust and aggre-gated statistics. The program produces comprehensive, accurate and timely counts of fatal workplace injuries at state and national levels. CFOI runs on federal-state collaborative efforts and has been imple-mented in all 50 states and the District of Columbia since 1992.

CFOI is the most complete count of fatal occupational injuries in the United States. The census uses multiple data sources such as death certificates, workers’ compensa-tion reports, media reports and federal and state agency administrative reports to iden-tify and verify fatal occupational injury cas-es. BWC obtains information about each workplace fatal injury such as deceased worker’s occupation and other characteris-

49

tics, equipment involved and causation vari-ables by cross-referencing multiple sources of information. BWC substantiates all cas-es included in the census with at least two independent source documents or a source document and a follow-up questionnaire.

The BLS designed the census to provide information on rate and number of fatal traumatic occupational injuries occurring in workplaces across the nation. It also provides demographic and case character-istics details on fatal workplace injuries. The BLS uses information acquired through the census to estimate benchmarks for in-cidence of fatal injuries in workplaces at state and national levels. It also provides industry and occupation-specific informa-tion that serve as tools for developing and evaluating occupational safety standards, preventive interventions, policies and train-ing toward improving safety in workplaces across the nation.

The FY17 census gathered data on all cases of occupational fatal traumatic injuries for the 2016 calendar year. The program scope includes the entire workforce population in the State of Ohio and the nation. It also includes cases of fatal occupation inju-ries that occurred in Ohio within this time frame. BWC coded all identified cases us-ing the Occupational Injury and Illness Clas-sification System and the Standard Occupa-tional Classification System for comparison and analysis. The BLS and BWC will make comprehensive statistics and publishable data available to the public later this year.

Results from this program expand BWC’s research effort into occupational safety and health. It is also a resource for assess-ing workplace safety in Ohio. In addition, it offers opportunities for identifying areas to further focus preventive efforts. The pro-gram is renewed annually and is expected to continue into the foreseeable future.

Ohio occupational fatalities for calendar years 2012 through September 2017At the time of this report, BWC had received reports of 59 work-related injury fatalities (excluding occupational disease-related fatalities) for calendar year 2016. Of those:

• Forty-one workers were injured and died on the day of injury;

• Thirteen workers were injured but died on a later date in calendar year 2016;

• Five workers were injured in a previous calendar year and died in calendar year 2016.

There were also 31 occupational disease (OD) related fatalities in 2016.

Below is an analysis of work-related injury fatalities reported to BWC during calendar years 2012 through September 2017. The focus of this analysis is on fatalities that occurred in 2016. The analysis does not include fatalities that were the result of occupational illnesses/diseases.

Figure 1 provides a general overview of occupational injury fatalities in Ohio (ex-cluding occupational disease fatalities) for 2012 through September 2017. For each year, the chart depicts the number of fa-talities where the worker died on the date of injury. It also shows fatalities where the worker was injured and died on a date after the date of injury during the same year. In addition, it illustrates fatalities where the worker died in that year from injuries sus-tained in an earlier year.

Generally, occupational injury fatalities in Ohio have followed a downward trend during the past several years. After about a 10 percent drop from 2012 to 2013, a slight increase occurred from 2014 to 2015, and a larger decrease followed in 2016. Fatal-ities in 2016 are about 57 percent lower than 2012. This decrease is consistent with the national trend. Most of the fatalities in 2016 were immediate with injury date and death date being the same.

Figure 1: Ohio occupational injury fatalities (excluding occupational disease fatali-ties) from calendar year 2012 through September 2017

50

2016 fatalities according to source of injury/illness (causation)Figure 2 provides a summary of the prima-ry causations for the fatalities from occu-pational injuries and diseases reported to BWC for calendar year 2016. The chart de-picts the number and percentage of fatali-ties for 2016 grouped by causation.

Transportation-related accidents continued to be the leading cause of non-OD work-re-lated fatalities in 2016, decreasing from 49 in 2015 to 29 in 2016, a 41 percent de-crease. Eighteen workers died in motor ve-hicle accidents as a driver or passenger. Ac-cidents related to forklifts or construction equipment resulted in four fatalities. Four workers (pedestrians) died in accidents when a motor vehicle struck them. Three workers died when a vehicle struck them while working on or by a roadway.

Compared to 2015, fatalities from slips and/or falls decreased from 18 in 2015 to 12 in 2016. They remained the second leading cause of non-OD work-related fa-talities. Other leading causes of fatalities in 2016 included: victims of workplace vio-lence (seven) and struck by an object (six).

The remaining coded causations for calen-dar year 2016 non-OD work-related fatali-ties are as follows:

• Two workers died because of entrapment or engulfment;

• Two workers died because of being caught in, on or between a machine or machine parts;

• One worker died because of strik-ing against an object.

Occupational disease-related fatalities de-creased from 41 in 2015 to 31 in 2016.

2016 fatalities according to industry sector Figure 3 depicts the number of fatalities by industry sector from 2012 through Septem-ber 2017.

The industry sector with the most fatalities in 2016 was the construction sector with 16 fatalities. This is eight less fatalities com-pared to the sector’s fatalities in 2015. The primary cause was transportation-related accidents.

Figure 3: Fatalities by employer industry sector from calendar year 2012 through September 2017

Figure 2: Calendar year 2016 fatalities by causation

The service industry sector had the second highest number of fatalities (12) in 2016, nine less fatalities than in 2015. The lead-ing cause of fatalities in the service sector was motor vehicle accidents.

The transportation industry sector had the third highest number of fatalities in 2016 with nine fatalities. This is five less fatal-ities than the transportation industry sector had in 2015.

51

Table D: Estimated market value of BWC’s occupational safety and health services (FY17)

Employer typeField

consulting Library

Education and

TrainingSafety

congressSafety grants PERRP On-Site

Industrial hygiene lab

testing Total

Private (PA) $9,901,328 $1,049,178 $1,963,705 $1,578,000 $7,354,553 $89,880 $1,837,750 $123,173 $23,897,567

Public taxing district (PEC) $2,219,214 $149,149 $186,100 $266,500 $5,295,575 $708,750 $2,664 $8,827,952

Public state (PES) $624,255 $84,551 $289,415 $410,500 $220,065 $2,008 $1,630,794

Self-insured $360 $118,301 $350,625 $613,000 $56,550 $38,430 $1,177,266

Not defined $0 $52,332 $26,435 $937,000 $0 $6,910 $1,022,677

TOTAL $12,745,157 $1,453,511 $2,816,280 $3,805,000 $12,650,128 $1,075,245 $1,837,750 $173,185 $36,556,256

Market value of BWC’s safety services and programsTable D provides the estimated market value of BWC’s occupational safety and health services based on number of service hours and type of services provided according to private-market fee schedules.

The estimates of the market value of DSH’s services and programs described in Table D do not include the potential market values associated with grants for funding the Ohio Occupational Safety and Health Research Program.

52

Ohio Industrial Commission

53

Letter from the ChairmanI am pleased to present the Ohio Industrial Commission’s (IC) Annual Report for Fiscal Year (FY) 2017.

The IC is committed to being a leader in customer service and fiscal accountability. Our approach has shown it is possible to put the customer first while lessening the financial burden of those who pay into Ohio’s workers’ compensation system. Throughout FY 2017, our agency pro-vided injured workers and employers with timely, impartial resolution of their workers’ compensation appeals while implementing innovative ideas at a minimal cost.

Fiscal year highlights include:

• Budget stability continued as expenditures for the FY 2017 budget totaled $46 million, marking the fifth year in a row that expenses have remained between $45 million and $46 million despite mandated pay increases and rising fringe rate costs;

• Maintained a consistent Administrative Cost Fund rate environment whereby assessed rates remained unchanged for two risk groups while decreasing for one risk group and increasing modestly for another;

• Decreased mandamus complaints filed in the Tenth District Court of Appeals by 10 percent;• Exceeded the statutory threshold for expenditures directed toward certified Minority Business Enterprises for the seventh

consecutive year with a 32.9 percent rate;• Completed a substantive update of the former Hearing Officer Manual, now named Adjudications before the Ohio Industrial

Commission in August 2016;• Implemented an IBM Case Manager solution for the hearing officer and the claims examiner functions for the hearing

process;• Created a document upload feature in the Industrial Commission Online Network (ICON) and made it available to all

representatives. Nearly 30 percent of hearing documents submitted using this function;• Added new functionality to ICON to allow representatives to download hearing documents in bulk. This allows representa-

tives to review documents without being signed on to ICON;• Upgraded the security camera system in the public areas of the 12 IC offices and the warehouse;• Renovated the Columbus Regional Office located on the seventh floor of agency headquarters and completed the carpet,

paint and logo renovation for the Cambridge District Office;• Installed new directional signs, new office nameplates and agency logo in every IC office.

Our accomplishments will continue into the next fiscal year because our agency values providing excellent service to our customers while never forgetting the importance of responsible financial stewardship. I am privileged to lead an agency filled with dedicated public servants who passionately care about the well-being of their fellow Ohioans.

In the future, our customers can expect to receive the top-notch service they have come to expect of the IC. Injured workers and employers can be confident that they will continue to receive a swift and impartial resolution to their workers’ compensation appeals. To achieve this goal, the IC will continue to implement new technologies efficiently while seeking new ways to simplify our processes.

Sincerely,

Tim BainbridgeChairmanOhio Industrial Commission

54

About the ICThe IC conducts more than 113,000 hearings each fiscal year. Most of these hearings take place within 45 days of the original claim appeal. That means you may expect first-class customer service as the IC provides a forum for appealing BWC and self-insuring employer decisions. Since 1912, the IC has resolved issues between parties who have a dispute in a workers’ compensation claim. With each claim, the agency is dedicated to offering information and resources to help customers navigate through the appeals process.

The IC conducts hearings on disputed claims at three levels: The District level, the Staff level, and the Commission level. The Governor appoints the three-member Commission, and the Ohio Senate confirms these appointments. By previous vocation, employment or affiliation, one member must represent employees, one must rep-resent employers and one must represent the public.

During this fiscal year, Chairman Thomas H. Bainbridge represented the employees; Jodie M. Taylor represented employers; and Karen L. Gillmor represented the public.

FY 2017 highlightsIn addition to the Commissioners, there are 85 hearing officers — all attorneys — in five regional and seven district offices throughout the state. In FY 2017, the IC heard 113,829 claims. District hearing offi-cers (DHO) heard 79,386 claims. Staff hear-ing officers (SHO) heard 34,209 claims and the Commission heard 234 claims.

The IC consistently achieved a high success rate in adjudicating claims well within the periods mandated by law throughout this fiscal year. From filing date to hearing date, district level (first level) hearings averaged 31 days. Staff level (second level) hearing appeals averaged 33 days. Both averages are well below the 45 days mandated by law. The statistics of filing date to mailing date were just as positive. For the district level, filing date to mailing date was 35 days on average. For the staff level, it av-eraged 37 days.

The Industrial Commission Online Net-work (ICON) is the primary reason for our continued success because it has made it easy to file appeals online. There were 52,697 first-level motions and appeals filed on ICON this fiscal year. There were also 52,189 second-level (or above) appeals filed on ICON during the fiscal year.

Customer Service received and responded to 1,001 Ask IC submissions during this fiscal year. The department also sched-uled 1,198 interpreters for injured workers

hearings. In addition, our toll-free customer service line and two local customer service lines received 9,130 calls this fiscal year. Staff personnel assisted 20,213 people at our Columbus office. Customer Service also processed 145,966 documents.

Commission performance highlights – FY 2017Formal hearings and administrative reviews account for most of IC activity. In FY 2017, the IC made approximately 186,702 deci-sions on issues arising from workers’ com-pensation claims.

During FY 2017, the IC performed 72,856 administrative reviews and heard 113,846 claims at all adjudicatory levels. Claims heard is inclusive of hearings at the DHO, SHO, Deputy and Commission venues. Administrative reviews incorporate issues that do not initially require formal adjudi-

55

cation via hearing (Hearing administrator issues, Commission requests, cancellation requests, etc.). These issues receive review and processing at the claims examining, word processing and hearing officer levels. However, routine production reports under DHO or SHO dockets do not typically reflect them. These issues may subsequently re-sult in a hearing under the normal adjudi-catory process. Respective hearing venues would reflect these issues.

DHO hearing volume accounted for 70 per-cent of the overall hearings during FY 2017 at 79,386 claims heard, while the SHO re-corded 34,209 claims heard. Deputy venue claims heard totaled 79 in FY 2017 while the Commission venue recorded 172 claims heard. Total claims heard is inclusive of continuances, referrals, dismissals and oth-er final determinations made because of a hearing.

Regionally, the distribution of FY 2017 claims heard at DHO and SHO hearing levels is as follows (figures rounded): Co-lumbus,33 percent; Cleveland, 22 percent; Akron, 19 percent; Cincinnati,19 percent and Toledo, 9 percent.

DHO and SHO conducted hearings on 249 days during FY 2017. The DHO and SHO hearing levels heard an average of 456 claims per hearing day. DHOs averaged 319 claims heard per day while SHOs averaged 137 claims heard per day.

Hearing time frame performance mandates have been set forth in Ohio Revised Code (ORC) 4123.511 for the DHO, SHO and Com-mission hearing venues. On average, all IC offices performed within the statutory limits set forth that require the IC to hear a claim within 45 days of a motion or appeal filing.

The overall IC performance benchmarks for filing to mailing are 52 days for each hear-ing venue. This performance measure is based on the combination of the two statu-tory periods filing to hearing and hearing to mailing (45 + 7).

DHO performanceDHOs conduct hearings on two formal docket types – Allowance (primarily injury allowance, compensation, and treatment issues) and C-92 (permanent partial disabil-ity issues).

Only allowance docket issues fall under time frame requirements outlined in ORC 4123.511. DHOs heard 63,863 allowance docket claims during FY 2017. Of those, 47,508 qualified for inclusion in time stud-ies. On average, the IC completed the DHO process (filing of motion/appeal to mail-ing of DHO order) within 35 days during FY 2017.

SHO performanceSHOs conduct hearings on five formal dock-et types:

• Appeal (primarily injury allowance, compensation, and treatment issues);

• Permanent Total Disability; • Reconsideration (permanent

partial disability issues);• Violations of Specific Safety

Requirements); and • Miscellaneous (other issues not

designated to a pre-defined docket type).

Only appeal docket issues fall under time frame requirements outlined in Ohio Re-vised Code 4123.511.

SHOs heard 29,121 appeal claims during FY 2017. Of those, 25,152 qualified for inclu-sion in time studies.

ORC 4123.511(D) states the IC must hear staff hearing level appeals within a 45-day period. In FY 2017, staff-level appeal pro-cesses averaged 33 days for the statutory filing to hearing period.

56

BWC Audited Financial Statements

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

FINANCIAL STATEMENTS

June 30, 2017 and 2016

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

Columbus, Ohio

FINANCIAL STATEMENTS June 30, 2017 and 2016

CONTENTS

INDEPENDENT AUDITOR’S REPORT .................................................................................................... 1 MANAGEMENT’S DISCUSSION AND ANALYSIS .................................................................................. 3 FINANCIAL STATEMENTS STATEMENTS OF NET POSITION ................................................................................................... 12 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ........................ 13 STATEMENTS OF CASH FLOWS ..................................................................................................... 14 NOTES TO THE FINANCIAL STATEMENTS .................................................................................... 16 SUPPLEMENTARY INFORMATION REVENUE AND RESERVE DEVELOPMENT INFORMATION ......................................................... 50 SCHEDULE OF BWC/IC'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY (ASSET) ......................................................................................................... 52 SCHEDULE OF EMPLOYER CONTRIBUTIONS AND CONTRIBUTIONS SUBSEQUENT TO MEASUREMENT DATE ................................................................................... 53 SCHEDULE OF NET POSITION ........................................................................................................ 54 SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ............................. 56 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS ........................................................................................................................ 57

(Continued)

1

Crowe Horwath LLP Independent Member Crowe Horwath International

INDEPENDENT AUDITOR’S REPORT Ohio Bureau of Workers’ Compensation and Industrial Commission of Ohio A Department of the State of Ohio Report on the Financial Statements We have audited the accompanying financial statements of the Ohio Bureau of Workers’ Compensation and Industrial Commission of Ohio (BWC/IC), a department of the State of Ohio (State), as of and for the years ended June 30, 2017 and 2016, and the related notes to the financial statements, which collectively comprise the BWC/IC’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express a n opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the BWC/IC, as of June 30, 2017 and 2016, and the changes in its financial position and its cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America.

