Other key influencers on California’s work comp market

In our last post, we gave a snapshot of the current California work comp market: rates are beginning a slow decline, premium growth is slowing, economic expansion is underway statewide and medical costs are up. No surprises there. But what else is impacting the Golden State’s work comp market? A shift towards riskier industries, the gig economy, medical fraud and more.

Hiring in more hazardous industries

The California Workers’ Compensation Insurance Rating Bureau (WCIRB) announced earlier this year that, while claim frequencies in most other states averaged an 11 percent downturn, California saw an uptick in claims frequency of three percent. In their report, they said many workers have entered industries that inherently hold more risk, such as manufacturing and construction. Add to that the fact that half of the state’s injured workers had less than two years of job experience, and the result is that “newer, more inexperienced workers are generally more likely to be injured on the job and file a workers’ compensation claim,” they reported.

The “gig economy” and work comp

There are a lot of unresolved issues still in the courts that will affect final outcomes, such as whether Uber and Lyft drivers should continue to be classified as independent contractors or as employees and therefore covered by workers’ compensation insurance. These two companies are front runners in the newly emerging “gig economy.” Hiring arrangements vary widely among these companies with different workforce models. While admittedly the gig economy is still a small sector of the labor market, the number of types of companies are growing, with the potential of at least a minimal impact on California’s work comp market.

Rise in work comp benefits

In June, California Workers’ Compensation Institute (CWCI) reported that the state’s average weekly wage (SAWW) rose nearly four percent year over year, from $1,120.67 to $1,164.51. This, in turn, will boost total disability (TTD) and permanent total disability (PTD) rates for 2017 work injury claims, along with other workers’ comp benefits that are tied to SAWW changes.

The current maximum rate for both TTD and PTD is $1,128.43 per week. With the latest increase in the SAWW, CWCI calculates the maximum will rise to $1,172.57 per week for claims with injury dates beginning in 2017. Minimum rates will also rise from the current $169.26 per week to $175.88 for claims with 2017 injury dates. These new TTD/PTD rates for 2017 injury claims have been confirmed with the state Division of Workers’ Compensation.

Increasing medical fraud and abuse

We read about it almost monthly: the latest abuse or scandal of a medical provider gaming the system and pocketing the rewards. Resulting indictments and pleas in criminal cases and discovery in civil cases have taken the lid off a number of the schemes, resulting in exposure of provider criminal networks and ensnaring well known physicians and a handful of politicians, said Julius Young in a WorkersCompZone article. He pointed to a high profile case in June of this year, when former State Sen. Ron Calderon signed a plea agreement admitting to kickbacks as part of a scheme involving workers’ comp spinal surgeries and hardware. Calls for a legislative audit have ensued, to reign in these negative impacts on California’s work comp market.

Other medical trends affecting California’s work comp market

Earlier this year, CWCI posted these trends, as reported by LexisNexis:

Inpatient hospital rates have declined
MPN network costs per claim are lower than non-network claims
Medical-legal costs reflect a continuing shift from flat fees to time based services
Pharmacy as a percentage of all medical benefits has been climbing but flattened in 2013
Opioid prescriptions and payments have decreased very slightly since 2009
Most of the cost savings from using generics vs. brand name meds has already been realized
While liens are down, spine surgeries and opioid use are down, and the medical trend is down, in a national comparison California is still quite high in rate, frequency and expense categories
Loss adjustment expenses are much higher than other western states or large states
There is little relationship between medical fee schedules and medical costs per claim, but there is a correlation between attorney involvement and comp costs
The 2016 cost breakdown, based on WCIRB, is estimated to be 24 percent indemnity, 37 percent medical, 21 percent loss adjustment expense, and other expenses, 18 percent

“California’s workers’ compensation environment is complex and always changing, and there are many challenges that employers and hospitals must contend with,” Richard Lord, principal and consulting actuary with Milliman and Keenan Healthcare, said in an Insurance Journal article. “[This information] can help both employers and hospitals make more informed decisions regarding workers’ compensation and can help them develop plans to improve their overall results.”

For questions regarding Valiant and markets we cover, call Robert Young, 800.834.4239 or email him, RYoung@ValiantInsuranceServices.com.