What’s going on in California’s workers’ compensation market?
Think of the Golden State’s $17 billion work comp market as a slow-going ocean freighter. It moves ahead at a decent speed, but when it’s time to turn, the change takes place slowly. No freighter turns on a dime; neither does California’s workers’ compensation market.
The WCIRB released their “State of the System” report mid-2016, noting that a slow freighter turn is in process: in the second half of 2016, rates began a slow decline for the first time since 2009. They attribute this to the implementation of Senate Bill 863 which has brought about low medical inflation over the past three years. In fact, since SB863 was enacted, savings in medical costs more than offset higher-than-projected allocated loss adjustment expenses. The result? A greater overall cost savings than was initially forecast. These savings are primarily a result of the new resource-based relative value scale (RBRVS) physician fee schedule and independent medical review (IMR).
“The right parties were at the table to construct this bill – management and labor,” said a Safety National Casualty Corp. round-up article from the 2016 California Workers’ Compensation & Risk Conference. “Employers have seen lien savings, greater access to medical providers, and are seeing improvements on the dispute resolution process. They have also seen an increase in permanent disability benefits…. SB 863 has allowed employers to stay committed to the marketplace. [Self-insured] employers are seeing 10-11% in medical cost savings.”
Included in their executive summary were these key findings that are impacting California’s workers’ compensation market:
- We continue to have the highest work comp rates in the country; however, rates have begun a slow decline.
- Premium growth has also slowed as insurer rate increases have moderated.
- Economic expansion has increased employer payrolls; however, many of these new employees are neophytes to the workforce and are in higher risk industries such as construction.
- California’s insurance rates are heavily influenced by these three trends:
- We have the greatest frequency of permanent disability claims in the country.
- We have high medical costs per claim, driven by the lengthy pattern of medical treatments.
- We have much higher than average costs for handling claims and delivering benefits.
- Indemnity claim frequency in the Los Angeles area is more than 30 percent higher than the state average; conversely, it is 15 percent lower than average in the Bay Area.
- The average medical benefit per claim is among the highest in the nation, with costs more than 60 percent above the national median.
- The length of time a claim remains open with medical benefits continuing to be paid is another negative factor, with more than 60 percent of estimated medical costs still unpaid after three years (compared to the national median of 36 percent).
- Combined ratios, in recent years, have been more consistent with national averages, although long-term returns on net worth have been lower.
BY THE NUMBERS:
WCIRB’S Statewide Workers’ Compensation Insurer Loss & Premium Experience
Jan – June 2016 vs. Jan – June 2015
2017 rate filings and pending legislation affecting California’s workers’ compensation market
In early Oct., the WCIRB submitted a pure premium rate filing to the California Department of Insurance, recommending rates lower than both the corresponding industry average and the average approved rates. The advisory pure premium rates proposed in this amended filing average $2.22 per $100 of payroll. WCIRB is pinning its hopes on Senate Bill 1160 and Assembly Bill 1244, said the Insurance Journal in a September story.
SB 1160 adds limitations on the utilization review (UR) process and also would stay any physician or provider lien upon the filing of criminal charges against them for specified offenses involving medical fraud.
AB 1244 will remove from the workers’ compensation system any doctors found to have committed a felony or misdemeanor involving fraud or abuse of the Medi-Cal program, Medicare or the workers’ comp system itself. The bill would also keep those doctors from filing liens. (According to the Department of Workers’ Compensation, 10 percent of liens filed between 2011 and 2015 were filed by providers with fraud indictments or convictions, the IJ story said.)
Premium costs holding steady
Back in May, Insurance Commissioner Dave Jones approved a 5 percent decrease in the non-binding/advisory only “pure premium rate” which is advisory only and non-binding. As WorkersCompZone explained, rates that are “actually paid by an employer may depend on experience modifications, nature of business, discounts and other factors.”
Jones recommended $2.30 per $100 of payroll, a drop from the $2.74 that was recommended in early 2015. He also concluded that “Current price levels are near long-term sustainable levels, assuming that benign medical cost trends continue.”
The WorkersCompZone article continued, “If employers are enjoying stable rates or even lower rates and carriers are making money, the system appears to be in favorable place for major stakeholders.” The more the economy bounces back, and the more people that are working, the overall premiums will increase.
What’s the take-away?
We all know that California’s workers’ compensation market fluctuates non-stop, given rising medical costs, increasing benefits due to increases in the minimum wage and higher workers’ compensation premiums. But there ARE measures your clients can take to control their number of claims and related costs, which of course reflect on their premium rates. Check our blog monthly to review new tactics your clients can use for cost containment.