2

Emphasis of Matters As discussed in Note 1, the financial statements of the BWC/IC are intended to present the financial position, changes in financial position, and cash flows of the BWC/IC. They do not purport to, and do not, present fairly the financial position of the State as of June 30, 2017 and 2016, the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management’s discussion and analysis, supplemental revenue and reserve development information, the schedule of proportionate share of the net pension liability (asset), and the schedule of employer contributions and contributions subsequent to measurement date, on Pages 3-11, 50-51, 52, and 53, respectively, listed in the table of contents, to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the BWC/IC’s basic financial statements. The supplemental schedule of net position and schedule of revenues, expenses and changes in net position are presented for purposes of additional analysis and are not a required part of the basic financial statements. These schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental schedule of net position and schedule of revenues, expenses and changes in net position are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 25, 2017 on our consideration of BWC/IC’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering BWC/IC’s internal control over financial reporting and compliance. Crowe Horwath LLP Columbus, Ohio September 25, 2017

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Continued)

3

This section presents management’s discussion and analysis of the Ohio Bureau of Workers’ Compensation’s (BWC’s) and the Industrial Commission of Ohio’s (IC’s) financial performance for fiscal years ended June 30, 2017, 2016, and 2015. BWC and IC are collectively referred to as BWC/IC. This information is based on BWC/IC’s financial statements, which begin on Page 12.

Financial highlights

BWC/IC’s total assets at June 30, 2017 were $28.9 billion, an increase of $1.5 billion or 5.4 percent compared to June 30, 2016.

BWC/IC’s total liabilities at June 30, 2017 were $19.2 billion, an increase of $498 million or 2.7 percent compared to June 30, 2016.

BWC/IC’s total operating revenues for fiscal year 2017 were $1.6 billion, an increase of $1.6 billion or 100 percent compared to fiscal year 2016. A reduction to Disabled Workers' Relief Fund (DWRF) II unbilled assessments of $1.5 billion in fiscal year 2016 contributes to the significant increase.

BWC/IC’s total operating expenses for fiscal year 2017 were $1.3 billion, an increase of $12 million or less than 1 percent from fiscal year 2016.

BWC/IC had $1.1 billion in premium rebate expenses, $3 million in transition credit expenses, $4 million in loss contingency expenses, and reduced DWRF I alterative funding expenses by $16 million in fiscal year 2017.

BWC’s non-operating revenues for fiscal year 2017 were $1.9 billion, compared to $1.4 billion for fiscal year 2016.

BWC/IC’s net position increased by $1 billion in fiscal year 2017, compared to a $514 million decrease in fiscal year 2016.

Financial statement overview

BWC/IC’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Management’s discussion and analysis is intended to serve as an introduction to BWC/IC’s financial statements, which are prepared using the accrual basis of accounting and the economic resources measurement focus.

Statement of Net Position - This statement is a point-in-time snapshot of BWC/IC’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position at fiscal year end. Net position represents the amount of total assets and deferred outflows of resources less total liabilities and deferred inflows of resources. The statement is categorized by current and noncurrent assets and liabilities. For the purpose of the accompanying financial statements, current assets and liabilities are generally defined as those assets and liabilities with immediate liquidity or those that are collectible or will be due within 12 months of the statement date.

Statement of Revenues, Expenses and Changes in Net Position - This statement reflects the operating revenues and expenses, as well as non-operating revenues and expenses, for the fiscal year. Major sources of operating revenues are premium and assessment income. Major sources of operating expenses are workers’ compensation benefits and compensation adjustment expenses. Revenues and expenses related to capital and investing activities are reflected in the non-operating component of this statement.

Statement of Cash Flows - The statement of cash flows is presented using the direct method of reporting, which reflects cash flows from operating, noncapital financing, capital and related financing, and investing activities. Cash collections and payments are reflected in this statement to arrive at the net increase or decrease in cash and cash equivalents for the fiscal year.

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Continued)

4

Notes to the Financial Statements - The notes provide additional information that is essential to a full understanding of BWC/IC’s financial position and results of operations presented in the financial statements. The notes present information about accounting policies and disclose material risks, subsequent events, and contingent liabilities, if any, that may significantly impact BWC/IC’s financial position.

Supplemental Information –The financial statements include the following supplemental information schedules:

o Required supplemental information that presents 10 years of BWC/IC’s revenue and reserve development information;

o Required supplemental information that presents BWC/IC’s proportionate share of the Ohio Public Employees Retirement System (OPERS) net pension liability;

o Required supplemental information that presents BWC/IC’s contribution to OPERS based on statutory requirements; and

o Optional supplemental schedules presenting the statement of net position and the statement of revenues, expenses and changes in net position for the individual accounts administered by BWC/IC.

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Continued)

5

Financial analysis

Components of BWC/IC’s Statements of Net Position and Statements of Revenues, Expenses and Changes in Net Position as of June 30, 2017, 2016, and 2015, and for the years then ended were as follows (000’s omitted):

2017 2016 2015

Current assets 1,387,617$ 1,235,769$ 1,597,941$ Noncurrent assets 27,530,615 26,203,485 27,456,171 Total assets 28,918,232$ 27,439,254$ 29,054,112$

Deferred outflows of resources 90,259 63,608 16,679

90,259$ 63,608$ 16,679$

Current liabilities 4,000,419$ 3,058,458$ 3,532,668$ Noncurrent liabilities 15,240,224 15,683,834 16,267,360 Total liabilities 19,240,643$ 18,742,292$ 19,800,028$

Deferred inflows of resources 9,777 6,685 2,431

9,777$ 6,685$ 2,431$

Net investment in capital assets 154,075$ 157,884$ 142,347$ Unrestricted net position 9,603,996 8,596,001 9,125,985 Total net position 9,758,071$ 8,753,885$ 9,268,332$

Net premium and assessment income,

including provision for uncollectibles 1,544,550$ 1,439,143$ 1,954,174$ DWRF II unbilled assessment - (1,499,600) - Other income 10,016 12,442 8,413 Total operating revenues 1,554,566$ (48,015)$ 1,962,587$

Workers’ compensation benefits and

compensation adjustment expenses 1,199,363$ 1,211,609$ 1,394,939$ Other expenses 143,572 119,419 118,372 Total operating expenses 1,342,935$ 1,331,028$ 1,513,311$

Transition credit expense (2,562)$ 22,070$ (38,781)$ Premium rebate (1,094,850) (15,396) (1,013,171) Legal settlement / loss contingency (3,735) - 22,938 DWRF I alternative funding expense 16,348 (507,891) - Operating transfers out (425) (425) (425) Net investment income 1,877,645 1,365,464 509,882 Gain on disposal of capital assets 134 774 71

(Decrease) increase in net position 1,004,186$ (514,447)$ (70,210)$

Prior period adjustment - pension -$ -$ (121,671)$

BWC/IC’s net position increased by $1 billion during fiscal year 2017, compared to a $514 million decrease during fiscal year 2016.

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Continued)

6

Premium and assessment income exceeded workers’ compensation benefits and compensation adjustment expenses by $345 million in fiscal year 2017 and $228 million in fiscal year 2016.

Fiscal year 2017 premium and assessment income reflects an 8.6 percent reduction in overall premium rates for the majority of Ohio’s private employers for the policy period beginning July 1, 2016, and no change for public employer taxing districts (PECs) for the policy period beginning January 1, 2017. Fiscal year 2016 premium and assessment income reflects a 10.8 percent reduction in rates for private employers for the policy period beginning July 1, 2015, and a 9 percent reduction for PECs for the policy period beginning January 1, 2016. PECs include cities, counties, townships, villages, schools, libraries, and special taxing districts. Even with these rate reductions, net premium and assessment income has increased by $106 million in fiscal year 2017 due to increases in payroll exposure and changes in the DWRF I unbilled receivables.

Beginning in fiscal year 2016, premiums are collected under a prospective payment system, which allows employers more flexible payment options. Private employers transitioned to prospective billing on July 1, 2015 and PECs transitioned on January 1, 2016.

BWC/IC has secured reinsurance as a risk management strategy to protect our assets in the event of a catastrophic event. Premium and assessment income has been reduced by $4 million in fiscal years 2017 and 2016 for the accrual of the ceded reinsurance premiums.

Beginning in fiscal year 2016, BWC began providing access to optional additional insurance coverage for Ohio companies who have employees who temporarily work in other states and are in need of coverage for workers’ compensation gaps and protection from penalties and stop-work orders in other states. Zurich American Insurance Company acts as the insurer of the Other States Coverage policies.

During fiscal year 2016, the assumptions used to estimate DWRF II unbilled receivables were updated. As a result, assessment income and unbilled receivables were reduced by $1.5 billion. Previously, DWRF II unbilled receivables were recorded in amounts equal to the DWRF II discounted reserves for compensation and compensation adjustment expenses. Beginning in fiscal year 2016, cash and investment balances are included in estimating DWRF II unbilled receivables. At June 30, 2017, the DWRF II cash and investment balances exceed DWRF II discounted reserves for compensation and compensation adjustment expenses. Accordingly, there is currently no need to assess employers in future periods to fund the current DWRF II estimated liabilities.

Workers’ compensation benefits and compensation adjustment expenses were as follows in fiscal years 2017, 2016, and 2015.

($ in millions) 2017 2016 2015

Net benefit payments 1,420$ 1,539$ 1,551$

Payments for compensation adjustment expenses 235 206 200

Managed Care Organization administrative payments 171 169 171

Change in reserves for compensation and

compensation adjustment expenses (627) (702) (527)

1,199$ 1,212$ 1,395$

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Continued)

7

The discounted liabilities for workers’ compensation benefits and compensation adjustment expenses as of June 30, 2017 are $627 million lower than the June 30, 2016 discounted liabilities. These liabilities are discounted using an annual interest rate of 4 percent.

State Insurance Fund (SIF) benefit payments for all accident years were $112 million or 7.7 percent lower than expected during fiscal year 2017. Approximately $13 million of the lower than expected paid development is associated with medical benefits, while indemnity benefits were $99 million lower than expected. During the past 15 years, SIF annual payments have remained reasonably steady, ranging from a low of $1.3 billion in fiscal year 2017 to a high of $1.9 billion in fiscal year 2008. Fiscal year 2017 payments are lower than fiscal year 2016 payments and are the lowest annual payments during the last 15 fiscal years.

As part of Destination: Excellence, savings were available to employers for effective policy maintenance such as reporting payroll and paying premiums online and keeping current on their premiums. The Go Green program rewards employers for reporting payroll and paying premiums on-line with a rebate of one percent of premium up to a maximum rebate of $2,000 per policy year. In fiscal year 2017, almost 47 percent of the employer population chose to Go Green, earning rebates of $10.2 million compared to $5.7 million in fiscal year 2016. To reward timely premium payers, employers with no lapses in coverage during the past 60 months can receive a premium rebate of one percent up to a maximum of $2,000 per policy year. Employers earned lapse-free rebates of $8 million in fiscal year 2017 and $3.2 million in fiscal year 2016. Due to the recent change to prospective billing in which this rebate is earned annually instead of semi-annually, rebates for lapse-free employers were earned for only the last semi-annual period during fiscal year 2016. Employers earned rebates of $4.3 million in fiscal year 2017 and $3 million in fiscal year 2016 by completing requirements of the Industry-Specific Safety Program. Completing the requirements of the Transitional Work Bonus Program earned employers $2.3 million in fiscal year 2017 compared to $7 million in fiscal year 2016.

For policy periods beginning in 2017, BWC is providing employers an option to receive a 2% discount by paying their full 12-month estimated premium on or before the due date of the first installment of their policy period. Over 1,700 public taxing district employers earned early payment discounts of approximately $2.6 million by paying their entire annual premium for the 2017 policy year by the January 3, 2017 due date. Private employers will have this option available for annual premiums due during fiscal year 2018.

Ohio has 83 safety councils that promote increased safety awareness in the workplace and educate businesses on occupational health, wellness, and safety issues. Employers meeting safety council participation eligibility requirements and performance goals for reducing either frequency or severity earned safety council bonuses of $9.6 million in fiscal year 2017 and $8.9 million in fiscal year 2016.

On April 23, 2014, the BWC Board of Directors (the Board) approved a transition credit of $1.2 billion for private and public taxing district employers to minimize the cash flow impacts of transitioning from collecting premiums in arrears (or after the coverage period) to prospective billing where premiums are collected in advance of the coverage period. The transition credit covered one hundred percent of private employer premiums for the January 1 through June 30, 2015 policy period and one sixth of the annual premiums for the policy year beginning July 1, 2015. Public taxing district employers received transition credits of 50 percent of annual premiums for each of the policy years beginning January 1, 2015 and 2016. The transition credit expense was reflected in the fiscal year 2014 financial statements when the Board committed funds for paying these premiums. The transition credit expense was reduced by $22 million in fiscal year 2016 based on the reporting of

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Continued)

8

actual payroll by public taxing district employers for the January 1, 2015 policy year and the reporting of actual payroll by private employers for the policy year beginning July 1, 2015. Transition credit expense was increased $3 million in fiscal year 2017 based on the reporting of actual payroll by public taxing district employers for the January 1, 2016 policy year.

The State Insurance Fund net position has continued to grow primarily as a result of better than expected investment returns and declines in the reserves for compensation and compensation adjustment expenses for prior years’ claims. The net position has exceeded the guidelines in the Net Asset Policy established by the Board. A rebate to reduce the net position in SIF was approved by the Board on April 28, 2017. Private employers were granted a rebate equivalent to 66 percent of premiums for the July 1, 2015 through June 30, 2016 policy period and the public employer taxing districts were granted the same percentage rebate for premiums for the January 1, 2015 through December 31, 2015 period. This action resulted in premium rebate expense of just over $1 billion in fiscal year 2017.

In May 2016, the Board approved a one-time $15 million policy holder rebate to Ohio’s 88 county governments from the Public Work-Relief Employee’s Fund as a result of strong investment returns. Payments were issued to the counties in June 2016.

House Bill 52 of the 131st General Assembly amended Ohio Revised Code (ORC) 4123.411 allowing the Administrator discretionary authority to levy assessments to fund DWRF I benefits. DWRF I assessment rates were reduced to zero for the policy year beginning January 1, 2016 for public taxing district employers and the policy year beginning July 1, 2016 for private employers. ORC 4123.419 was also amended to allow the Administrator with the advice and consent of the Board the authority to transfer investment income from the SIF to cover the cost of the DWRF I benefits for private and public taxing district employers rather than levying assessments against these employers, which the Board approved in September 2015. A funding commitment of $508 million, based on the estimated DWRF I discounted reserves for compensation and compensation adjustment expenses, has been recognized in the fiscal year 2016 financial statements. The funding commitment was evaluated in fiscal year 2017 and decreased by $16 million in the fiscal year 2017 financial statements.

In fiscal year 2017, BWC/IC recorded net investment income of $1.9 billion, compared to $1.4 billion in fiscal year 2016. The investment portfolio earned a net return of 7.5 percent, after management fees, during fiscal year 2017 compared to 5.8 percent in fiscal year 2016.

During fiscal year 2015, the Board approved an increase in the real estate allocation for the SIF investment portfolio from a 6 percent allocation to a targeted 12 percent asset allocation. As of June 30, 2017, the real estate allocation for the SIF investment portfolio is comprised of the following:

(000's omitted)Targeted

% of portfolio

Number of funds Committed Invested Fair value

Core real estate 7% 7 1,496,531$ 1,496,531$ 2,093,462$ Core plus real estate 3% 7 700,000 437,496 475,688 Value - added real estate 2% 9 400,000 206,780 221,275

12% 23 2,596,531$ 2,140,807$ 2,790,425$

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Continued)

9

Work on the Core Project continued during fiscal year 2017 to modernize BWC’s technology architecture to better serve Ohio’s injured workers and employers. The project replaced outdated claims, policy, and employer billing systems with a commercial product called PowerSuite. The transition to PowerSuite was completed in November 2016.

Conditions expected to affect financial position or results of operations BWC/IC’s guiding principles of prevention and care drive our commitment to keep Ohio workers safer on the job; help injured workers recover and return to their lives – at work and home; and to keep costs down for Ohio businesses.

