Changes to State Workers’ Compensation System Could Reduce Costs, Audit Finds
Changes to the state's $29 billion workers' compensation system signed into law last year could "put a significant dent" in some of the program's costs, including outpatient surgery center costs and prescription drug costs, according to an audit by the Bureau of State Audits, the Los Angeles Times reports (Lifsher, Los Angeles Times, 1/28). In September, former Gov. Gray Davis (D) signed into law two bills (AB 227 and SB 228) regarding workers' compensation that established fee schedules for treatments and prescription drugs; limited chiropractic and physical therapy visits; implemented reviews that use national standards to determine the proper amount of care for certain injuries; and increased penalties for employer fraud from $50,000 to $150,000 (California Healthline, 12/04/03). The audit, released Tuesday, found that changes to the system included in the laws could decrease the average cost of treating workplace injuries at outpatient surgical centers by 58%. In addition, the audit, which was based on data collected by the State Compensation Insurance Fund, found that some changes could reduce prescription drug costs for the program by about 25%.
The Times reports that it is unclear if the savings "will translate into the significant cuts" in workers' compensation insurance premiums that businesses say are needed. Workers' compensation insurance premiums in California are twice the national average (Los Angeles Times, 1/28). After passage of the bills, Insurance Commissioner John Garamendi (D) recommended a 14.9% cut in workers' compensation insurance premiums. However, the average premium rate reduction for 2004 is 3.6%, which includes a 2.9% premium reduction by State Fund, which provides workers' compensation insurance to more than half of California employers (California Healthline, 12/04/03). The audit said that State Fund was slow to implement the reforms, the Times reports.
William Zachry, vice president for workers' compensation for grocery store chain Safeway, said that "last year's reforms were on the right track," but they "only addressed medical issues." However, Thomas Rankin, president of the California Labor Federation, said, "What we see is not being reflected in the rates being charged [to] employers this year." He added that if premiums do not "soon fall sharply," labor leaders and Democratic lawmakers could introduce a bill that would require state regulation of workers' compensation insurance premium rates. A spokesperson for Gov. Arnold Schwarzenegger (R) called the audit's projections "welcome" but added that "this in no way relieves the need for the Legislature to act quickly" (Los Angeles Times, 1/28). At a press conference Tuesday, Schwarzenegger "chided" state lawmakers for "moving slowly" on his request for a workers' compensation reform package to be approved by the Legislature by March 1, the San Jose Mercury News reports. The state legislators "can't [send a reform package] because a lot of them are owing things to the special interests," Schwarzenegger said, adding, "Now they are scrambling: 'What do I do about the trial lawyers? What do I do about the insurance companies?'" However, Sen. Richard Alarcon (D-Van Nuys) said, "I'm not going be threatened to move forward in a matter of eight weeks just because somebody wants to meet their political rhetoric" (Nissenbaum, San Jose Mercury News, 1/28).
In other workers' compensation news, a review of the 2004 California labor code last week found that the Division of Workers' Compensation has funding to operate only for the next five weeks because of an "embarrassing legislative faux pas," the Sacramento Bee reports. The division, which employs 855 people, monitors workers' compensation claims, and its administrative courts hear disputes over workers' compensation benefits. Laws signed in September that made changes to the state workers' compensation system changed the funding source for the division. Under the laws, beginning Jan. 1, the division's $103.4 million annual budget would be funded entirely with surcharges that insurers levy on employers. The state general fund previously provided about 80% of the division's budget. About 10 days after signing the workers' compensation reforms, Davis signed a budget implementation bill that included language from the old funding formula for the division; however, lawmakers did not include money in the most recent budget for the division because of the new funding schedule. Legally, the more recent implementation bill takes precedence over the reform bills, the Bee reports. According to the Bee, Democratic lawmakers are expected to try to win approval for emergency legislation to provide the $54.6 million needed to fund the division for the rest of the year, but such an emergency measure would require Republican support to get the two-thirds majority required for passage. Sen. Chuck Poochigian (R-Fresno) said that such a measure could face opposition. He said, "The work of the division is important. The question is what the source of funding will be." State and insurance industry officials worry that if the Legislature fails to pass an emergency funding measure, the "funding crisis might hinder the division's implementation of new workers' compensation reform laws," the Bee reports (Chan, Sacramento Bee, 1/28).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.