Calif. Workers’ Comp Reforms Met with Hesitation

By | October 20, 2003

Calif. Gov. Gray Davis, with much fanfare and hoopla, signed this year’s workers’ comp reform package, citing estimates that the bills will wring more than $4 million in yearly costs from the California’s workers’ comp system.

With state Insurance Commissioner John Garamendi at his side, the bill was signed with predictions that the California’s employers will enjoy reductions in their workers’ comp premiums starting next year. But much to the chagrin of businesses, it’s unlikely they’ll see any major rate reductions next year.

Insurers are leery at the potential for some reforms to backfire. They also doubt the new laws will bear the fruit of such massive projected savings even though the Workers’ Compensation Insurance Rating Bureau recommended that pure premium rates drop 2.9 percent on average at the start of next year.

The Bureau’s recommendation didn’t elate Garamendi, who ordered the Bureau back to the drawing board to calculate savings on reform provisions it said were too difficult to peg. He said he’d like to see at least a four percent reduction in rates next year.

The Bureau’s internal committees, manned by representatives from the industry’s major players, are trying to figure out by the end of October how much new medical treatment guidelines will affect rates. Garamendi has promised another hearing by Halloween in hopes of scaring up more savings.

But the way Garamendi and the Bureau are handling the rate making process this year has the industry worried. Insurers fear that the process has become overly politicized and that the insurance commissioner is wielding too much influence over the Bureau’s rate making efforts.

“The industry doesn’t accept the expectations of the savings,” said Mark Sektnan, assistant vice president of the western region for the American Insurance Association. “We’ve been spending a lot of time trying to dampen the expectations through the media and business community. It’s all complex in how it all plays out, but you have to have believable numbers.”

Also, whatever rate reduction Garamendi orders is purely advisory and insurers are free to price as they choose.

David Bellusci, chief actuary for the Bureau, said that the commissioner hasn’t tried to influence it’s rate-making anymore than he has in the past.

Bellusci said that the major areas the Bureau identified for savings include the new cap of 24 visits to chiropractors and physical therapists visits, the creation of a new outpatient surgery fee schedule and the repeal of vocational rehabilitation. He attributed “about $1 billion” in savings for each one.

But, he said, there were many measures in the legislation that weren’t as easy to calculate, particularly new treatment guidelines.

“There are many subjective changes in the law and there is always a risk that they could be challenged,” Bellusci said. “And the final interpretation could mean that savings may not materialize. That’s always a risk.”

Workers’ Compensation Appeals Board judges, physicians and regulators charged with writing new regulations to comport with the statute changes will interpret the new laws, which leaves a question mark over many of the reforms, Bellusci said.

Still, on Garamendi’s orders, the Bureau is trying to price out new treatment guidelines spelled out in the law.

The Commission on Health and Safety and Workers’ Compensation estimated in September that the guidelines could save $1 billion to $1.7 billion.

The Bureau in July had recommended a 12 percent increase in 2004’s rates based mainly on benefit increases that will be phased in next year and continuing cost inflation. But after the legislation was passed, it amended that filing to reflect the new laws that take effect Jan. 2004.

Despite the industry’s reticence about any probable savings, Davis upon signing the bills spun it up.

“By signing this bill package, our workers’ compensation system gets reforms even industry analysts recognize will save more than $5 billion next year and over $4 billion each year after.” Davis said. “This reform package offers relief to employers and keeps jobs in California. It will decrease expensive litigation, contain medical costs, curb fraud and support return-to-work programs.”

Against that backdrop politicians, including Governor-elect Arnold Schwarzenegger are promising more reforms next year, at least clean-up legislation clarifying ambiguities in the new law.

“Most payers (both carriers and self-insured employers) feel that the reforms are a step in the right direction,” said Michael Nolan, president of the California Worker’s Compensation Institute. “(They) believe that the legislation that was passed needs some clean up to effect the legislative intent.”

In particular, Garamendi would and others would like to revisit other issues that could cut into system costs, including penalties for late benefit payments and scribing better definitions of “cure and relieve,” codified in state law.

Upon Schwarzenegger’s victory in the Oct. 7 recall election, Garamendi wrote a letter requesting a meeting to discuss implementation of reforms. The big question, said Sektnan, is if the Legislature will cooperate with any agenda that the new governor pushes. At this point, the Legislative leadership is up in arms about the recall and they’ve vowed to make life difficult for him.

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