Businesses that invest in workplace safety and health are able to reduce fatalities, injuries, and illnesses, resulting in lower medical and legal expenses as well as lower costs to train replacement employees. Various studies report that for every $1 invested in workplace safety, employers receive between $2 and $6 in return. BWC offers numerous financial assistance opportunities for employers to invest in workplace safety. The number of businesses using BWC’s safety services and programs has grown by 70% between 2010 and 2015 to more than 21,000. The number of injuries for employers in the BWC system fell by 13.2% even as Ohio was experiencing job growth of 7.5%. The Safety Grant Program provides matching funds up to $40 thousand for employers to purchase equipment that will substantially reduce or eliminate injuries and illnesses. These grants provide $3 for every $1 that the employer invests in safety equipment. In fiscal year 2017, 659 grants totaling $13 million were awarded to employers for safety intervention, wellness, and drug-free programs. More than 2,000 businesses have benefited from these grants over the past four years. BWC has committed $15 million for fiscal year 2018 to continue these programs. Beginning in 2018, BWC plans to spend up to $6 million annually on a health and wellness program that targets Ohioans working for employers with 50 or fewer employees in specific high-risk industries, in addition to a segment of injured workers with certain types of injuries. These grants will provide services that include health risk assessments, biometric screenings, lifestyle management and coaching, and chronic disease management. Concurrently, BWC plans to launch a $2 million statewide safety awareness and educational campaign to prevent injuries associated with slips, trips and falls, over-exertions and motor vehicle accidents, which account for more than 60 percent of the system’s injury claims. The effort will include online and mobile training resources that address safety at home and at work. An additional $4 million will be targeted toward programs that help firefighters and those who work with children and adults with disabilities.

The annual actuarial unpaid loss and loss adjustment expense analysis includes a $4.4 billion discounted liability for unpaid medical costs which represents 32.8 percent of the discounted liability for SIF unpaid claims. The cost of medical benefits is based on the prices for medical services at the time rendered and is not dependent on the year of injury like indemnity benefits. Therefore, the cost of future medical payments is dependent on future inflation and future utilization rates. The average annual medical cost increase per lost time private employer claim was 1 percent from 2005 through 2016. These trends show the need for BWC to remain focused on cost control and programs enabling injured workers to return to work in a timely manner. The sooner an injured worker gets healthy and returns to work, the more likely it is that there will be positive outcomes for the worker, and the less expensive they will be to the workers’ compensation system. BWC/IC is addressing return-to-work trends through triaging of claims, vocational rehabilitation, pharmacy programs, settlements, the transitional work bonus program, and the health and behavioral intervention services program.

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Continued)

10

BWC is working with a team of stakeholders representing business, labor, managed care organizations, and the medical community to modernize the Bureau’s healthcare delivery system. The first step was the creation of a pilot called the Enhanced Care Program (ECP). During fiscal year 2016, the ECP began to identify injured workers who are at risk for not receiving optimal outcomes in their claims. This program looks for ways to identify injured workers who might be at risk due to pre-existing conditions that may adversely impact the ability of the injured worker to return to work in a timely manner. Incentives are designed to encourage the coordination of care among workers’ compensation medical providers, primary care physicians, and managed care organizations. In September 2016, BWC contracted with a healthcare consultant to evaluate the ECP and to provide guidance and recommendations regarding modifications and improvements to the overall quality of the Bureau’s healthcare delivery system. Based on the success of the pilot program, the pilot program has been extended through June 30, 2019.

BWC/IC’s pharmacy program manages drug utilization to ensure coverage for necessary medications to allow proper care for injured workers in a fiscally responsible manner. Since 2011, many operational changes have occurred to the pharmacy program including the establishment of a closed formulary, limiting coverage of compound prescriptions, placement of 373 out 405 drug classes on a relatedness list, and requiring prior authorization for prescriptions in medical only claims after 60 days. BWC has reduced the number of injured workers physically dependent on opioids from 8,029 in 2011 to 4,101 in 2016, a near 50 percent drop. The number of injured workers receiving an opioid prescription fell by 51 percent, and the percentage of our injured worker population receiving an opioid prescription fell from 73 percent to 62 percent, the lowest level since 2002. BWC has developed stronger monitoring of prescriptions and prior authorization controls, dropped coverage of certain opioids, and established a rule requiring physicians to use best medical practices when prescribing opioids or risk losing their BWC certification. New in fiscal year 2018, first prescriptions for opioids will be restricted to seven days or 30 doses.

Rooting out, investigating, and prosecuting cases of workers’ compensation fraud is another way the BWC/IC works to control costs on behalf of our customers. Efforts in the pursuit to deter, detect, and investigate all types of workers’ compensation fraud, including employer and provider fraud, resulted in the identification of $41.8 million in savings for the State Insurance Fund after closing 1,174 cases during fiscal year 2017.

BWC’s net asset policy contains the business rationale, methodology, and guiding principles with respect to maintaining a prudent net position to protect the SIF against financial and operational risks that may threaten the ability to meet future obligations. The Administrator, with the approval of the Board, established guidelines for a Simple Funding Ratio (total assets divided by total liabilities) and a Net Leverage Ratio (premium income plus reserves for compensation and compensation adjustment expense divided by net position). Over the last several years, the net position has continued to increase, primarily

OHIO BUREAU OF WORKERS’ COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO (A DEPARTMENT OF THE STATE OF OHIO)

MANAGEMENT’S DISCUSSION AND ANALYSIS

11

as a result of excess investment returns and lower than expected claims costs. These net position excesses have enabled the Board to approve cash rebates totaling $3.1 billion over the past four years and a $1.2 billion transition credit, in conjunction with the move to a prospective billing system. During fiscal year 2017, an economic capital modeling project was completed to quantify the SIF risk associated with BWC’s investment portfolio, estimated reserves for compensation and compensation adjustment expenses, pricing risk, catastrophe risk, and the correlation of these risks. This information was used to develop guidelines based on a 20% probability the net position could be depleted in five years for a low end simple funding ratio of 1.25 and a 7.5% chance the net position could be depleted for a high end simple funding ratio of 1.45. These are the SIF ratios at fiscal year ended 2017, 2016, and 2015:

2017 2016 2015 Guideline

Simple Funding Ratio 1.63 1.59 1.50 1.25 to 1.45

Net Leverage Ratio 1.46 1.65 1.98 3.0 to 7.0

From time to time, BWC/IC is involved in judicial proceedings arising in the ordinary course of its business. BWC/IC will vigorously defend these suits and expects to prevail; however, there can be no assurance that BWC/IC will be successful in its defense.

12

2017 2016 2017 2016

ASSETS LIABILITIES

Current assets: Current liabilities:

Cash and cash equivalents (Note 2) $553,164 $514,565 Reserve for compensation (Note 4) $ 1,503,463 $ 1,636,037

Collateral on loaned securities (Note 2) 1,364 484 Reserve for compensation adjustment

Premiums recorded not yet due 12,964 62,467 expenses (Note 4) 388,973 384,004

Assessments recorded not yet due 1,566 7,385 Premium rebate payable (Note 7) 1,094,836 -

Premiums in course of collection 9,090 9,581 Unearned premium and assessments 535,320 513,089

Assessments in course of collection 13,252 13,691 Transition credit liability (Note 12) - 35,437

Accounts receivable, net of allowance for Legal settlement (Note 11) 4,500 4,507

uncollectibles of $1,151,411 in 2017; $1,155,892 in 2016 343,516 266,403 Warrants payable 21,522 36,219

Retrospective premiums receivable 43,194 43,194 Investment trade payables 377,981 387,057

Investment trade receivables 270,946 180,690 Accounts payable 34,036 38,660

Accrued investment income 137,961 134,594 Obligations under securities lending (Note 2) 1,364 484 Other current assets 600 2,715 Other current liabilities (Note 5) 38,424 22,964

Total current assets 1,387,617 1,235,769 Total current liabilities 4,000,419 3,058,458

Noncurrent assets: Noncurrent liabilities:Fixed maturities, at fair value (Note 2) 14,646,147 14,734,640 Reserve for compensation (Note 4) 13,581,447 14,034,563

Domestic equity securities, at fair value - common stock (Note 2) 6,105,691 5,610,839 Reserve for compensation adjustmentDomestic equity securities, at fair value - preferred stock (Note 2) 1,726 1,309 expenses (Note 4) 1,392,727 1,438,596 Non-U.S equity securities, at fair value - common stock (Note 2) 2,681,724 2,226,546 Net pension liability (Note 8) 240,665 187,038 Investments in real estate funds (Note 2) 2,790,425 2,241,609 Other noncurrent liabilities (Note 5) 25,385 23,637

Unbilled premiums receivable 1,075,316 1,122,313 Total noncurrent liabilities 15,240,224 15,683,834 Retrospective premiums receivable 75,189 108,078 Total liabilities $ 19,240,643 $ 18,742,292Capital assets (Note 3) 154,075 157,884

Net pension asset (Note 8) 322 267 DEFERRED INFLOW OF RESOURCES (Note 8) 9,777 6,685 Total noncurrent assets 27,530,615 26,203,485 Total liabilities and deferred inflow of resources $ 19,250,420 $ 18,748,977

Total assets $ 28,918,232 $ 27,439,254NET POSITION

DEFERRED OUTFLOW OF RESOURCES (Note 8) 90,259 63,608 Net investment in capital assets 154,075 157,884 Total assets and deferred outflow of resources $ 29,008,491 $ 27,502,862 Unrestricted net position 9,603,996 8,596,001

Total net position (Note 14) $ 9,758,071 $ 8,753,885

The accompanying notes are an integral part of the financial statements.

June 30, 2017 and 2016

(000's omitted)

OHIO BUREAU OF WORKERS' COMPENSATION

AND

INDUSTRIAL COMMISSION OF OHIO

STATEMENTS OF NET POSITION

(A DEPARTMENT OF THE STATE OF OHIO)

13

2017 2016Operating revenues:

Premium and assessment income net of ceded premium (Note 6) $1,574,212 $ 1,456,855DWRF II unbilled assessment (Note 13) - (1,499,600) Provision for uncollectibles (29,662) (17,712) Other income 10,016 12,442

Total operating revenues 1,554,566 (48,015)

Operating expenses:Workers' compensation benefits (Note 4) 834,559 819,733 Compensation adjustment expenses (Note 4) 364,804 391,876 Personal services 79,975 69,923 Other administrative expenses 63,597 49,496

Total operating expenses 1,342,935 1,331,028

Net operating income (loss) before transition credits, premium rebates, loss contingency and DWRF I alternative 211,631 (1,379,043)

Transition credit expense (Note 12) 2,562 (22,070) Premium rebate (Note 7) 1,094,850 15,396 Loss contingency (Note 11) 3,735 - DWRF I alternative funding expense (Note 13) (16,348) 507,891

Total transition credits, premium rebates, loss contingency and DWRF I alternative 1,084,799 501,217

Net operating loss (873,168) (1,880,260)

Non-operating revenues:Net investment income (Note 2) 1,877,645 1,365,464 Gain on disposal of capital assets 134 774

Total non-operating revenues 1,877,779 1,366,238

Transfers out (425) (425)

Increase (decrease) in net position 1,004,186 (514,447)

Net position, beginning of year 8,753,885 9,268,332

Net position, end of year $ 9,758,071 $ 8,753,885

The accompanying notes are an integral part of the financial statements.

CHANGES IN NET POSITION

For the years ended June 30, 2017 and 2016

(000's omitted)

OHIO BUREAU OF WORKERS' COMPENSATIONAND

INDUSTRIAL COMMISSION OF OHIO

STATEMENTS OF REVENUES, EXPENSES AND

(A DEPARTMENT OF THE STATE OF OHIO)

14

2017 2016Cash flows from operating activities:

Cash receipts from premiums and assessments net of reinsurance 1,947,158$ 1,739,145$ Cash receipts - other 27,705 28,526 Cash disbursements for claims (1,659,213) (1,754,292) Cash disbursements to employees for services (200,170) (196,053) Cash disbursements for other operating expenses (116,426) (94,314) Cash disbursements for employer refunds (315,755) (496,628)

Net cash used for operating activities (316,701) (773,616)

Cash flows from noncapital financing activities:

Transfers out (425) (425)

Net cash used by noncapital financing activities (425) (425)

Cash flows from capital and related financing activities:Purchase of capital assets, net of retirements (13,035) (23,665)

Net cash used in capital and related financing activities (13,035) (23,665)

Cash flows from investing activities:Investments sold 14,919,775 11,698,441 Investments purchased (15,224,235) (11,816,206) Interest and dividends received 729,687 684,847 Investment expenses (56,467) (51,614)

Net cash provided by investing activities 368,760 515,468

Net increase (decrease) in cash and cash equivalents 38,599 (282,238)

Cash and cash equivalents, beginning of year 514,565 796,803

Cash and cash equivalents, end of year 553,164$ 514,565$

OHIO BUREAU OF WORKERS' COMPENSATION

AND

The accompanying notes are an integral part of the financial statements.

(000's omitted)

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

STATEMENTS OF CASH FLOWS

For the years ended June 30, 2017 and 2016

15

2017 2016Reconciliation of net operating loss to net cash used for operating activities:

Net operating loss (873,168)$ (1,880,260)$

Adjustments to reconcile net operating loss to net cash used for operating activities:

Provision for uncollectible accounts 29,662 17,712 Depreciation 16,978 8,902 Pension 30,013 9,841

(Increases) decreases in assets and increases (decreases)in liabilities:

Premiums and assessments recorded not yet due 55,322 (69,852) Premiums and assessments in course of collection 930 46,858 Unbilled premiums receivable 46,997 2,065,888 Accounts receivable (106,775) (178,130) Retrospective premiums receivable 32,889 63,785 Other assets 2,115 (600) Reserves for compensation and compensation

adjustment expenses (626,590) (701,804) Unearned premiums and assessments 22,231 512,952 Transition credit liability (35,437) (362,465) Legal settlement (7) 2,139 Premium payment security deposits - (86,088) Warrants payable (14,697) (242,144) Accounts payable (4,624) 17,434 Premium rebate payable 1,094,836 - Other liabilities 12,624 2,216

Net cash used for operating activities (316,701)$ (773,616)$

Noncash investing, capital, and financing activitiesChange in fair values of investments 1,205,642$ 731,967$

(A DEPARTMENT OF THE STATE OF OHIO)

STATEMENTS OF CASH FLOWS, Continued

For the years ended June 30, 2017 and 2016

(000's omitted)

INDUSTRIAL COMMISSION OF OHIO

OHIO BUREAU OF WORKERS' COMPENSATIONAND

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

16

1. Organization Background and Summary of Significant Accounting Policies

The Ohio Bureau of Workers' Compensation (BWC) and the Industrial Commission of Ohio (IC) were created in 1912 and 1925, respectively, and are the exclusive providers of workers' compensation insurance to private and public employers in Ohio that have not been granted the privilege of paying compensation and medical benefits directly (self-insured employers). BWC and IC are collectively referred to herein as BWC/IC. BWC/IC was created and is operated pursuant to Chapters 4121, 4123, 4127, and 4131 of the Ohio Revised Code (the Code).

The Governor of the State of Ohio (the State) with the advice and consent of the Senate and nominating committee appoints the BWC Administrator, the three members of the IC, and the 11-member BWC Board of Directors (Board). All members have full voting rights. The BWC Administrator, with the advice and consent of the Board, is responsible for the operations of the workers’ compensation system, while the IC is responsible for administering claim appeals.

BWC/IC is a department of the primary government of the State and is a proprietary operation for purposes of financial reporting. The accompanying financial statements include all accounts, activities, and functions of BWC/IC and are not intended to present the financial position, results of operations, or cash flows of the State taken as a whole. The financial information presented herein for BWC/IC will be incorporated within the State’s financial statements.

Basis of Presentation

BWC/IC has prepared its financial statements in accordance with accounting principles generally accepted in the United States of America as applicable to government organizations. Accordingly, these financial statements were prepared using the accrual basis of accounting and the economic resources measurement focus.

For internal reporting purposes, BWC/IC maintains separate internal accounts as required by the Code. For external financial reporting purposes, BWC/IC has elected to report as a single column business-type activity, since the individual accounts do not have external financial reporting accountability requirements. All significant interaccount balances and transactions have been eliminated.

