|
Dear WCAN Member,
On Monday, Insurance Commissioner Steve Poizner issued a
decision to reject a recommendation put forward by the Workers'
Compensation Rating Bureau (WCIRB) to increase the advisory rate for
workers' compensation premiums by 22.8%. This is the second time in four
months that he has recommended that there be no rate
increase.
The significant gap between the WCIRB recommendations and the
commissioner's final rulings and the mixed messages being sent through the
news media creates confusion for employers about the state of workers'
compensation costs and what may happen to their insurance premiums
beginning in January.
For this reason, we wanted to provide you with some facts about the
ratemaking process and escalating costs in California's workers'
compensation system:
- It is critical to note that the commissioner's
decision acts only as an advisory to insurers. In other words,
insurers are not bound by the commissioner's decision and may raise
rates in January based on their books of business.
- At the same time, the WCIRB recommendation
represents only a statewide average, which means insurers could
increase their rates somewhat or not at all depending on their
businesses. This wide variation in insurer rates was evident during
the last ratemaking process, when insurer rates ranged dramatically
from increases of a few percentage points to more than 30%. The vast
majority of rate increases filed, however, were well below the WCIRB's
recommended increase.
- An employer's industry classification and
individual record of workplace injuries still play a determining role
in the final rate an employer pays.
- Unfortunately, premiums are going up because costs
are increasing. Although the insurance commissioner alleges some
system cost increases come from insurers' failure to implement certain
cost-control measures, costs for self-insured employers - mostly large
companies and government entities that pay their workers' compensation
costs directly - have increased by 20% during the past three years.
- The primary driver of cost increases for both insured
and self-insured employers is escalating costs for medical treatment.
Although there is some dispute about the rate of this "medical
inflation," statistics show that medical costs per claim have
increased by 47% for insured employers and 30% for self-insured
employers since 2005. Reasons for the increases include more visits to
the doctor for each workers' compensation claim, more medical
treatments delivered per visit, increasing costs for surgery and
prescription drugs, higher costs to implement medical cost containment
tools, and other factors.
- The second driver of increasing system costs are
the rulings by the Workers' Compensation Appeals Board in Almaraz-Guzman
and Ogilvie.
Last month, the non-partisan Legislative Analyst's Office (LAO) issued
a report finding that these rulings will increase
employer costs because they make California's system for paying
permanent disability benefits less predictable, more litigious and,
ultimately, more
expensive.
- The commissioner's staff has found that rising
costs for medical treatment and fallout from the court cases should
result in higher average workers' compensation insurance rates. In
July, his staff recommended a 7.3% rate increase for policies starting
July 1, 2009 and recommended a 15.4% increase for January 1, 2010.
Implications for the Future
While employer premiums are still approximately one-third the level
they were prior to the 2004 reforms, California's workers' compensation
system is clearly facing challenges. Regardless of the accuracy of the
WCIRB's cost projections or insurers implementation of new cost reduction
strategies proposed by the Insurance Commissioner, California's system is
experiencing the same troubling dynamics that have thrown it into crises
before.
- Escalating medical costs;
- Destabilizing legal rulings that undermine the
system for paying permanent disability benefits, making the system
more subjective and spurring more litigation; and
- The potential for rising costs to outstrip pricing
by insurers, which could lead to insolvencies and a less
competitive marketplace where employers can shop for the best
price.
Proposed solutions to address some of these challenges have
come from several quarters, including the Insurance Commissioner, the
Division of Workers' Compensation, the LAO, and the Commission on Health
and Safety and Workers' Compensation. We will continue to keep you informed
about the progress of these proposals and let you know how you can
help.
In the meantime, please feel free to contact us if you have
any questions.
|
