Study: Workers’ Comp Reform Bill Increases Costs $300M

By | August 27, 2012

A workers’ compensation reform bill was officially introduced on Monday, and the same day the California Workers’ Compensation Insurance Rating Bureau issued a study saying the bill could produce a savings of nearly half-a-billion-dollars.

But that savings will be outpaced by benefit increases called for in the bill, increasing system wide costs the tune of $300 million annually, according to WCIRB, which outlined its preliminary costs estimates in a letter released on Monday.

Senate Bill 863 is authored by state Sen. Kevin DeLeon, D-Los Angeles and coauthored by Sen. Jose Solorio, D-Anaheim, but not by Ted Lieu, D-Torrance, whose bill on workers’ comp liens is being used as a vehicle for the reform language.

Lieu, who chairs the Senate Labor and Industrial Relations Committee, has reportedly been involved in hammering out the proposal. However, he begged out as the bill’s author because he already has a lot on his plate, a Lieu spokesman said.

The bill comes from talks between labor and a handful of large, self-insured employers, which have been reportedly ongoing since October. With this year’s legislative session winding down, lawmakers will have about a week to review and vote on a 100-plus-page bill that contains roughly 60,000 words.

The two groups had come up with the proposal, which has been circulating in various forms for the past two weeks, which was intended as an attempt to fulfill the the need for roughly $700 million in additional permanent disability benefits for injured workers, and $1.4 billion in system wide savings.

Christine Baker, director of the Department of Industrial Relations, who was reportedly involved in negotiations and has backed the proposal, indicated further reforms to the bill could be made in coming days.

“WCIRB data is now available and is being released to advise the public of information pertaining to costs and savings through a proposal to bring comprehensive reform California’s workers’ compensation,” Baker said in a statement. “The reform proposal will be carried in SB 863, introduced by Senator DeLeon and co-authored by Assembly member Solorio. While this information is being made publically available, reform discussions continue in an effort to find the best solution to protect employees while preventing increases in the cost of doing business in the state.”

Insurance Commissioner Dave Jones in a statement expressed concerned about rising costs in the system.

“The analysis by the WCIRB indicates that SB 863 has cost savings that significantly offset the costs of providing needed increases of permanent disability benefits for California’s injured workers,” Jones said. “I remain concerned about continued rising costs in the system, however, particularly medical costs and the expenses to adjust workers’ compensation claims, and encourage all stakeholders to look for additional ways to reduce system costs.”

WCIRB in a letter to Jones and Baker dated Aug. 24 outlined areas in which the bureau was able to produce cost estimates:

“Among the areas impacted by the proposed amendments for which the WCIRB was able to provide a preliminary cost analysis are permanent disability (PD) minimum and maximum weekly benefit levels, the burial allowance, supplemental job displacement benefits, the adjustments to the PD rating corresponding to future earning capacity (FEC), permanent disability impairment ‘add-ons’ for psychiatric impairment, sleep disorders or sexual dysfunction, the three-tiered system of PD weekly benefits based on return to work status, the rate at which PD benefits are paid, liens, reimbursements for spinal implant hardware, fee schedule values for ambulatory surgical centers (ASCs) and the process for resolving medical treatment disputes.”

WCIRB in its letter identified an overall cost reduction of roughly $400 million, which it said was based on an estimated statewide cost of indemnity and medical losses and loss adjustment expenses of $19 billion on injuries occurring in 2013. That 2013 estimate is based on the estimated cost of indemnity and medical losses and loss adjustment expenses as reflected in WCIRB’s Jan. 1, 2013 rate filing.

However, the increased permanent disability benefit provisions effective on injuries occurring on or after Jan. 1, 2014 are estimated to increase total costs by $700 million in 2014.

Therefor the proposed legislation will increase total system costs by $300 million annually, according to WCIRB’s estimates.

The estimates in the letter do not provide figures for areas such as medical provider networks (MPNs), admissibility of medical reports completed outside a valid MPN, home health services and permanent disability advances.

A spokesman for WCIRB said the bureau would examine the figures further and provide better estimates if the bill is passed.

The American Insurance Association weighed in on the bill. Marjorie Berte, AIA’s Western regional vice president, pointed out anticipated rising costs will outpace savings figured into the bill.

“Much work went into the bill’s development,” Berte said in a statement. “However, the expectation by proponents that savings would be twice the cost of benefit increases is now dashed by preliminary estimates released today by the Workers’ Compensation Inspection & Rating Bureau (WCIRB). The WCIRB concludes that while claim frequency utilization costs will decrease by $400 million on an annual basis, permanent disability benefit costs will increase by $700 million—adding $300 million annually in new costs to the system beginning in 2014. Expectations of net savings of two to one are now put at a net cost increase of 1.4 percent annually.”

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