BWC/IC administers the following accounts:

State Insurance Fund (SIF) Disabled Workers' Relief Fund (DWRF) Coal-Workers Pneumoconiosis Fund (CWPF) Public Work-Relief Employees' Fund (PWREF) Marine Industry Fund (MIF) Self-Insuring Employers' Guaranty Fund (SIEGF) Administrative Cost Fund (ACF)

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

17

Description of the Accounts

SIF, CWPF, PWREF, and MIF provide workers’ compensation benefits to qualifying employees sustaining work-related injuries or diseases.

DWRF provides supplemental cost-of-living benefits to persons who are permanently and totally disabled and are receiving benefits from SIF or PWREF. The maximum benefit levels are changed annually based on the United States Department of Labor National Consumer Price Index.

SIEGF provides for the payment of compensation and medical benefits relating to injuries sustained after January 1, 1987 by employees of self-insured employers that are bankrupt or in default.

ACF provides for the payment of administrative and operating costs of all accounts except DWRF, CWPF, and MIF, which pay such costs directly. ACF also includes the portion of premiums paid by employers earmarked for the safety and loss prevention activities performed by the Safety & Hygiene Division.

Operating revenues and expenses generally result from providing services in connection with ongoing operations. Operating revenues are primarily derived from premiums and assessments. Operating expenses include the costs of claims, premium rebates, transition credits, and related administrative expenses. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Cash and Cash Equivalents

Cash and cash equivalents in the accompanying statements of net position and for the purposes of the statements of cash flows include cash and all highly liquid debt instruments purchased with a maturity of three months or less. Cash equivalents consist of money market funds.

Investments

BWC/IC’s investments consist of fixed maturities, domestic equity securities, commingled bond index funds, commingled U.S. equity index funds, commingled non-U.S equity index funds, U.S. real estate funds, bond mutual funds and collateral on securities lending.

Investments are reported at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fixed income securities, domestic equity securities, and bond mutual funds are valued based on published market prices and quotations from national security exchanges and securities pricing services. The fair value of the commingled bond index funds, commingled domestic equity funds, commingled non-U.S. equity funds, and U.S. real estate funds are based on the value of the underlying net assets of the fund. Dividends, interest earnings, the net increase (decrease) in the fair value of investments (which includes both the change in fair value and realized gains and losses), and investment expenses are aggregated and reported as net investment income in the statements of revenues, expenses and changes in net position. The cost of securities sold is determined using the average cost method. Purchases and sales of investments are recorded as of the trade date.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

18

Premium Income

Premiums are based on rates that are approved by the Board and on the employers' payroll, except self-insured employer assessments, which are based on paid compensation. SIF rates for private and public taxing district employers meeting certain size criteria are adjusted based on their own claims experience.

Premium income for SIF, CWPF, PWREF, and MIF is recognized over the coverage period. It is billed in advance of the coverage period, except for CWPF, which is billed and collected in subsequent periods. Premiums earned but not yet invoiced are reflected as premiums in course of collection in the statements of net position. Estimated annual premiums recorded but not yet invoiced are reflected as premiums recorded not yet due and unearned premium in the statements of net position.

In addition to the standard base and experience rated plans, BWC/IC offers the following alternative rating programs:

Group experience rating plans allow employers who operate within similar industries to group together to potentially achieve lower premium rates than they could individually.

Retrospective rating plans are offered to qualified employers. SIF recognizes estimated ultimate premium income on retrospectively rated businesses during the coverage period. Retrospective rating adjustments related to the coverage period are collected in subsequent periods, as experience develops related to injuries incurred during the coverage period. The estimated future retrospective rating adjustments are reflected in the statements of net position as retrospective premiums receivable.

Employers participating in group retrospective rating plans pay experience or base rated premiums as if they were individually rated at the beginning of the policy year. If the group’s claims experience is better than expected at evaluation periods 12, 24, and 36 months after the close of the policy year, a portion of the group’s premium is returned to employers participating in the group. If the group’s claims experience is worse than expected at those intervals, additional premiums are levied on the employers participating in the group. These credits and additional premiums levied are recognized in the evaluation period earned as decreases and increases, respectively, to premium income and are reflected in the statements of revenue, expenses, and changes in net position.

The deductible plan is offered to qualified employers. This plan is similar to that of other insurance deductible plans where an employer agrees to pay the portion of a workers’ compensation injury claim that falls below their selected deductible level. For taking on this degree of risk, the employer receives a premium credit.

The Code permits State employers to pay into SIF on a terminal funding (pay-as-you-go) basis. Since BWC/IC has the statutory authority to assess premiums against the State employers in future periods, an unbilled premiums receivable equal to the State’s share of the discounted reserve for compensation and compensation adjustment expenses, less BWC/IC’s portion of the discounted reserve, is reflected in the statements of net position.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

19

Assessment Income

DWRF I (DWRF benefits awarded for injuries incurred prior to January 1, 1987) assessments are based on employers' payroll and rates approved by the Board within a statutory range. DWRF II (DWRF benefits awarded for injuries incurred on or after January 1, 1987) and ACF assessments are based on rates that are approved by the Board and on employers' premiums, except for ACF assessments of self-insured employers, which are based on paid workers’ compensation benefits. SIEGF assessments are based on paid compensation benefits with the exception of new self-insured employers, which are based on a percentage of prior losses as a SIF employer.

Assessment income is recognized over the coverage period and is billed in advance of the coverage period. DWRF I and ACF assessment income is recognized over the period for which the assessment applies. These assessments earned but not yet invoiced were reflected as assessments in course of collection in the statements of net position. Estimated annual assessments recorded but not yet invoiced and unearned assessments are reflected as assessments recorded not yet due in the statements of net position.

In September 2015, the Board approved the funding of DWRF I benefits from SIF investment income for private and public taxing district employers rather than levying assessments against these employers. The annual funding commitment has been recorded in SIF as DWRF I alternative funding expense in the statements of revenue, expenses and changes in net position for fiscal years 2017 and 2016. The commitment is reviewed annually and is subject to adjustment based on changes in the estimated DWRF I discounted reserves for compensation and compensation adjustment expenses.

The Code permits employers to pay into DWRF and SIEGF on a terminal funding (pay-as-you-go) basis. As BWC/IC has the statutory authority to assess employers in future periods, an unbilled premiums receivable equal to the discounted reserve for compensation and compensation adjustment expenses for DWRF I public state employers and SIEGF, less BWC/IC’s portion of the discounted reserve, is reflected in the statements of net position. SIEGF assessments received or in the course of collection, but not yet recognized, are reflected as a reduction to unbilled premiums receivable.

The year-end balances of the DWRF II cash and investment balances and the DWRF II discounted reserve for compensation and compensation adjustments expenses are compared annually to determine when BWC/IC has an unbilled premiums receivable. At June 30, 2017 and 2016, the total DWRF II cash and investment balances exceeded the DWRF II discounted reserve for compensation and compensation adjustment expenses, thus no unbilled premiums receivable is recorded for DWRF II.

Allowance for Uncollectible Accounts

BWC/IC provides an allowance for uncollectible accounts by charging operations for estimated receivables that will not be collected. The adequacy of the allowance is determined by management based on a review of aged receivable balances and historical loss experience.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

20

Capital Assets

Capital assets are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Description

Buildings Intangible assets Furniture and fixtures Vehicles and equipment

Estimated Useful Lives (Years)

30 10 10 5

When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in the statements of revenues, expenses, and changes in net position. The cost of maintenance and repairs is charged to operations as incurred; significant renewals and betterments are capitalized.

Expenditures for the design, software configuration, software interfaces, coding, hardware, hardware installation, data conversion to the extent necessary for the operation of the new software, testing, and licensure on internally generated software exceeding $1 million are capitalized as an intangible asset. Intangible assets are depreciated upon implementation of the software. The useful lives of intangible assets varies and is determined upon completion of each project.

Reserves for Compensation and Compensation Adjustment Expenses

The reserve for compensation includes actuarial unpaid loss estimates for both reported claims and claims incurred but not reported (IBNR). The reserve for compensation adjustment expenses is determined by estimating future expenses to be incurred in settlement of the claims. The reserve for compensation is based on the estimated ultimate cost of settling the claims, including the effects of inflation and other societal and economic factors and projections as to future events, including claims frequency, severity, persistency, and inflationary trends for medical claim reserves. The reserve for compensation adjustment expenses is based on projected claim-related expenses, estimated costs of the managed care Health Partnership Program, and the reserve for compensation. The methods of making such estimates and for establishing the resulting liabilities are reviewed quarterly and updated based on current circumstances. Any adjustments resulting from changes in estimates are recognized in the current period. The reserves for compensation and compensation adjustment expenses are discounted at 4.0% at June 30, 2017 and 2016 to reflect the present value of future benefit payments. The selected discount rate approximates an average yield on United States government securities with a duration similar to the expected claims underlying BWC/IC’s reserves.

Management believes that the recorded reserves for compensation and compensation adjustment expenses make for a reasonable and appropriate provision for expected future losses. While management and their consultants use available information to estimate the reserves for compensation and compensation adjustment expenses, future changes to the

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

21

reserves for compensation and compensation adjustment expenses may be necessary based on claims experience and changing claims frequency, severity, persistency, and inflationary trends for medical claim reserves.

Reinsurance

BWC/IC purchases workers’ compensation excess of loss reinsurance to include coverage for catastrophic events and terrorism. Ceded reinsurance transactions are accounted for based on estimates of their ultimate cost. Reserves for compensation and compensation adjustment expenses are reported gross of reinsured amounts. Reinsurance premiums are reflected as a reduction of premium income (see Note 6).

Income Taxes

As a department of the State, the income of BWC/IC is not subject to federal or state income tax.

Pensions

For purposes of measuring the net pension liability and net pension asset, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Ohio Public Employee’s Retirement System’s (OPERS) Plans and additions to / deductions from the OPERS Plans’ fiduciary net position have been determined on the same basis as they are reported by OPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. OPERS’ investments are reported at fair value.

Use of Estimates

In preparing the financial statements, management and BWC/IC’s pension plan are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain fiscal year 2016 financial statement and note disclosure amounts have been reclassified in order to conform to their fiscal year 2017 presentations. There was no impact to the fiscal year 2016 amounts reported for net position and change in net position as a result of these reclassifications.

2. Cash and Investments

BWC/IC is authorized by Section 4123.44 of the Code to invest using an investment policy established by the Board, which uses the prudent person standard. The prudent person standard requires investments be made with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

22

such matters would use in the conduct of an enterprise of a like character and with like aims, and by diversifying the investments of the assets so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.

The composition of cash and investments held at June 30, 2017 and 2016 is presented below (000's omitted):

2017 2016Fair Value Fair Value

Fixed maturities U.S. corporate bonds 6,023,461$ 5,890,039$ U.S. treasury inflation protected securities 1,980,275 2,214,285 U.S. government obligations 1,986,798 1,898,132 Non-U.S. corporate bonds 1,262,858 1,264,891 Commingled U.S. aggregate indexed fixed income 134,633 693,903 Commingled U.S. long government / credit fixed income 547,421 - Commingled U.S. treasury inflation protected securities 682,311 683,192 U.S. state and local government agencies 511,645 564,120 U.S. government agency mortgages 495,293 496,469 Asset backed securities 344,723 352,953 Commercial mortgage backed securities 225,462 254,820 Non-U.S. government and agency bonds 200,186 175,919 U.S. government agency bonds 89,247 117,672 Commingled U.S. intermediate duration fixed income 40,571 40,682 Preferred securities 42,642 36,030 Bank loans 21,816 27,098 Bond mutual fund 54,146 21,401 Supranational issues 2,659 3,034 Total fixed maturities 14,646,147 14,734,640

Domestic equity securities - common stocks 5,696,920 5,228,914 Domestic equity securities - preferred stocks 1,726 1,309 Commingled domestic equity securities - common stocks 408,771 381,925 Commingled Non-U.S. equity securities - common stocks 2,681,724 2,226,546 Commingled investments in real estate 2,790,425 2,241,609 Securities lending short-term collateral 1,364 484 Cash and cash equivalents Cash 60,564 57,889 Repurchase agreements - 6,900 Short-term money market fund 492,600 449,776 Total cash and cash equivalents 553,164 514,565

26,780,241$ 25,329,992$

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

23

Net investment income for the years ended June 30, 2017 and 2016 is summarized as follows (000's omitted):

2017 2016Fixed maturities 520,042$ 507,341$ Equity securities 109,823 101,232Real estate 101,307 75,949Cash equivalents 1,882 414

733,054 684,936

Increase (decrease) in fair value of investments 1,205,642 731,967Investment expenses (61,051) (51,439)

1,877,645$ 1,365,464$

Custodial Credit Risk – Deposits

The custodial credit risk for deposits is the risk that in the event of a bank failure, BWC/IC’s deposits might not be recovered. Banks must provide security for all public funds on deposit. These institutions may either specifically collateralize individual accounts in addition to amounts insured by the Federal Deposit Insurance Corporation (FDIC), or may pledge a pool of government securities valued at least 105% of the total public monies on deposit at the institution. At June 30, 2017 and 2016, the carrying amount of BWC/IC’s cash deposits were $60.6 million and $57.9 million, respectively, and the bank balances were $9.2 million and $12.8 million, respectively. Differences between the carrying amount and bank balances are primarily due to in transit credit card and online payments. Of the June 30, 2017 and 2016 bank balances, $250 thousand were insured by the FDIC. The remaining cash balance on deposit with the bank was collateralized by pledges held by the trustee of either a surety bond or securities with a sufficient market value and was not exposed to custodial credit risk. Any pledged securities are held by the Federal Reserve, the Federal Home Loan Bank, or an insured financial institution serving as agent of the Treasurer of the State of Ohio. Custodial Credit Risk – Investments

Custodial credit risk for investments is the risk that, in the event of a failure of a counterparty to a transaction, BWC/IC will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. BWC/IC’s investments are not exposed to custodial credit risk and are held in BWC/IC’s name at either JP Morgan, in commingled account types, or are fixed maturity bank loans, which by definition, are not exposed to custodial credit risk. Commingled bond funds are held in the custody of State Street. The underlying securities in the short-term money market fund are high-quality, short-term debt securities issued or guaranteed by the U.S. government or by U.S. government agencies or instrumentalities, and repurchase agreements fully collateralized by U.S. Treasury and U.S. government securities.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

24

Fair Value Measurements

BWC/IC’s investments measured and reported at fair value are classified according to the following hierarchy: Level 1 - Investments reflect prices quoted in active markets and are valued directly from a

primary external pricing vendor. Level 2 - Investments reflect prices that are observable either directly or indirectly. Inputs may

include quoted prices in markets that are not considered active or inputs other than quoted prices that are observable such as interest rates, yield curves, implied volatilities, credit spreads or market-corroborated inputs. These investments are subject to pricing by an alternative pricing source due to lack of information available by the primary vendor.

Level 3 - Investments reflect prices based upon unobservable sources. Asset backed securities, commercial mortgage backed securities, and bank loans are classified in Level 3 and are valued using an internal fair value as provided by the investment manager or other unobservable pricing source.

