Report: Calif. Workers’ Comp Impacted by Recession, Reform, Medical

By Don Jergler | October 7, 2012

A report out Friday by the Workers’ Compensation Research Institute rates California’s workers’ comp system against 15 other states, and the report details several key improvements to the system that could be made after a law to revamp the system kicks in on Jan. 1, 2013.

The latest WCRI CompScope report highlights the impact of the recession, government reforms and the growing costs of medical care are key drivers in the workers’ comp system.

The other states rated in the report are: Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Pennsylvania, Texas, Virginia and Wisconsin. Those states represent nearly 60 percent of the nation’s workers’ comp benefit payments, according to WCRI.

Among key findings are that workers’ compensation costs per claim were declining in Texas after several years of growth, medical costs per claim for injured workers in Virginia were higher than most states, costs of workers’ compensation claims are rising in Indiana as payments for medical care increase, the average costs of workers’ comp claims fell in Massachusetts as the state recovered from the recession.

For California the report shows the state’s average indemnity claim of $17,143 is 6 percent above the median, but the average medical claim of $13,589 is 9 percent below the median.

Where the state greatly exceeds the median is in legal expenses. California’s $6,692 average defense attorney payment per claim is 30 percent higher than the median and its medical-legal expense claim of $2,588 is 80 percent above the median, the report shows.

It seems any examination of California’s workers’ comp system cannot be undertaken without a look at the possible impacts of Senate Bill 863, signed by Gov. Jerry Brown three weeks ago. The workers’ comp overhaul bill kicks in to law on Jan. 1, 2013, and the state’s Department of Industrial Relations has less than three months to produce a set of regulations that must accompany the reforms.

SB 863 promises to increase benefits for injured workers by an estimated $700 million, while lowering system wide costs. Estimates on those cost savings range from $1 billion in the first year to about half that.

But simply put no one really knows yet how much will be saved, and even the authority on workers’ comp rates, the California’s Workers’ Compensation Insurance Rating Bureau, has changed its mind a few times.

The WCRI report outlines baseline data to watch following the implementation of SB 863, including: average indemnity benefit per claim; average medical payment per claim; duration of medical treatment; price and utilization of medical services; defense attorney involvement and average payment per claim; medical-legal frequency and expense per claim.

The report also outlines key provisions of SB 863 that could impact the state’s workers’ comp system.

The new law that could impact the state’s workers’ comp system in that it: increases permanent benefits by more than $700 million; adjusts formula for calculating benefit amount;  increases the minimum and maximum weekly wage used to calculate benefits; applies a multiplier of 1.4 to all permanent disability awards; eliminates diminished future earnings capacity from PD determination; prohibits add-ons for psychological conditions, sexual disorder, and sleep dysfunction in PD awards; creates a $120 million return-to-work program; requires disputes over utilization review denials be resolved through an independent medical review; reduces reimbursement for ambulatory surgery centers to 80 percent of the Medicare rate for hospital outpatient department; streamlines medical evaluator process; establishes a $150 lien filing fee and a $100 activation fee for liens already filed.

Several estimates calculate a big savings for the change in the lien filing. According to a State Compensation Insurance Fund analysis roughly $600 million will be saved with the changes in lien filings.

State Fund outlines an estimated $543 million savings. DIR chief Christine Baker, who was key in hammering out a deal for workers’ comp reform, has said she estimates savings could be up to $1 billion.

Another major finding in the WCRI report shows that costs per claim in California were mostly flat in 2010 following growth of 5 to 10 percent per year since 2006, with key cost components like medical, indemnity, and expenses largely stable in 2010.

A similar pattern of slower growth or declining costs per claim in many of the states studies, according to the report.

The report shows benefit delivery expenses in California were among the highest of the states studied, with an average of nearly $7,500 per claim, and payments per claim for utilization review services grew rapidly from 2005 to 2010, while the percentage of claims with utilization review steadily increased until 2010 when it flattened out.

 

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