California Commissioner Rejects Workers’ Comp Bureau Rate Increase

July 8, 2009

Citing testimony that self-insured employers have been able to reduce overall workers’ compensation costs, California Insurance Commissioner Steve Poizner has rejected the Workers’ Compensation Insurance Rating Bureau’s request for a pure premium rate increase of 23.7 percent.

While the Department of Insurance does not set workers’ compensation insurance rates, an increase in the cost benchmark usually leads to workers’ compensation insurance premium increases, with small businesses and their employees feeling the brunt of cost increases.

“My response to this requested record increase by workers’ comp insurance companies is this – no. I will not include avoidable costs in the Benchmark”, Poizner said. “Because of the faltering economy, record unemployment levels, and objections to the proposed increase from employers, I have focused on whether insurers and other parties in the workers’ comp system are exhausting every available avenue to control costs before granting any increase to the Benchmark.

Jerry Azevedo, spokesman for the Workers’ Compensation Action Network, applauded the Commissioner’s call to look at increasing efficiencies from all segments of the workers’ compensation system. More than 60 individual insurers have already filed their rates for July 1 policies, and in all but one case, insurers have filed for rate increases that were below the WCIRB’s recommendation, and significantly lower in the vast majority of cases, the group said.

The rate filings show that each insurer is being impacted differently by increasing medical costs, and ultimately individual insurers must price their product to cover anticipated losses from the employers they insure so that medical and cash benefits are there for injured workers when needed, Azevedo added.

Poizner said self-insured employers who face the same medical inflation and other cost drivers challenging the rest of the industry have cut costs in other areas that have resulted in a net decrease in overall workers’ compensation costs. “The evidence presented at a Department of Insurance investigatory hearing provided a dramatic demonstration of the failure of insurers to adequately utilize the cost containment tools given to them by the legislature, thereby allowing unnecessary costs to creep into the workers’ compensation system,” he said.

Gov. Arnold Schwarzenegger said raising the benchmark would have had an overwhelmingly negative impact on businesses, employees and California’s economy.

“As I told the Insurance Commissioner in March, now is not the time to impose additional costs on employers especially given the current economic climate and I applaud him for making the right decision today.”

On March 27, 2009, the WCIRB submitted a pure premium rate filing to the California Insurance Commissioner proposing a 24.4 percent increase in the overall pure premium rate level, or “claims cost benchmark”, effective July 1, 2009.

WCIRB said recently an insurer submitted revised aggregate financial data calls, which reduced the indicated July 1, 2009 increase in the claims cost benchmark to 23.7 percent. The WCIRB amended its filing on April 23, 2009 to reflect the revised data calls. The amended filing may be viewed by visiting the Regulatory Filings section of the WCIRB Web site

Schwarzenegger sent a letter to Insurance Commissioner Poizner on March 27, 2009 urging him to reject the Workers’ Compensation Insurance Rating Bureau’s request for a pure premium rate increase.

Commissioner Poizner held an investigatory hearing in early June to examine the increasing medical costs in the workers’ compensation system. During that hearing, he heard testimony that indicated that insurers were not realizing efficiencies to bring down the costs in the system, including failing to achieve a balance between cost and benefit with medical provider networks and utilization review, and are not communicating effectively with medical providers. Earlier, Commissioner Poizner had asked the WCIRB to withdraw the portion of the increase related to the Almaraz/Guzman and Ogilvie decisions by the Workers’ Compensation Appeals Board.

As a result of the June hearing, Commissioner Poizner has released an outline for areas where the workers’ compensation system can achieve further efficiencies. He expects the industry to implement many of these changes before he will consider a positive rate change to the Benchmark. Highlights of the 27 recommendations include:

  • All insurers should implement pharmacy networks with or without regulations based upon the example set by Safeway and the fact that the provisions of Labor Code Section 4600.2 do not require regulations as a prerequisite.
  • Regulations should be implemented regarding physician dispensing of pharmaceuticals. Legislation may be necessary to deal with this.
    Require the prescribing and/or dispensing of generic drug equivalents.

  • Utilization Review needs some utilization review of itself. If a majority of medical requests are going to utilization review and are approved, it is not effective. Utilization review, as it was intended for health care, was for the outlier circumstance.
  • Require billing and payment at fee schedule.
  • DWC should update the fee schedule immediately and continue to do it as an ongoing process.
  • Regulations for electronic billing and a standard medical bill form need to be implemented.

Commissioner Poizner also announced the creation of a Workers’ Compensation Costs Advisory Group. This group, comprised of a cross-section of all participants, will meet on an ongoing basis. This will accomplish the purpose, similar to the investigatory hearing, of informing the commissioner and CDI staff regarding the key cost drivers in the system and make ongoing recommendations to deal with them

Sources: DOI, Governor’s Office, WCAN

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