The categorization of investments within the hierarchy is based upon the pricing transparency of the instrument and should not be perceived as the particular investment’s risk.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

25

The fair value measurement of investments held at June 30, 2017 and 2016 is presented below (000's omitted):

Quoted Observable Unobservable 2017

Prices Inputs Inputs Fair Value

Level 1 Level 2 Level 3 TotalFixed Maturities U.S. corporate bonds - 6,023,461 - 6,023,461$ U.S. treasury inflation protected securities 1,980,275 - - 1,980,275 U.S. government obligations 1,899,097 87,701 - 1,986,798 Non-U.S. corporate bonds - 1,262,858 - 1,262,858 U.S. state and local government agencies - 511,645 - 511,645 U.S. government agency mortgages - 495,293 - 495,293 Asset backed securities - 266,880 77,843 344,723 Commercial mortgage backed securities - 196,373 29,089 225,462 Non-U.S. government and agency bonds - 200,186 - 200,186 U.S. government agency bonds - 89,247 - 89,247 Preferred securities - 42,642 - 42,642 Bank loans - - 21,816 21,816 Bond mutual fund 25,610 - - 25,610 Supranational issues - 2,659 - 2,659 Domestic equity securities - common stocks 5,696,920 - - 5,696,920 Domestic equity securities - preferred stocks 1,726 - - 1,726 Securities lending short-term collateral - 1,364 - 1,364

9,603,628$ 9,180,309$ 128,748$ 18,912,685$

Investments measured at net asset value:Commingled U.S. aggregate indexed fixed income 134,633

Commingled U.S. long government / credit fixed income 547,421 Commingled U.S. treasury inflation protected securities 682,311

Commingled U.S. intermediate duration fixed income 40,571 Investment in bond mutual fund 28,536

Commingled domestic equity securities - common stocks 408,771 Commingled Non-U.S. equity securities - common stocks 2,681,724

Commingled investments in real estate 2,790,425

7,314,392$

Cash and Cash Equivalents: 553,164$

Total Investments: 26,780,241$

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

26

Quoted Observable Unobservable 2016Prices Inputs Inputs Fair ValueLevel 1 Level 2 Level 3 Total

Fixed Maturities U.S. corporate bonds -$ 5,890,039$ -$ 5,890,039$ U.S. treasury inflation protected securities 2,214,285 - - 2,214,285 U.S. government obligations 1,820,020 78,112 - 1,898,132 Non-U.S. corporate bonds - 1,264,891 - 1,264,891 U.S. state and local government agencies - 564,120 - 564,120 U.S. government agency mortgages - 496,469 - 496,469 Asset backed securities - 315,447 37,506 352,953 Commercial mortgage backed securities - 242,126 12,694 254,820 Non-U.S. government and agency bonds - 175,919 - 175,919 U.S. government agency bonds 1,266 116,406 - 117,672 Preferred securities - 36,030 - 36,030 Bank loans - - 27,098 27,098 Bond mutual fund 21,401 - - 21,401 Supranational issues - 3,034 - 3,034 Domestic equity securities - common stocks 5,228,914 - - 5,228,914 Domestic equity securities - preferred stocks 1,309 - - 1,309 Securities lending short-term collateral - 484 - 484

9,287,195$ 9,183,077$ 77,298$ 18,547,570$

Investments measured at net asset value:Commingled U.S. aggregate indexed fixed income 693,903

Commingled U.S. treasury inflation protected securities 683,192 Commingled U.S. intermediate duration fixed income 40,682

Commingled domestic equity securities - common stocks 381,925 Commingled Non-U.S. equity securities - common stocks 2,226,546

Commingled investments in real estate 2,241,609 6,267,857$

Cash and Cash Equivalents: 514,565$

Total Investments: 25,329,992$

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

27

The valuation method for investments measured at the net asset value (NAV) per share, or equivalent, is presented in the tables below (000’s omitted).

2017Fair Value

Unfunded Commitments Redemption Frequency (If

currently eligible) Redemption Notice Period Commingled U.S. aggregate indexed fixed income 134,633 Daily 5 daysCommingled U.S. government credit fixed income 547,421 Daily 5 daysCommingled U.S. treasury inflation protected securities 682,311 Daily 5 daysCommingled U.S. intermediate duration fixed income 40,571 Daily 5 daysInvestment in bond mutual fund 28,536 Bi-Monthly 15 daysCommingled domestic equity securities - common stocks 408,771 Daily 5 daysCommingled Non-U.S. equity securities - common stocks 2,681,724 Daily 5 daysCommingled investments in real estate:

Core Real Estate 2,093,462 - Quarterly 1 quarterCore Plus Real Estate 475,688 262,504 Quarterly 1 quarterValue Added Real Estate 221,275 193,220 Illiquid

Total Commingled investments in real estates: 2,790,425 455,724

Investment Strategy

2016Fair Value

Unfunded Commitments Redemption Frequency (If

currently eligible) Redemption Notice Period Commingled U.S. aggregate indexed fixed income 693,903 Daily 5 daysCommingled U.S. treasury inflation protected securities 683,192 Daily 5 daysCommingled U.S. intermediate duration fixed income 40,682 Daily 5 daysCommingled domestic equity securities - common stocks 381,925 Daily 5 daysCommingled Non-U.S. equity securities - common stocks 2,226,546 Daily 5 daysCommingled investments in real estate:

Core Real Estate 1,983,720 50,000 Quarterly 1 quarterCore Plus Real Estate 127,481 575,000 Quarterly 1 quarterValue Added Real Estate 130,408 123,987 Illiquid

Total Commingled investments in real estates: 2,241,609 748,987

Investment Strategy

Commingled fixed maturities, domestic equity, and non-U.S. equity funds are valued at the net asset value of units held at the end of the period based upon the fair value of the underlying investments. When these types of investments do not have a readily determinable fair value, net asset value per unit is a permissible method for establishing the fair value. BWC/IC invests in real estate through limited partnerships, commingled funds, and commingled real estate investment trusts. Core and Core Plus real estate funds owned are open-ended funds that offer each investor the right to redeem all or a portion of their investment ownership interest once every quarter at the stated unit net asset value of the fund. Value-added real estate funds owned are close-ended funds and do not offer such redemption rights and, therefore, can be considered to be illiquid investments. The real estate funds provide BWC/IC with quarterly valuations based on the most recent capital account balances. Individual properties owned by the funds are valued by an outside independent certified real

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

28

estate appraisal firm at least once a year, and are adjusted as often as every quarter if material market or operational changes have occurred. Each asset is also valued internally on a quarterly basis by each fund. The internal and external valuations of properties owned are subject to oversight and review by an independent valuation advisor firm. Debt obligations of each fund receive market value adjustments by the fund every quarter, generally with the assumption that such positions will be held to maturity. Annual external audits of the funds include a review of compliance with the fund’s valuation policies.

Interest Rate Risk – Fixed-Income Securities

Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. BWC/IC manages the exposure to fair value loss arising from increasing interest rates by requiring that each fixed-income portfolio be invested with duration characteristics that are within a range consistent with Bloomberg Barclays Fixed Income Index ranges.

Duration is a measure of a debt investment’s exposure to fair value changes arising from changing interest rates. It uses the present value of cash flow, weighted for those cash flows as a percentage of the investment’s full price. Effective duration makes assumptions regarding the most likely timing and amounts of variable cash flows arising from such investments such as callable bonds, bonds with inflationary protections, prepayments, and variable-rate debt. The effective duration measures the sensitivity of the market price to parallel shifts in the yield curve.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

29

At June 30, 2017 and 2016, the effective duration of BWC’s fixed-income portfolio is as follows (000's omitted):

Effective EffectiveInvestment Type Fair Value Duration Fair Value DurationCommingled U.S. long government / credit fixed income 547,421$ 15.34 -$ - U.S. government obligations 1,986,798 13.90 1,898,132 15.08U.S. state and local government agencies 511,645 12.95 564,120 13.35U.S. corporate bonds 6,023,461 12.83 5,890,039 12.81Non-U.S. government and agency bonds 200,186 12.55 175,919 12.13Non-U.S. corporate bonds 1,262,858 10.90 1,264,891 10.92U.S. government agency bonds 89,247 9.19 117,672 9.07Commingled U.S. aggregate indexed fixed income 134,633 6.02 693,903 5.48Preferred securities 42,642 5.90 36,030 3.18U.S. treasury inflationary protected securities 1,980,275 5.80 2,214,285 5.26Commingled U.S. treasury inflationary protected securities 682,311 5.38 683,192 5.26Commingled U.S. intermediate duration fixed income 40,571 4.08 40,682 4.09Supranational issues 2,659 4.03 3,034 16.14U.S. government agency mortgages 495,293 3.93 496,469 2.94Commercial mortgage backed securities 225,462 3.84 254,820 2.73Asset backed securities 344,723 1.08 352,953 0.83Bond mutual fund 54,146 0.15 21,401 1.13Bank loans 21,816 0.00 27,098 0.75 Total fixed maturities 14,646,147$ 14,734,640$

June 30, 2017 June 30, 2016

Although the short-term money market fund is generally less sensitive to interest rate changes than are funds that invest in longer-term securities, changes in short-term interest rates will cause changes to its yield resulting in some interest rate risk.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

30

Credit Risk – Fixed-Income Securities

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation to the holder of the investment. U.S. government obligations, U.S. treasury inflation protected securities, and commingled U.S. treasury inflation protected securities are all rated AA+ by Standard and Poor’s in fiscal years 2017 and 2016. Obligations of the U.S. government are explicitly guaranteed by the U.S. government. BWC/IC’s fixed-income securities were rated by Standard and Poor’s (S&P) and/or an equivalent national rating organization and the ratings are presented below using the S&P rating scale (000’s omitted):

2017 2016

Quality Rating Fair Value Fair ValueCredit risk debt quality AAA 518,122$ 420,286$ AA 1,368,696 1,759,226 A 2,779,476 2,528,659 BBB 4,120,536 3,959,245 BB 452,676 470,569 B 140,182 170,629 CCC 28,652 16,244 CC 1,144 - D 2,739 32 Total credit risk debt securities 9,412,223 9,324,890 U.S. government agency bonds AAA 15,821 14,927 AA 73,426 102,745 Total U.S. government agency bonds 89,247 117,672 U.S. government agency mortgages AAA 17,917 16,132 AA 467,586 471,158 A - 2,307 BBB 5,369 5,211 BB 1,859 - B 2,562 1,661 Total U.S. government agency mortgages 495,293 496,469 U.S. government obligations (AA) 1,986,798 1,898,132 U.S. treasury inflation protected securities (AA) 1,980,275 2,214,285 Commingled U.S. treasury inflation protected securities (AA) 682,311 683,192 Total fixed maturities 14,646,147$ 14,734,640$

The short-term money market fund carries an AAA credit rating. Concentration of Credit Risk Concentration of credit risk is the risk of loss that may be attributed to the magnitude of BWC/IC’s investment in a single issuer. In 2017 and 2016, there is no single issuer that comprises 5% or more of the overall portfolio with the exception of BWC/IC’s investments in the U.S. government.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

31

Foreign Currency Risk – Investments

Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment. BWC’s exposure to foreign currency risk as of June 30, 2017 and 2016 is as follows (000’s omitted):

2017 2016Currency Fair Value Fair ValueAustralian Dollar 130,443$ 114,013$ Bermudian Dollar 2,805 955 Brazilian Real 41,993 36,153 British Pound 289,829 264,880 Canadian Dollar 175,591 151,103 Caymanian Dollar - 29 Chilean Peso 7,208 6,186 Chinese Renminbi 148,073 105,992 Colombian Peso 2,901 2,416 Czech Koruna 1,092 792 Danish Krone 33,570 30,974 Egyptian Pound 824 797 Euro 633,970 509,101 Hong Kong Dollar 88,484 72,874 Hungarian Forint 2,049 1,304 Indian Rupee 55,873 41,867 Indonesian Rupiah 15,932 13,584 Israeli Shekel 12,962 12,124 Japanese Yen 436,243 366,519 Macau Pataca 2,292 1,566 Malaysian Ringgit 14,966 14,776 Manx Pound 346 344 Mexican Peso 23,944 21,130 New Zealand Dollar 3,256 2,978 Norwegian Krone 11,453 10,075 Pakistani Rupee 911 - Peruvian Nuevo Sol 656 1,684 Philippines Peso 7,411 7,859 Polish Zloty 8,454 5,639 Qatari Rial 4,326 4,468 Russian Ruble 20,054 18,686 Singapore Dollar 24,266 20,984 South African Rand 39,454 34,322 South Korean Won 98,923 73,114 Swedish Krona 53,860 42,706 Swiss Franc 168,478 151,197 Taiwan Dollar 79,057 60,478 Thailand Baht 13,780 11,269 Turkish Lira 7,428 6,744 United Arab Emirates Dirham 4,729 4,417 Exposure to foreign currency risk 2,667,886 2,226,099 United States Dollar 13,838 447 Total international securities 2,681,724$ 2,226,546$

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

32

Securities Lending

At June 30, 2017 and 2016, BWC/IC had no securities out on loan. BWC/IC has been allocated with cash collateral of $1.4 million in 2017 and $484 thousand in 2016 from the securities lending program administered through the Treasurer of State’s Office based on the amount of cash equity in the State’s common cash and investment account.

3. Capital Assets

Capital asset activity and balances as of and for the years ended June 30, 2017 and 2016 are summarized as follows (000's omitted):

Balance at Balance at Balance at

Capital assets not being 6/30/2015 Increases Decreases 6/30/2016 Increases Decreases 6/30/2017

depreciated

Land 11,994$ -$ (2,528)$ 9,466$ -$ 9,466

Subtotal 11,994 - (2,528) 9,466 - - 9,466

Capital assets being depreciated

Buildings 205,830 1 - 205,831 - 205,831

Building improvements 3,542 37 - 3,579 - - 3,579

Furniture and equipment 27,782 3,687 (1,243) 30,226 4,406 (3,392) 31,240

Land improvements 66 - (66) - - - -

Subtotal 237,220 3,725 (1,309) 239,636 4,406 (3,392) 240,650

Accumulated depreciation

Buildings (165,746) (6,787) - (172,533) (6,787) - (179,320)

Building improvements (753) (177) - (930) (177) - (1,107)

Furniture and equipment (23,980) (1,830) 1,218 (24,592) (2,348) 3,310 (23,630)

Land improvements (60) (1) 61 - - - -

Subtotal (190,539) (8,795) 1,279 (198,055) (9,312) 3,310 (204,057)

Capital assets being amortized

Intangible assets - definite useful lives 83,672 23,272 - 106,944 8,845 115,789

Accumulated amortization - (107) - (107) (7,666) - (7,773)

Subtotal 83,672 23,165 - 106,837 1,179 - 108,016

Net capital assets 142,347$ 18,095$ (2,558)$ 157,884$ (3,727)$ (82)$ 154,075$

4. Reserves for Compensation and Compensation Adjustment Expenses

The reserve for compensation consists of reserves for indemnity and medical claims resulting from work-related injuries or illnesses. The recorded liability for compensation and compensation adjustment expenses is based on an estimate by BWC/IC’s independent consulting actuary. Management believes that the recorded liability makes for a reasonable and appropriate provision for expected future losses; however, the ultimate liability may vary from the amounts provided.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

33

All reserves have been discounted at 4.0% at June 30, 2017 and 2016. A decrease in the discount rate to 3.0% would result in the reserves for compensation and compensation adjustment expenses increasing to $18.8 billion at June 30, 2017, while an increase in the rate to 5.0% would result in the reserves for compensation and compensation adjustment expenses decreasing to $15.3 billion. The undiscounted reserves for compensation and compensation adjustment expenses were $28.2 billion at June 30, 2017 and $29.3 billion at June 30, 2016.

The changes in the reserves for compensation and compensation adjustment expenses for the years ended June 30, 2017, 2016, and 2015 are summarized as follows (000,000’s omitted):

2017 2016 2015

Reserves for compensation and compensation adjustment expenses, beginning of period

17,493$ 18,195$ 18,722$

Incurred:Provision for insured events of current period 1,635 1,731 1,853 Net (decrease) increase in provision for insured events of prior periods net of discount accretion of $700 in 2017, $728 in 2016, and $749 in 2015. (436) (519) (458) Total incurred 1,199 1,212 1,395 Payments:Compensation and compensation adjustment expenses attributable to insured events of current period 347 327 331

Compensation and compensation adjustment expenses attributable to insured events of prior period 1,479 1,587 1,591 Total payments 1,826 1,914 1,922

Reserves for compensation and compensation adjustment expenses, end of period 16,866$ 17,493$ 18,195$

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

34

5. Long-Term Obligations

Activity for long-term obligations (excluding the reserves for compensation and compensation adjustment expenses – see Note 4) for the years ended June 30, 2017 and 2016 is summarized as follows (000’s omitted):

Balance at Balance at Due Within6/30/2015 Increases Decreases 6/30/2016 One Year

Transition credit payable 397,902$ -$ (362,465)$ 35,437$ 35,437$ Net pension liability 134,479 52,559 - 187,038 - Other liabilities 44,559 96,760 (94,718) 46,601 22,964

576,940$ 149,319$ (457,183)$ 269,076$ 58,401$

Balance at Balance at Due Within6/30/2016 Increases Decreases 6/30/2017 One Year

Transition credit payable 35,437$ -$ (35,437)$ -$ -$ Net pension liability 187,038 53,627 - 240,665 - Other liabilities 46,601 110,575 (93,367) 63,809 38,424

269,076$ 164,202$ (128,804)$ 304,474$ 38,424$

6. Reinsurance

BWC/IC purchases catastrophic reinsurance for risks in excess of its retention limits on workers’ compensation insurance policies written. Management is not aware of any catastrophes during the coverage periods listed below, and BWC/IC has not recorded any reinsurance recoveries.

