FLASH: Getting Back To Basics

I don’t usually send information this lengthy but workers compensation is a big issue for employers. See below.

Combined loss ratios in workers compensation are running close to 130% and for most businesses they are beginning to see small premium increases. My guess is at some point these will escalate fairly dramatically. We also are going to be watching what develops as a result of court cases that could increase cost.

The increase in permanent disability benefits has been a concern for employers and they do need to be adjusted. It is good to hear from our good friend Christine Baker that she wants to see cost reductions along with changes on the PD benefit.

As all of you I think know Small Business California has worked closely with Christine in her tenure as ED of the Commission on Health Safety and Workers Compensation and were an early supporter of her for the Director of DIR.

Scott Hauge
President
Small Business California
2311 Taraval Street
San Francisco, CA 94116
shauge@smallbusinesscalifornia.org
415-680-2188


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Friday, July 22, 2011
FLASH REPORT!
DIR's Baker Says Cost Savings Will Accompany Any PD Increase

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Employers have nothing to fear from an anticipated increase in permanent disability benefits for injured workers, but ancillary players in California's workers' comp system -- insurance carriers, attorneys and other vendors -- better look out.

Christine Baker, acting director of the Department of Industrial Relations (DIR), says the administration is ready to increase PD benefits but only after if finds cuts elsewhere in the system to pay for the increase.

"PD benefits were cut substantially but our system is still the fifth costliest system in the country. Somebody is getting all that money, but it's not the injured workers,"

Baker told a group of employers yesterday at the California Coalition on Workers' Compensation's annual meeting in Anaheim. "We believe we need to restore the balance in the system...that labor/management balance between the costs and the benefits."

She pointed out that PD benefits account for less than one-fifth of the total benefits paid,so an increase could easily be off-set by cost-savings elsewhere in the system.

"The very large fluctuations in the costs to employers and the benefits available to injured workers over the last 15 years are the result of many interest groups in a system originally designed to serve the two key stakeholders -- employers and injured workers," Baker pointed out. She noted that applicant attorneys, insurance carriers and medical providers should and will have a voice in the negotiations, but maintained that their voices are secondary.

"Applicant attorneys represent injured workers the same way that insurance carriers represent employers. So in the same way that insurance carriers should have a role so should the applicant attorneys. But the two key stakeholders are labor and management."

The message resonated with the employer dominated crowd, which is clearly on edge over potential changes in benefits as well as expected increase in premiums to account for past cost increases.

Baker maintains that there are different ways to address the PD issue.
If the administration can find enough cost-savings then a solution could be enacted through the PD schedule. "If we can't find enough things to off-set the costs then we have to do it legislatively," says Baker.

"That will be a tradeoff. Sure one could add dollars there, but can we find a dollar savings? I'm not sure. We don't want to have a tidal wave of costs coming in to the system without a measure of savings."

Operational Savings

One of the first areas mentioned for likely cost savings is eliminating the high direct and indirect cost of medical liens.

Baker pointed out that the backlog of liens is the system is delaying resolution of cases and adding unnecessarily to the overall cost of claims. She says the Workers' Compensation Appeals Board doesn't necessarily need more judges to hear cases, just a better way to triage cases.

"In Los Angeles, 85% of the work load is liens. The answer there is not more judges, it's eliminating the unnecessary liens," she says, maintaining that the long-term solution is to reduce the disputes that lead to liens.

"There has to be a better way to resolve fee schedule disputes than asking a workers' comp judge to decipher procedure codes and conversion factors...Authorization of treatment was in dispute in 7 out of 10 medical liens surveyed. Clarifying the extent of [Medical Provider Network] control could reduce the number of those disputes."

DIR and the WCAB are also preparing to cut down on the amount of paperwork associated with liens through electronic filing and cracking down on the filing of amended liens. Baker likened the amount of paperwork from amended liens alone to a tidal wave crashing down on the district offices. She promised that new procedures will be coming shortly from the WCAB to enact these changes.

Operational Changes Planned

Baker also promised to streamline DIR's internal operations while continuing beneficial programs, such as its crackdown on the underground economy. She indicated that there will also be changes in how anti-fraud dollars are spent.

"I'm not so sure it's so efficient to have enforcement dollars going to the DAs and labor standards enforcement. We will be reviewing this together with the [Department of Insurance] and the Fraud Assessment Commission," Baker said.

She later clarified to Workers' Comp Executive that she is not necessarily looking at eliminating anti-fraud funds for the District Attorney's but for a greater emphasis on the bigger fraud cases.

She notes that the data matching program between DIR and the Workers' Compensation Insurance Rating Bureau, which will be undergoing some refinements, allows the department to quickly and cheaply identify uninsured employers. DAs, she maintains, should be using the funds to go after the higher fruit on the tree.

One planned change to the data matching program will be to limit the employer samples to those with at least 5 employees. Baker noted that currently the approach of using employer lists from Employment Development Department and WCIRB that cover all employers is producing too many false positives.

It turns out that many of the employers initially identified as being uninsured are actually owner operators and thus exempt from coverage, so setting the bar at five employees or more is intended to better focus their efforts on the truly uninsured.


Filed by Brad Cain from the happiest place on earth