Department of Insurance Holds Workers’ Compensation Hearing
Preliminary savings for employers from the new workers' compensation reform law (SB 899) "could be substantial," but "lawsuits and bureaucratic tinkering could delay the full savings until 2007," witnesses at a Department of Insurance hearing testified Thursday, the Contra Costa Times reports (Avalos, Contra Costa Times, 4/30). The law will provide for immediate medical care for injured workers; require injured workers to choose from a network of employer-selected physicians for treatment or petition a medical review panel to see a physician of their own choice; require use of American Medical Association guidelines to rate impairments to injured workers; implement provisions to encourage injured workers to return to work; and allow employers to apportion workers' compensation payments to cover only work-related injuries. In addition, the law will require employers and workers to be considered equal before the law; limit temporary disability payments to two years instead of the current five years; increase benefits for workers who are more than 70% disabled; give small businesses a state reimbursement of as much as $2,500 for necessary workplace changes to allow an injured worker to return to work; require workers to prove that an injury exists; and eliminate payments for claims of back pain and other pains. The law took effect immediately because it was passed by a two-thirds majority of the both the Assembly and Senate (California Healthline, 4/20).
At the hearing, Robert Mike, president of the Workers Compensation Insurance Rating Bureau, said, "I see some savings out of the bill occurring July 1." He added that "a large share of the much-anticipated savings [would] not emerge until the state revamps a complex rule used to determine permanent disability benefits for injured workers," which might not occur until the Jan. 1, 2005, legal deadline, the Sacramento Bee reports. Officials for WCIRB said the bureau's preliminary review found that the two-year cap on temporary disability payments could reduce costs as much as 15%, or more than $300 million per year. In addition, the review found that a new permanent disability payment schedule could save another 10%, or about $450 million per year. WCIRB and the Commission on Health and Safety and Workers' Compensation must present their forecasts of the new law's effects to Insurance Commissioner John Garamendi (D) by May 13 (Chan, Sacramento Bee, 4/30). Garamendi will use their projections to suggest a workers' compensation pure premium advisory for insurers, which are not required to follow his recommendation (Abate, San Francisco Chronicle, 4/30). According to the Bee, the delayed savings "may translate into [a] disappointing round of single-digit cuts this summer" for workers' compensation insurance premiums (Sacramento Bee, 4/30).
"The implementation of many of the reforms will not occur this year," Garamendi said, adding that "some reforms will be subject to litigation." In addition, Garamendi said that some of the largest cost-saving provisions of the new law still must be implemented before employers would see any workers' compensation premium reductions (Contra Costa Times, 4/30). On behalf of the CHSWC, Frank Neuhauser, project director with the University of California-Berkeley's Survey Research Center, testified that the new law could eliminate $3.75 billion in costs from the workers' compensation system each year (San Francisco Chronicle, 4/30). Neuhauser added that under the new law, the cost of the state workers' compensation system might decrease to $14.25 billion, as measured by the benefits that insurance companies pay, by the end of 2005 (Contra Costa Times, 4/30).
On Thursday, Garamendi also said that the new workers' compensation law could reduce the future liabilities of the quasi-public State Compensation Insurance Fund, which would "help ease concerns about the adequacy of its reserves," the Chronicle reports. The reduced future liabilities could allow State Fund, which provides workers' compensation insurance to more than 50% of California's businesses, to pass any future savings from workers' compensation to employers instead of keeping the funds to bolster its surplus, Garamendi said (San Francisco Chronicle, 4/30).
In related news, State Auditor Elaine Howle on Thursday released a report criticizing the Insurance Department and the Industrial Relations Department for "failing to implement a law cracking down on workers' compensation insurance fraud," the Los Angeles Times reports (Lifsher, Los Angeles Times, 4/30). In its review of the Fraud Assessment Commission, which was created in 1991, the report found that:
- Workers' compensation fraud investigators spend a "significant portion" of their resources investigating cases that do not result in prosecutions;
- The Insurance Department does not have a system that can effectively acquire potential cases of workers' compensation fraud from insurers and other state agencies;
- State officials do not have an effective system for determining the distribution of funds to lawyers for combating fraud; and
- The Industrial Relations Department formulas for determining employers' workers' compensation fraud surcharges result in employers being overcharged (Lawrence, AP/San Diego Union-Tribune, 4/30).
Howle said that over the past five years, the $30 million that employers annually pay to combat fraud "has yielded poor dividends," the Bee reports (Sacramento Bee, 4/30). Howle said that state officials must "step back and come up with a strategic plan" that can more precisely determine the size of fraud in the workers' compensation system because current estimates range from a high of 20% of claims to a low of 1%. Garamendi and Industrial Relations Department spokesperson Dean Fryer acknowledged that problems exist in combating workers' compensation fraud but said that actions are being taken to correct them (Los Angeles Times, 4/30). 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.