In every policy period reported below, Section Two covers BWC’s remaining liability under the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA). TRIPRA is in effect for losses up to $1 billion. Certain provisions frame the coverage under TRIPRA and they are the following:

The aggregate losses from an occurrence must exceed $100 million. This minimum increases $20 million per year from 2016 to 2020.

Each insurer will have an annual aggregate retention equal to 20% of its prior year’s direct earned premiums.

Each insurer will be responsible for 15% of losses otherwise recoverable that exceed its TRIPRA retention. This percentage increases 1% per year from 2016 to 2020.

Coverage for policies is provided under the following terms: Policy Period: April 1, 2016 to March 31, 2018

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

35

Reinsurance Coverage:

Section One – Other than Acts of Nuclear, Biological, Chemical, or Radiological (NBCR) Terrorism - 50% of $250 million in excess of $100 million per Loss Occurrence - Maximum loss of $10 million of any one person

Section Two – Only for Acts of Terrorism including NBCR Terrorism - $100 million in excess of $350 million per Loss Occurrence - Maximum loss of $10 million of any one person

Policy Period: April 1, 2014 to March 31, 2016

Reinsurance Coverage:

Section One – Other than Acts of Nuclear, Biological, Chemical, or Radiological (NBCR) Terrorism - 50% of $250 million in excess of $100 million per Loss Occurrence - Maximum loss of $5 million of any one person

Section Two – Only for Acts of Terrorism including NBCR Terrorism - 15% of $650 million (or $97.5 million) in excess of $350 million per Loss Occurrence - Maximum loss of $5 million of any one person

The following premiums ceded for reinsurance coverage have been recorded in the accompanying basic financial statements for the years ended June 30, 2017 and 2016 (000’s omitted):

2017 2016Premium and assessment income 1,577,978$ 1,460,755$ Ceded premiums (3,766) (3,900) Total premium and assessment income net of ceded premiums 1,574,212$ 1,456,855$

Should the reinsurers be unable to meet their obligations under the reinsurance contracts, BWC/IC would remain liable for coverage ceded to its reinsurers. Reinsurance contracts do not relieve BWC/IC of its obligations, and a failure of the reinsurer to honor its obligations could result in losses to BWC/IC. BWC/IC evaluates and monitors the financial condition of its reinsurers to minimize its exposure to loss from reinsurer insolvency. BWC/IC management believes its reinsurers are financially sound and will continue to meet their contractual obligations.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

36

BWC/IC’s reinsurers had the following AM Best ratings at June 30, 2017 and 2016: Reinsurer 2017 2016 Allied World Assurance Co. Ltd. A A Axis Specialty Ltd. A+ A+ Brit Global Specialty [Syn. 2987] A A Hannover Re (Bermuda) Ltd. A+ A+ Markel Bermuda Ltd. A A Tokio Millennium Re A++ A++ Underwriters at Lloyd’s A A

Other States Coverage

BWC provides access to optional additional insurance coverage for Ohio companies who meet BWC’s underwriting criteria and have employees who temporarily work in other states. This additional policy offers coverage for workers’ compensation gaps and protects employers from penalties and stop-work orders in other states. Zurich American Insurance Company acts as the insurer of the Other States Coverage policies. United States Insurance Services Inc. administers the process for issuing claim payments. The SIF provides one hundred percent reinsurance for the policies in this program.

7. Premium Rebate

BWC’s net asset policy contains the business rationale, methodology, and guiding principles with respect to maintaining a prudent net position to protect SIF against financial and operational risks that may threaten the ability to meet future obligations.

The Board approved a rebate to reduce the net position in SIF at the April 2017 board meeting. As a result, the private employers were granted a rebate equivalent to 66% of billed premiums for the July 1, 2015 through June 30, 2016 policy period, while public taxing district employers were also granted a rebate equivalent to 66% of premiums for the January 1, 2015 through December 31, 2015 policy period. This action resulted in premium rebate expense of $1.1 billion in fiscal year 2017.

In fiscal year 2016, BWC’s Board approved a three hundred percent rebate of billed premiums from the January 1, 2005 through December 31, 2014 policy years for PWREF employers. This action resulted in premium rebate expense of $15.17 million in fiscal year 2016.

An additional premium rebate expense of $223 thousand was recorded in fiscal year 2016. This expense was related to rebates due to employers who did not intitially receive the 60% rebate of billed premiums for the July 1, 2012 through June 30, 2013 policy period.

These policy holder rebates reduce the SIF and PWREF net positions, but preserve prudent net positions while maintaining the ability to meet future obligations for these funds.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

37

8. Pension Plans

General Information

BWC/IC employees participate in the Ohio Public Employees Retirement System of Ohio (OPERS), a cost-sharing, multiple-employer public employee retirement system. OPERS administers three pension plans:

The Traditional Plan - a defined benefit plan.

The Combined Plan - a combination of a defined benefit plan and a defined contribution plan. This plan invests employer contributions to provide a formula retirement benefit similar in nature to, but less than, the Traditional Plan benefit. Member contributions are self-directed by the members and accumulate retirement assets in a manner similar to the Member-Directed Plan.

The Member-Directed Plan - a defined contribution plan. Under this plan, members accumulate retirement assets equal to the value of member and vested employer contributions plus any investment earnings thereon.

OPERS provides retirement, disability, survivor and death benefits, and annual cost-of-living adjustments to members of the Traditional Plan and Combined Plans. Members of the Member-Directed Plan do not qualify for ancillary benefits. Benefits are established and may be amended by State statute. Authority to establish and amend benefits is provided in Chapter 145 of the Ohio Revised Code.

OPERS issues a publicly available financial report that includes financial statements, required supplementary information, information about the pension plan’s fiduciary net position, and the Plan Statement with pension plan details. The report is available by visiting https://www.opers.org/financial/reports.shtml, by writing to Ohio Public Employees Retirement System, 277 East Town Street, Columbus, Ohio 43215-4642, or by calling 614-222-5601 or 1-800-222-7377. As of June 30, 2017, the most recent report issued by OPERS is for the calendar year ended December 31, 2016. Funding Policy

Chapter 145 of the Ohio Revised Code provides statutory authority for employee and employer contributions. During fiscal years 2017 and 2016, the employee contribution rate was 10% and the employer contribution rate was 14% of covered payroll for all three plans. BWC/IC’s contractually required employer contributions were $20.4 million for fiscal year 2017 and $19.8 million for fiscal year 2016.

Measurement Date

The measurement dates for the net pension assets and liabilities, deferred inflows and outflows of resources, and pension expense were December 31, 2016 for fiscal year 2017 and December 31, 2015 for fiscal year 2016. OPERS total pension assets and liabilities that were used to calculate the net pension asset and liability were also based on an actuarial valuation as of these dates.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

38

Proportionate Share

BWC/IC’s proportionate shares of the net pension assets and liabilities are determined as BWC/IC’s share of contributions to the pension plan relative to the total employer contributions from all participating OPERS employers. Member and employer contributions included in OPERS’ Statement of Changes in Fiduciary Net Position are used to calculate proportionate share. At December 31, 2016 and 2015, Ohio BWC/IC’s proportions were as follows:

December 2016 December 2015

BWC IC BWC ICTraditional Plan 0.877753% 0.182059% 0.888733% 0.191082%Combined Plan 0.467012% 0.111108% 0.469899% 0.078951%

Pension Assets, Deferred Outflows of Resources, Pension Liabilities, Deferred Inflows of Resources, and Pension Expense

At June 30, 2017 and 2016, BWC/IC reported $322 thousand and $267 thousand, respectively, for its proportionate share of the Combined Plan’s net pension asset and a liability of $241 million and $187 million, respectively, for its proportionate share of the Traditional Plan’s net pension liability.

For the years ended June 30, 2017 and 2016, Ohio BWC/IC recognized pension expense of $31.6 million and $29.5 million, respectively. At June 30, 2017 and 2016, Ohio BWC/IC reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (000’s omitted):

June 2017 June 2016Deferred Outflows Deferred Inflows Deferred Outflows Deferred Inflows

of Resources of Resources of Resources of ResourcesDifference between expected and actual experience 326$ 1,628$ -$ 3,780$

Net difference between projected and actual

earnings on pension plan investments 40,998 4,214 55,263 -

Changes in proportion and differences between BWC/IC contributions and proportionate share of contributions 837 3,935 117 2,905

Assumption Changes 38,251 - - -

BWC/IC contributions subsequent to the measurement date 9,847 - 8,228 -

Total 90,259$ 9,777$ 63,608$ 6,685$

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

39

For 2017, deferred outflows of resources includes the BWC/IC’s proportionate share of the effects of changes in assumptions resulting from OPERS experience study for the period 2011 through 2015. Information from this study led to changes in both demographic and economic assumptions, with the most notable being a reduction in the expected rate of investment return from an 8.0% actuarially assumed rate of return down to 7.5%, for the defined benefit investments. In 2017 and 2016, deferred outflows of resources related to pensions resulting from Ohio BWC/IC’s contributions subsequent to the measurement date of $9.8 million and $8.2 million, respectively, will be recognized as a reduction of net pension liability in the fiscal years ended June 30, 2018 and 2017, respectively. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows (000’s omitted):

Fiscal Year 2017 Fiscal Year 2016

Year ended June 30:

2018 28,329$ 2017 10,770$ 2019 30,501 2018 11,678 2020 12,915 2019 13,850 2021 (1,068) 2020 12,453 2022 (15) 2021 (14)

Thereafter (27) Thereafter (42)

Actuarial Assumptions

The total pension liability in the December 31, 2016 and 2015 actuarial valuations were determined using the following actuarial assumptions, applied to all periods included in the measurement: December 2016

Traditional Pension Plan Combined Plan

Actuarial Assumptions:

Investment Rate of Return 7.50% 7.50%

Wage Inflation 3.25% 3.25%

Projected Salary Increases 3.25% - 10.75% 3.25% - 8.25%

(includes wage inflation at 3.25%) (includes wage inflation at 3.25%)

Cost of living Adjustments Pre-1/7/2013 Retirees: 3.00% Simple Pre-1/7/2013 Retirees: 3.00% Simple

Post-1/7/2013 Retirees: 3.00% Simple Post-1/7/2013 Retirees: 3.00% Simple

through 2018, then 2.15% Simple through 2018, then 2.15% Simple

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

40

December 2015

Traditional Pension Plan Combined PlanActuarial Assumptions:Investment Rate of Return 8.00% 8.00%

Wage Inflation 3.75% 3.75%

Projected Salary Increases 4.25% - 10.05% 4.25% - 8.05%(includes wage inflation at 3.75%) (includes wage inflation at 3.75%)

Cost of living Adjustments Pre-1/7/2013 Retirees: 3.00% Simple Pre-1/7/2013 Retirees: 3.00% SimplePost-1/7/2013 Retirees: 3.00% SimplePost-1/7/2013 Retirees: 3.00% Simplethrough 2018, then 2.80% Simple through 2018, then 2.80% Simple

Mortality rates are based on the RP-2014 Healthy Annuitant mortality table. For males, Healthy Annuitant Mortality tables were used, adjusted for mortality improvement back to the observation period base of 2006 and then established the base year as 2015. For females, Healthy Annuitant Mortality tables were used, adjusted for mortality improvements back to the observation period base year of 2006 and then established the base year as 2010. The mortality rates used in evaluating disability allowances were based on the RP-2014 Disabled mortality tables, adjusted for mortality improvement back to the observation base year of 2006 and then established the base year as 2015 for males and 2010 for females. Mortality rates for a particular calendar year for both healthy and disabled retiree mortality tables are determined by applying the MP-2015 mortality improvement scale to the above described tables. The actuarial assumptions used in the December 31, 2016 and 2015 valuations were based on the results of an actuarial experience study for the 5 year periods ended December 31, 2015 and December 31, 2010, respectively. Actuarially determined amounts are subject to continual review or modification as actual results are compared with past expectations and new estimates are made about the future. The long-term expected rate of return on defined benefit investment assets was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected real rate of return by weighting the expected future real rates of return by the target asset allocation percentage, adjusted for inflation.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

41

The table below displays the OPERS Board approved asset allocation policy for December 2016 and 2015 and the expected real rates of return.

December 2016 December 2015

Weighted Average Weighted AverageLongterm Expected Longterm Expected

Asset Class Target Allocation Real Rate of Return Target Allocation Real Rate of Return

Fixed income 23.00% 2.75% 23.00% 2.31%

Domestic equity 20.70% 6.34% 20.70% 5.84%

International equity 18.30% 7.95% 18.30% 7.40%

Real estate 10.00% 4.75% 10.00% 4.25%

Private equity 10.00% 8.97% 10.00% 9.25%

Other Investments 18.00% 4.92% 18.00% 4.59%

Total 100.00% 5.66% 100.00% 5.27%

Discount Rate

The discount rate used to measure the total pension liability for both the Traditional Pension Plan and the Combined Plan was 7.5% for 2016 and 8% for 2015. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and those of the contributing employers are made at the contractually required rates, as actuarially determined. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments for the Traditional Pension Plan and Combined Plan was applied to all periods of projected benefit payments to determine the total pension liability.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

42

Sensitivity to Changes in the Discount Rate

For the years 2016 and 2015, the following presents BWC/IC’s proportionate share of the net pension liability calculated using the discount rates of 7.5% and 8%, respectively, as well as what BWC/IC’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate (000’s omitted):

December 2016

1% Decrease - 6.5 %Current Discount Rate -

7.5% 1% Increase - 8.5%Traditional Plan: BWC 304,510$ 199,322$ 111,668$ IC 63,160 41,343 23,162

Total Net Pension Liability 367,670$ 240,665$ 134,830$ Combined Plan: BWC 19$ (260)$ (476)$ IC 4 (62) (113)

Total Net Pension (Asset) 23$ (322)$ (589)$

December 2015

1% Decrease - 7.0 %Current Discount Rate -

8.0% 1% Increase - 9.0%Traditional Plan: BWC 245,264$ 153,940$ 76,911$ IC 52,733 33,098 16,536

Total Net Pension Liability 297,997$ 187,038$ 93,447$ Combined Plan: BWC (5)$ (229)$ (409)$ IC (1) (38) (69)

Total Net Pension (Asset) (6)$ (267)$ (478)$

Defined Contribution Plans

Defined contribution plan benefits are established in the plan documents, which may be amended by the OPERS Board. Member-Directed Plan and Combined Plan members who have met the retirement eligibility requirements may apply for retirement benefits. The amount available for defined contribution benefits in the Combined Plan consists of the member’s contributions plus or minus the investment gains or losses resulting from the member’s investment selections. Combined Plan members wishing to receive benefits must meet the requirements for both the defined benefit and defined contribution plans. Member-Directed participants must have attained the age of 55, have money on deposit in the defined contribution plan and have terminated public service to apply for retirement benefits. The amount available for defined contribution benefits in the Member-Directed Plan consists of the members’ contributions, vested employer contributions and investment gains or losses resulting from the members’ investment selections. Employer contributions and associated investment earnings vest over a five year period, at a rate of 20% each year. BWC/IC

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

43

recognized $476 thousand and $606 thousand in pension expense for defined contribution plans in fiscal years 2017 and 2016, respectively. At retirement, members may select one of the several distribution options for payment of the vested balance of their individual OPERS accounts. Options include the purchase of a monthly annuity from OPERS (which includes joint and survivor options), partial lump sum payments (subject to limitations), a rollover of the vested account balance to another financial institution, receipt of entire account balance, net of taxes withheld, or a combination of these options.

9. Post-Retirement Health Care

The Ohio Revised Code permits, but does not require, OPERS to provide health care to its eligible benefit recipients. Authority to establish and amend health care coverage is provided to the OPERS Board of Trustees in Chapter 145 of the Ohio Revised Code.

In order to qualify for health care coverage, age-and-service retirees under the Traditional Pension and Combined plans must have 20 or more years of qualifying Ohio service credit. Health care coverage for disability benefit recipients and qualified survivor benefit recipients is available. The health care coverage provided by OPERS meets the definition of an Other Post Employment Benefit (OPEB) as described in GASB Statement 45. Please see the Plan Statement in the OPERS 2016 CAFR for further details. This report is available by visiting https://www.opers.org/financial/reports.shtml, by writing to Ohio Public Employees Retirement System, 277 East Town Street, Columbus, Ohio 43215-4642, or by calling 614-222-5601 or 1-800-222-7377. As of June 30, 2017, the most recent report issued by OPERS is for the calendar year ended December 31, 2016.

In March 2016, OPERS received two favorable rulings from the Internal Revenue Service (IRS) allowing OPERS to consolidate all health care assets into the OPERS 115 Health Care Trust. Transition to the new health care trust structure was completed July 1, 2016. As of December 31, 2016, OPERS maintains a cost-sharing, multiple-employer defined benefit post-employment health care trust, which funds multiple health care plans including medical coverage, prescription drug coverage and deposits to a Health Reimbursement Arrangement to qualifying benefit recipients of both the Traditional Pension and the Combined plans. Members of the Member-Directed Plan do not qualify for ancillary benefits, including OPERS sponsored health care coverage. OPERS funds a Retiree Medical Account (RMA) for participants in the Member-Directed Plan. At retirement or refund, participants can be reimbursed for qualified medical expenses from their vested RMA balance.

The Ohio Revised Code provides the statutory authority requiring public employers to fund health care through their contributions to OPERS. A portion of each employer’s contribution to OPERS is set aside to fund OPERS health care plans.

Employer contribution rates are expressed as a percentage of the earnable salary of active members. In 2016, state and local employers contributed at a rate of 14.0% of earnable salary. These are the maximum employer contribution rates permitted by the Ohio Revised Code. Active member contributions do not fund health care.

Each year, the OPERS Board determines the portion of the employer contribution rate that will be set aside to fund health care plans. The portion of employer contributions allocated to health

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

44

care for members in the Traditional Pension Plan and Combined Plan was 2.0% during calendar year 2016. As recommended by OPERS’ actuary, the portion of employer contributions allocated to health care beginning January 1, 2017 decreased to 1.0% for both plans. The OPERS Board is also authorized to establish rules for the retiree or their surviving beneficiaries to pay a portion of the health care provided. Payment amounts vary depending on the number of covered dependents and the coverage selected. The employer contribution as a percentage of covered payroll deposited into the RMA for participants in the Member-Directed Plan for 2016 was 4.0%.

Based upon the portion of each employer’s contribution to OPERS set aside for funding OPEB as described above, BWC/IC’s contribution allocated to OPEB for the 12 months ended December 31, 2016 and 2015, was approximately $3 million and $2.7 million, respectively.

10. Risk Management

BWC/IC is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. To cover these risks, BWC/IC maintains commercial insurance and property insurance. There were no reductions in coverage in either fiscal years 2017 or 2016. Claims experience over the past three years indicates there were no instances of losses exceeding insurance coverage. Additionally, BWC/IC provides medical benefits for its employees on a fully insured basis with independent insurance companies or the State’s self-insured benefit plan.

11. Contingent Liabilities

BWC/IC is a party in various legal proceedings, which normally occur as part of BWC/IC’s operations.

A class action case was filed against BWC alleging that non-group-rated employers subsidize group-rated employers, and that this bias in premiums violates various provisions of the Ohio Constitution. Plaintiffs asked the Court to declare the group rating plan unconstitutional and require BWC to repay to the class members all excessive premiums collected by BWC, with interest and attorney fees. On March 20, 2013, the Court determined the damages and ordered that the class was entitled to restitution in the amount of $859 million. Accordingly, a provision for this liability was reported in the 2013 financial statements for this matter. On April 15, 2013, BWC filed a notice of appeal of the judgment. On July 19, 2013, BWC filed its appeal brief. The decision from the Eighth District Court of Appeals in May 2014 did remand part of the case to the Trial Court for potential offset of damages, which did reduce the amount of judgment against BWC. On July 23, 2014 all parties agreed to a settlement of $420 million. As of June 30, 2016 approximately $4 million remained to be paid and was relieved in fiscal year 2017.

The cities of Cleveland and Parma filed separate lawsuits on June 28, 2013 and September 18, 2013, respectively, alleging that BWC overcharged public employers that were not group rated. The cities claim that BWC overcharged non-group rated public employers in order to unlawfully subsidize the discounts for the group rated public employers. The lawsuit filed by Parma seeks class action status for similarly situated public employers.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

45

In September 2016, Cleveland and BWC filed cross motions for summary judgment. The Trial Court granted summary judgment in Cleveland’s favor as to liability but denied it as to damages and denied BWC’s summary judgment motion in its entirety on December 22, 2016. On February 27, 2017, the Trial Court found that Cleveland was entitled to damages in the amount of $4.5 million plus post-judgment interest. BWC appealed to the Eighth District Court of Appeals on March 24, 2017 and filed its brief on June 26, 2017. A liability of $4.5 million is included in the Statements of Net Position at June 30, 2017 and a corresponding amount was recorded in operating expenses during fiscal year 2017.

The City of Parma filed a motion for class certification on August 8, 2014, which remains pending. On January 13, 2016, the Trial Court denied BWC’s partial motion for summary judgment related to the statute of limitations and stated that Parma may assert a claim for unjust enrichment as early as 2001. On October 28, 2016, Parma moved for summary judgment against BWC as to liability only, which BWC opposed. The Trial Court held a hearing on Parma’s motion for class certification on June 14, 2017. The Court has not set a trial date and the financial exposure cannot be estimated at this time. Accordingly, no provision for any liability has been reported in the financial statements for this matter.

A class action case was filed against BWC alleging violations of the Ohio Revised Code and unjust enrichment. The plaintiff asserts that BWC stopped issuing the plaintiff’s temporary disability payments in the form of paper checks and instead began electronically transferring his benefits into an electronic benefits transfer debit card account. The bank charges a transaction fee if he visits a bank teller to withdraw money from the account more than once per month, regardless of the fact that his benefits are credited to the account every 14 days. The plaintiff asserts that this practice of charging transaction fees for withdrawals deprives the plaintiff and other workers’ compensation claimants of 100% of their awarded benefits. On December 23, 2010, BWC filed a motion to dismiss for lack of subject matter jurisdiction on the basis that plaintiff’s complaint is an action in law (not an action in equity), which should be brought in the Ohio Court of Claims. This motion was denied. On August 15, 2012, BWC filed a motion for summary judgment. The plaintiff filed a motion for class certification, which BWC opposed on August 15, 2012. Effective September 2012, BWC negotiated a new fee schedule with JP Morgan Chase Bank pursuant to which the debit card now offers one free teller visit per deposit. BWC provided more information in 2015 to support the agency relationship between the BWC and JP Morgan Chase. On January 13, 2016, the Court granted the plaintiff's motion for class certification and denied BWC’s motion for summary judgment. BWC appealed to the Eighth District Court of Appeals on February 11, 2016 and the appeal was fully briefed. On December 22, 2016, the Eighth District Court of Appeals upheld the Trial Court’s decision to the extent that it granted summary judgment to the plaintiff and certified the class. BWC filed an appeal and a jurisdictional memorandum in the Ohio Supreme Court on February 3, 2017. Briefing on the appeal concluded on March 6, 2017. The Court has not issued a decision on the acceptance of the appeal. An adverse outcome is possible and any damages are estimated to be immaterial to the financial statements. Management intends to vigorously defend this case. Accordingly, no provision for any liability has been reported in the financial statements for this matter.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

46

A class action case was filed challenging the constitutionality of BWC’s practice of reimbursing injured workers for prescriptions paid prior to the allowance of a claim or additional condition. Plaintiffs allege that BWC should repay the full cash price of prescriptions, even if such amount is in excess of the amount permissible under BWC’s provider fee schedule. On February 3, 2012, BWC filed a motion to dismiss plaintiff’s complaint. On August 7, 2013, the Court denied the motion. In fiscal year 2015, this case was settled and the impact to the financial statements was an increase of $149 thousand to operating expenses and a liability was established at June 30, 2015 for this amount. This class action settlement was paid in fiscal year 2016.

A class action case was filed challenging BWC’s calculation of the statewide average weekly wage. Statute says that the rate must be adjusted to the next higher even multiple of one dollar in order to establish the maximum disability payment for the subsequent calendar year. On April 13, 2016, the Franklin County Court of Common Pleas granted summary judgment in BWC’s favor and no class was certified. The Plaintiff appealed to the Tenth District Court of Appeals and the parties fully briefed the appeal. On February 24, 2017, the Appellate Court affirmed the Trial Court’s decision. The Plaintiff did not appeal to the Ohio Supreme Court and the case was closed.

A class action case was filed claiming that BWC has included certain costs in its subrogation lien, thereby inflating the lien, and then recovering those costs through subrogation, in contravention of Ohio Revised Code. Plaintiff asserts that BWC’s practices constitute an equal protection violation and that BWC has been unjustly enriched. Plaintiff seeks equitable restitution, injunctive relief, and a declaratory judgment that BWC’s subrogation practices are unlawful. BWC filed a motion to dismiss the complaint on May 25, 2016 to which Plaintiff filed a memo in opposition and BWC filed a response. The Trial Court permitted the plaintiff to amend his complaint and denied BWC‘s motion to dismiss on March 22, 2017. BWC moved for reconsideration on April 19, 2017 and the parties have fully briefed the motion. The Court’s decision on BWC’s reconsideration/venue transfer motion remains pending. Management does not anticipate an adverse conclusion and intends to vigorously defend this case. Accordingly, no provision for any liability has been reported in the financial statements for this matter.

Although the outcome of certain cases is not quantifiable or determinable at this time, an unfavorable outcome in any one of them could have a material effect on the financial position of BWC/IC.

BWC/IC is also involved in other claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with the Attorney General, the ultimate disposition of these matters is not likely to have a material adverse effect on BWC/IC’s financial position.

12. Transition Credit Liability

In April 2014, the Board approved a transition credit estimated to be $1.2 billion for private and public employer taxing district policyholders to minimize the cash flow impacts of transitioning from collecting premiums in arrears or after the coverage period to prospective billing where premiums are collected in advance of the coverage period. The switch to prospective billing occurred for the policy period beginning July 1, 2015 for private employers and the policy period beginning January 1, 2016 for public employer taxing districts.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

47

For the policy period beginning July 1, 2015, a transition credit equal to one sixth of the estimated annual premiums was granted to private employers. This credit was estimated to be $262 million. Final accrual to actual transactions for impacted private employer policy periods were approximately $22 million less than the estimated credits resulting in negative transition credit expense in 2016.

Public taxing district employers received transition credits equal to fifty percent of the billed premium for the January 1 through December 31, 2015 policy period and fifty percent of the estimated annual premium for the January 1 through December 31, 2016 policy period. The estimated transition credit related to the July 1, 2015 through December 31, 2016 period was $136 million and $101 million was relieved in fiscal year 2016. The remaining $35 million was reflected as a current liability in the statements of net position for the year ended June 30, 2016 and relieved in the year ended June 30, 2017. Final accrual to actual transactions for impacted public employer policy periods were approximately $2.6 million higher than the estimated credit, recorded as transition credit expense in 2017.

13. DWRF Assessments and Unbilled Receivables

House Bill 52 of the 131st General Assembly amended Ohio Revised Code (ORC) 4123.411 allowing the Administrator discretionary authority to levy assessments to fund DWRF I benefits. DWRF I assessment rates were reduced to zero for public taxing district employers for the policy year beginning January 1, 2016 and the policy year beginning July 1, 2016 for private employers. ORC 4123.419 was also amended to allow the Administrator with the advice and consent of the Board the authority to transfer investment income from the SIF to cover the cost of DWRF I benefits for private and public taxing district employers rather than levying assessments against these employers. The Board approved this alternative funding in September 2015.

Liabilities of $492 million and $508 million have been recorded in SIF during fiscal years 2017 and 2016, respectively, to recognize the long-term commitment to use SIF investment earnings to fund DWRF I benefits for private and public taxing district employer claims. The liabilities are based on the estimated DWRF I discounted reserves for compensation and compensation adjustment expenses less the unspent balance of private and public taxing district employer DWRF I assessments. Receivables have been recorded in DWRF to recognize the long-term commitment from SIF to cover these benefits. These receivables replace the unbilled receivables previously recorded in DWRF that recognized the ability to assess private and public taxing district employers in the future for providing the funds needed to pay DWRF I benefits.

During fiscal year 2016, the assumptions used to estimate DWRF II unbilled receivables were updated. Previously, DWRF II unbilled receivables were recorded in amounts equal to the DWRF II discounted reserves for compensation and compensation adjustment expenses. Cash and investment balances are now included in estimating DWRF II unbilled receivables. The total DWRF cash and investment balances exceed DWRF II discounted reserves for compensation and compensation adjustment expenses at both June 30, 2016 and June 30, 2017. Unbilled receivables and assessment income were reduced by $1.5 billion in the statements of net position and the statements of revenues, expenses, and changes in net position during fiscal year 2016. At this time, there is no need to assess employers in future periods to fund the current DWRF II estimated liabilities.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

(Continued)

48

14. Net Position

Individual fund net position (deficit) balances at June 30, 2017 and 2016 were as follows (000’s omitted):

2017 2016

SIF $ 9,886,105 $ 8,945,894

SIF Surplus Fund Account 39,710 33,091

SIF Premium Payment Security Fund 143,642 158,049

Total SIF Net Position 10,069,457 9,137,034

DWRF 112,152 (5,472)

CWPF 268,687 262,792

PWREF 13,712 13,125

MIF 23,371 22,701

SIEGF 30,727 29,937

ACF (760,035) (706,232)

Total Net Position $ 9,758,071 $ 8,753,885

As mandated by the Code, the SIF net position is separated into three separate funds; the main fund, the Surplus Fund Account (Surplus Fund), and the Premium Payment Security Fund (PPSF).

The SIF Surplus Fund is established by the Code and is financed by a portion of all SIF premiums paid by private and public employers (excluding State employers) and assessments paid by self-insured employers. The Surplus Fund has been appropriated for specific charges, including compensation related to claims of handicapped persons or employees of noncomplying employers, and the expense of providing rehabilitation services, counseling, training, living maintenance payments, and other related charges to injured workers. The Surplus Fund may also be charged on a discretionary basis as ordered by BWC/IC, as permitted by the Code. Prior to the passage of House Bill 15 in 2009, contributions to the Surplus Fund were limited to 5% of premiums. The BWC administrator now has the authority to transfer money from SIF necessary to meet the needs of the Surplus Fund.

The SIF PPSF is established by the Code and is financed by a percentage of all premiums paid by private employers. Amounts are charged to the PPSF when the employer's premium due for a payroll period is determined to be uncollectible by the Attorney General of Ohio.

The ACF fund deficit is a result of recognizing the actuarially estimated liabilities in accordance with accounting principles generally accepted in the United States of America, even though the funding for ACF is on a terminal funding basis in accordance with the Code. Consequently, the incurred expenses are not fully funded.

DWRF is operated on a terminal funding basis in accordance with the Code, however, the actuarially estimated liabilities are recognized in accordance with accounting principles generally accepted in the United States of America. While BWC has the statutory authority to assess employers in future periods for amounts needed to fund DWRF II cost of living benefits, cash and investment balances are currently sufficient to fund the estimated DWRF II liabilities.

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 and 2016

49

15. Changes in Accounting Principles

For the fiscal year ended June 30, 2017, the BWC/IC implemented the provisions of GASB No. 82, “Pension Issues – an amendment of GASB Statements No. 67, No. 68, and No. 73”. GASB No. 82 replaces the reporting of covered-employee payroll with covered payroll in the required supplementary information for pensions. Covered payroll is defined as the payroll on which contributions to a pension plan are based. The provisions of GASB 82 have been implemented as required in BWC/IC’s required supplementary schedules.

The GASB has recently issued the following new accounting pronouncements that will be effective in future years and may be relevant to BWC/IC:

GASB No. 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions” (effective fiscal year 2018)

GASB No. 85, ”Omnibus” (effective fiscal year 2018)

GASB No. 87, “Leases” (effective fiscal year 2021)

Management has not yet determined the impact that these recently issued GASB Pronouncements will have on BWC/IC’s financial statements. Upon implementation of GASB No. 75, it is expected that an OPEB liability will be reported in the statements of net position.

SUPPLEMENTARY INFORMATION

OHIO BUREAU OF WORKERS' COMPENSATION AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

REQUIRED SUPPLEMENTAL REVENUE AND RESERVE

DEVELOPMENT INFORMATION (See Accompanying Independent Auditors' Report)

June 30, 2017 and 2016

(Continued)

50

GASB Statement No. 30, "Risk Financing Omnibus," requires the presentation of ten years of supplemental revenue and reserve development information, if available.

The table on the following page illustrates how BWC/IC's gross premium revenues and investment income compare to related costs of workers' compensation benefits (compensation) and other expenses incurred by BWC/IC as of the end of each of the last ten and one-half reporting periods. The rows of the table are defined as follows: (1) This line shows the total of each period’s gross premium revenues and investment income. (2) This line shows each period’s operating expenses, including overhead and compensation adjustment expenses not allocable to individual claims. (3) This line shows incurred compensation and allocated compensation adjustment expenses (both paid and accrued) as originally reported at the end of the first period in which the injury occurred. (4) This section of ten rows shows the cumulative amounts paid as of the end of successive periods for each period. (5) This section of ten rows shows how each period's incurred compensation increased or decreased as of the end of successive periods. (6) This line compares the latest re-estimated incurred compensation amount to the amount originally established (line 3) and shows whether this latest estimate of compensation cost is greater or less than originally estimated. As data for individual periods mature, the correlation between original estimates and re-estimated amounts is commonly used to evaluate the accuracy of incurred compensation currently recognized in less mature periods. The columns of the table show data for successive periods on an undiscounted basis for the fiscal years ended June 30, 2007 through 2017.

51

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

1. Required premiums, assessments, and investment income earned 3,517$ 1,378$ 2,552$ 5,194$ 2,453$ 4,044$ 4,356$ 4,206$ 2,296$ 2,968$ 5,251$ Ceded premiums 4 4 4 4 6 6 6 1 - - -

Net earned 3,513 1,374 2,548 5,190 2,447 4,038 4,350 4,205 2,296 2,968 5,251

2. Unallocated expenses 205 170 163 150 140 129 131 139 97 108 109

3. Estimated incurred compensation andcompensation adjustment expense, end of period 1,635 1,731 1,853 1,854 1,720 1,800 1,863 1,870 2,139 2,219 2,327

Discount 781 806 874 872 830 967 974 985 1,472 1,892 2,099 Gross liability as originally estimated 2,416 2,538 2,727 2,726 2,549 2,767 2,837 2,854 3,611 4,111 4,426

4. Net paid (cumulative) as of :End of period 347 327 331 337 380 386 400 384 458 415 423 One year later 531 548 563 600 620 641 639 711 755 747 Two years later 669 689 731 756 773 775 868 920 926 Three years later 776 822 857 879 883 979 1,056 1,048 Four years later 893 935 964 973 1,083 1,163 1,155 Five years later 1,002 1,040 1,055 1,179 1,256 1,251 Six years later 1,102 1,124 1,263 1,350 1,336 Seven years later 1,179 1,327 1,426 1,411 Eight years later 1,380 1,486 1,478 Nine years later 1,538 1,534 Ten years later 1,583

5. Re-estimated incurred compensation and compensation adjustment expenses (gross): One year later 2,257 2,346 2,476 2,494 2,501 2,680 2,701 2,865 3,607 3,946 Two years later 2,219 2,265 2,397 2,450 2,471 2,596 2,794 2,948 3,460 Three years later 2,144 2,234 2,361 2,438 2,425 2,730 2,909 2,909 Four years later 2,119 2,226 2,340 2,426 2,585 2,862 2,877 Five years later 2,135 2,236 2,342 2,668 2,748 2,812 Six years later 2,168 2,246 2,586 2,846 2,738 Seven years later 2,189 2,485 2,760 2,784 Eight years later 2,442 2,668 2,715 Nine years later 2,632 2,656

Ten years later 2,620

6. Decrease in gross estimated incurred compensation and (281) (508) (582) (430) (632) (669) (665) (1,169) (1,479) (1,806) compensation adjustment expenses from endof period

Ultimate incurred loss and LAE excludes liability associated with active working miners within the CWPF since they are not yet assignable to fiscal accident year.The June 30, 2017 active miners nominal and discounted liability is approximately $198.8 million and $81.1 million, respectively.

(See Accompanying Independent Auditors' Report)

(In Millions of Dollars)

Fiscal Years Ended June 30

OHIO BUREAU OF WORKERS' COMPENSATION

AND

INDUSTRIAL COMMISSION OF OHIO

(A DEPARTMENT OF THE STATE OF OHIO)

REQUIRED SUPPLEMENTAL REVENUE AND RESERVE

DEVELOPMENT INFORMATION, UNAUDITED, Continued

52

2017 2016 2015BWC/IC's Proportion of the net pension liability (asset) 1.638% 1.629% 1.701%

BWC/IC's Proportionate share of the net pension liability (asset) 240,344$ 186,771$ 134,254$

BWC/IC's covered payroll 199,702$ 196,276$ 197,260$

Proportionate share of the net pension liability (asset) as a percentage of its covered payroll 120.351% 95.157% 68.059%

Plan fiduciary net position as a percentage of the total pension liability Traditional Pension Plan 77.25% 81.08% 86.45% Combined Plan 116.55% 116.90% 114.83%

* - The amounts presented for each fiscal year were determined as of the calendar year end that occurred within the fiscal year.

This schedule is required to show information for 10 years. However, until a full 10 year trend is compiled, governments

are required to only present information for those years for which information is available.

Last 3 fiscal years*(000's omitted)

OHIO BUREAU OF WORKERS' COMPENSATIONAND

INDUSTRIAL COMMISSION OF OHIO(A DEPARTMENT OF THE STATE OF OHIO)

Required Supplementary InformationSchedule of BWC/IC's Proportionate Share of the Net Pension Liability (Asset)

53

2017 2016 2015BWC/IC's Statutorily Required Employer Contributions 20,428$ 19,752$ 19,688$

Amount of contributions recognized by the pension plan in relation to the statutory contributions 20,428 19,752 19,688

Contributions deficiency (excess) - - -

Employer's covered payroll 202,973$ 197,500$ 194,884$

Amount of contributions recognized by the pension plan as a percentage of employers' covered payroll 10.06% 10.00% 10.10%

* - This schedule is required to show information for 10 years. However, until a full 10 year trend is compiled,

governments are required to only present information for those years for which information is available.

(See Accompanying Independent Auditors' Report)Last 3 fiscal years*

(000's omitted)

OHIO BUREAU OF WORKERS' COMPENSATIONAND

INDUSTRIAL COMMISSION OF OHIO(A DEPARTMENT OF THE STATE OF OHIO)

Required Supplementary InformationSchedule of Employer Contributions and Contributions Subsequent to Measurement Date

54

Disabled Coal-Workers Public Work- Marine Self-Insuring AdministrativeState Insurance Workers' Relief Pneumoconiosis Relief Employees' Industry Employers' Guaranty Cost

Fund Account Fund Account Fund Account Fund Account Fund Account Fund Account Fund Account Eliminations TotalsASSETSCurrent assets:

Cash and cash equivalents $ 483,232 $ 8,646 $ 367 $ 281 $ 928 $ 54,740 $ 4,970 -$ $ 553,164Collateral on loaned securities - - - - - - 1,364 - 1,364 Premiums recorded not yet due 12,881 - - 83 - - - - 12,964 Assessments recorded not yet due - - - - - - 1,566 - 1,566 Premiums in course of collection 9,090 - - - - - - - 9,090 Assessments in course of collection - 485 - - - - 12,767 - 13,252 Accounts receivable, net of allowance

for uncollectibles 311,656 7,507 48 28 9 392 23,876 - 343,516 Retrospective premiums receivable 43,194 - - - - - - - 43,194 Interfund receivables 10,259 583,466 219 15 5 276 206,700 (800,940) - Investment trade receivables 270,946 - - - - - - - 270,946 Accrued investment income 137,922 2 - - 1 36 - - 137,961 Other current assets 600 - - - - - - - 600

Total current assets 1,279,780 600,106 634 407 943 55,444 251,243 (800,940) 1,387,617

Non-current assets:Fixed maturities 13,241,211 1,093,998 270,367 16,636 23,935 - - - 14,646,147 Domestic equity securities: Common stock 5,696,920 357,106 51,665 - - - - - 6,105,691

Preferred stocks 1,726 - - - - - - - 1,726 Non-U.S equity securities - common stock 2,473,460 180,885 27,379 - - - - - 2,681,724 Investments in real estate funds 2,790,425 - - - - - - - 2,790,425 Unbilled premiums receivable 579,826 14,935 - - - 413,365 67,190 - 1,075,316 Retrospective premiums receivable 75,189 - - - - - - - 75,189 Capital assets 19,252 22 - - - - 134,801 - 154,075 Net pension asset - - - - - - 322 - 322

Total noncurrent assets 24,878,009 1,646,946 349,411 16,636 23,935 413,365 202,313 - 27,530,615 Total assets 26,157,789 2,247,052 350,045 17,043 24,878 468,809 453,556 (800,940) 28,918,232

DEFERRED OUTFLOW OF RESOURCES - - - - - - 90,259 - 90,259 Total assets and deferred outflow of resources 26,157,789$ 2,247,052$ 350,045$ 17,043$ 24,878$ 468,809$ 543,815$ (800,940)$ 29,008,491$

OHIO BUREAU OF WORKERS' COMPENSATIONAND

INDUSTRIAL COMMISSION OF OHIO(A DEPARTMENT OF THE STATE OF OHIO)

SUPPLEMENTAL SCHEDULE OF NET POSITION(See Accompanying Independent Auditors' Report)

June 30, 2017(000's omitted)

55

Disabled Coal-Workers Public Work- Marine Self-Insuring AdministrativeState Insurance Workers' Relief Pneumoconiosis Relief Employees' Industry Employers' Guaranty Cost

Fund Account Fund Account Fund Account Fund Account Fund Account Fund Account Fund Account Eliminations TotalsLIABILITIESCurrent liabilities:

Reserve for compensation $ 1,368,931 $111,389 $ 1,755 $ 247 $ 240 $20,901 -$ -$ $ 1,503,463Reserve for compensation adjustment expenses 169,406 119 106 - 39 724 218,579 - 388,973 Premium rebate payable 1,094,836 - - - - - - - 1,094,836 Unearned premium and assessments 387,248 97,661 - 119 84 - 50,208 - 535,320 Contingent liability 4,500 - - - - - - - 4,500 Warrants payable 21,522 - - - - - - - 21,522 Investment trade payables 377,981 - - - - - - - 377,981 Accounts payable 27,353 - 37 - - - 6,646 - 34,036 Interfund payables 787,171 8,521 146 6 13 5,082 1 (800,940) - Obligations under securities lending - - - - - - 1,364 - 1,364 Other current liabilities 23,111 218 75 6 10 - 15,004 - 38,424

Total current liabilities 4,262,059 217,908 2,119 378 386 26,707 291,802 (800,940) 4,000,419

Noncurrent liabilities:Reserve for compensation 11,182,079 1,915,411 73,745 2,953 1,060 406,199 - - 13,581,447 Reserve for compensation adjustment expenses 644,194 1,581 5,494 61 5,176 736,221 - 1,392,727 Net pension liability - - - - - - 240,665 - 240,665 Other noncurrent liabilities - - - - - - 25,385 - 25,385

Total noncurrent liabilities 11,826,273 1,916,992 79,239 2,953 1,121 411,375 1,002,271 - 15,240,224 Total liabilities 16,088,332 2,134,900 81,358 3,331 1,507 438,082 1,294,073 (800,940) 19,240,643

DEFERRED INFLOW OF RESOURCES - - - - - - 9,777 - 9,777 Total liabilities and deferred inflow of resources 16,088,332 2,134,900 81,358 3,331 1,507 438,082 1,303,850 (800,940) 19,250,420

NET POSITION (DEFICIT)Net investment in capital assets 19,252 22 - - - - 134,801 - 154,075 Surplus fund 39,710 - - - - - - - 39,710 Premium payment security fund 143,642 - - - - - - - 143,642 Unrestricted net position (deficit) 9,866,853 112,130 268,687 13,712 23,371 30,727 (894,836) - 9,420,644

Total net position (deficit) $ 10,069,457 $ 112,152 $ 268,687 $ 13,712 $ 23,371 $ 30,727 $ (760,035) -$ $ 9,758,071

June 30, 2017(000's omitted)

(A DEPARTMENT OF THE STATE OF OHIO)

ANDINDUSTRIAL COMMISSION OF OHIO

OHIO BUREAU OF WORKERS' COMPENSATION

SUPPLEMENTAL SCHEDULE OF NET POSITION, Continued(See Accompanying Independent Auditors' Report)

56

Disabled Coal-Workers Public Work- Marine Self-Insuring AdministrativeState Insurance Workers' Relief Pneumoconiosis Relief Employees' Industry Employers' Guaranty Cost Fund Account Fund Account Fund Account Fund Account Fund Account Fund Account Fund Account Eliminations Totals

Operating revenues:Premium and assessment income net of ceded premium $1,312,913 $17,844 $526 $172 $738 $(2,941) $244,960 -$ $1,574,212Provision for uncollectibles (24,062) (2,648) 16 - - 91 (3,059) - (29,662) Other income 5,742 - - - - - 4,274 - 10,016

Total operating revenues 1,294,593 15,196 542 172 738 (2,850) 246,175 - 1,554,566 Operating expenses:

Workers' compensation benefits 862,985 (30,285) 6,460 (459) (73) (4,069) - - 834,559 Compensation adjustment expenses 164,548 7 336 - 30 686 199,197 - 364,804 Personal services - 57 105 - 24 - 79,789 - 79,975 Other administrative expenses 20,957 1 2 - 21 - 42,616 - 63,597

Total operating expenses 1,048,490 (30,220) 6,903 (459) 2 (3,383) 321,602 - 1,342,935

Net operating income (loss) before transition credits,premium rebates, loss contigency and DWRF I alternative 246,103 45,416 (6,361) 631 736 533 (75,427) - 211,631

Transition credit expense 2,562 - - - - - - - 2,562 Premium rebate 1,094,850 - - - - - - - 1,094,850 Loss contingency 3,735 3,735 DWRF I alternative funding expense (16,348) - - - - - - - (16,348)

Total transition credits, premium rebates, loss contingency and DWRF I alternative 1,084,799 - - - - - - - 1,084,799

Net operating (loss) income (838,696) 45,416 (6,361) 631 736 533 (75,427) - (873,168)

Non-operating revenues:Net investment income 1,783,996 72,208 12,256 (44) (66) 257 9,038 - 1,877,645 Gain on disposal of capital assets - - - - - - 134 - 134

Total non-operating revenues 1,783,996 72,208 12,256 (44) (66) 257 9,172 - 1,877,779 Net transfers out (12,877) - - - - - 12,452 - (425) Increase (decrease) in net position (deficit) 932,423 117,624 5,895 587 670 790 (53,803) - 1,004,186 Net position (deficit), beginning of year 9,137,034 (5,472) 262,792 13,125 22,701 29,937 (706,232) - 8,753,885 Net position (deficit), end of year $10,069,457 $112,152 $268,687 $13,712 $23,371 $30,727 $(760,035) -$ $9,758,071

(000's omitted)

OHIO BUREAU OF WORKERS' COMPENSATIONAND

INDUSTRIAL COMMISSION OF OHIO(A DEPARTMENT OF THE STATE OF OHIO)

SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENSES ANDCHANGES IN NET POSITION

(See Accompanying Independent Auditors' Report)For the year ended June 30, 2017

(Continued)

57

Crowe Horwath LLP Independent Member Crowe Horwath International

INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ohio Bureau of Workers’ Compensation and Industrial Commission of Ohio A Department of the State of Ohio We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Ohio Bureau of Workers’ Compensation and Industrial Commission of Ohio (BWC/IC), a department of the State of Ohio, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the BWC/IC’s basic financial statements and have issued our report thereon dated September 25, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered BWC/IC’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of BWC/IC’s internal control. Accordingly, we do not express an opinion on the effectiveness of BWC/IC’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

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Compliance and Other Matters As part of obtaining reasonable assurance about whether BWC/IC’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Crowe Horwath LLP Columbus, Ohio September 25, 2017