Calif. Comp Reform Is Panels Work

Everyone seems to agree that the California workers compensationsystem is broken. A bipartisan conference committee in thelegislature has been assigned the daunting task of trying to fixit.

The six-member committee, composed of three legislators from thestate Assembly and three from the state Senate (four Democrats andtwo Republicans), will attempt to fashion a reform package fromabout 20 bills that have been offered as proposed cures for therecent round of painfully high premiums and escalating medicalcosts, as well as a string of insurer insolvencies.

It is an historic undertaking, even in the eyes of veterans ofthe states legislative process. “In my 30 years covering theCalifornia legislature, Ive never seen a conference committee towhich so many bills were assigned,” said Alister McAlister, counselfor the Sacramento-based Association of California InsuranceCompanies.

Even before the conference committee has had a chance to meet,there was more bad news for insurance buyers. The WorkersCompensation Insurance Rating Bureau of California recommended a 12percent average rate hike effective January 1, 2004, on top of the10.2 percent increase in 2003.

The California Insurance Department will hold hearings on therate proposal. While the increase is purely advisory in Californiasopen-rating environment, insurers use it as a benchmark for settingtheir rates.

The conference committees mission will be to “take a look atworkers comp as a whole and attempt to reduce rates,” noted StateSenator Richard Alarcon, a Democrat who is chair of the Senateslabor and industrial relations committee. Sen. Alarcon will alsochair the conference committee.

“There will be a lot of give and take,” Sen. Alarcon predicted.“Every segment of benefits will be explored.”

Medical fee schedules will be a top priority of the committee,especially as respects outpatient care, according to Sen. Alarcon.“Outpatient care accounts for 60 percent of all workers compmedical dollars spent,” he said. Implementing medical fee scheduleswould reduce system costs by $1 billion, Sen. Alarcon added.

Sen. Alarcon also said that the overall package that will comeout of the committee should result in $2 billion to $3 billion inannual system-wide savings.

“The reforms have bipartisan support, including [support] fromthe unions and chambers of commerce,” he noted. “Even the workerscomp bar as an organization has been helpful and has spoken outclearly for fee schedules.”

Sen. Alarcon also stated that the current gubernatorial recallcontroversy probably would not affect the workers comp reformprocess. “Its beyond that,” he said, stressing the widespreadsupport for reforms. (Sen. Alarcon spoke to NU beforeCalifornias insurance commissioner, John Garamendi, threw his hatinto the race for governor.)

Michael Shaw, assistant state director for the Sacramento,Calif., branch of the National Federation of Independent Business,points out that employers are suffering under the current workerscomp system. “Premium increases are averaging 30 to 40 percentannually, and some of our members have had 80 to 100 percentincreases,” said Mr. Shaw. “And many of these are businesses thathave not had any claims.”

Mr. Shaw is cautiously optimistic about what might come out ofthe conference committee. “This is a positive step compared to theprior course of action with many bills and legislators involvedonecommittee with a focused agenda is beneficial.”

“All of the prior workers comp-related bills have been gutted.There are now shells before the committee with no language inthem,” Mr. Shaw explained. He stated that the previous bills aswritten were “moderate reform at best.” His fear is that politicalconsiderations may turn the committees output into the “ghosts ofprior bills.”

According to Mr. Shaw, the major reforms that employers want tosee come out of the committee are a medical fee schedule, autilization review process and curbs on attorney involvement.

There should be a comprehensive medical fee schedule includingoutside, surgical and chiropractic treatment,” said Mr. Shaw.“Medical costs in California are increasing way above the inflationrate,” he added.

Another major reform component is utilization controls, Mr. Shawat NFIB said. He explained that these would be protocols statingthat “for this injury, this is the determined course of procedure.”The situation now, Mr. Shaw noted, is that “as long as a personcomplains of pain, they will be treated.”

Mr. Shaw said that over-utilization of physical therapists andchiropractors is a problem in the state. “Nationally, in 2002 anemployee with a back injury would average 15 chiropractor visits.In California, the average is 34 visits.” He hopes that includingchiropractic treatments in the fee schedule will reduce the numberof visits.

“There has also been a problem with permanent disabilityratings,” continued Mr. Shaw. “A lot of people receiving permanentdisability benefits are not in fact permanently disabled. Theymight have long-term temporary disabilities, but not permanent.” Henoted that the disability rating is often influenced by how theemployees attorney describes it. So tightening the definition ofexactly what constitutes permanent disability is key, Mr. Shawindicated.

Mr. Shaw also said that instituting an independent medicalreview procedure would reduce attorney involvement, especially inthe early stages of workers comp cases.

Brian Perkins, staff director for the Senate insurance committeeagreed with Mr. Shaw that fee schedules, especially for outpatientsurgical centers, as well as independent medical review of disputedcare and guidelines for medical procedures are the backbones ofeffective reforms.

Mr. Perkins has an incisive explanation for the origins of thecurrent workers comp morass in California: “It is like the TacomaNarrows Bridge (the bridge that swayed and fell apart). Based ongood design and assumptions, but a confluence of events has causedits collapse.”

According to Mr. Perkins, those events included“decapitalization of the California workers comp industry ascarriers fought for market share, a regulatory environment thatrecognized the decapitalization but viewed it as a net plus for theeconomy, and underpriced reinsurance by na?ve entrants.”

Mr. Perkins also mentioned a change in state law in the 1990sthat gave final choice of medical treatment to the treatingphysician, failure to control excessive care, and a previousinsurance commissioner with limited workers comp expertise as otherroot causes of the current problems.

But the crisis may be traceable to even earlier events, Mr.Perkins noted. “In the early 1900s, physicians treating workplaceinjuries were required to provide all care necessary to cure andrelieve, which was the definition of good medical care at thetime,” Mr. Perkins said. “That has to be brought up to modernstandards. We now need medically necessary care,” he explained.

Summing up insurers views of the conference committee approach,Jean Cain, vice president of the western region for the Washington,D.C.-based American Insurance Association, said that “we arepleased that the legislature has recognized the need to overhaulCalifornias system, but a conference committee is not apanacea.”

“We must hold policymakers feet to the fire and ensure that theconference committee approves meaningful reform,” Ms. Cain added.“A band-aid approach to solving Californias workers compensationcrisis will not help anyone.”

At this point, those with knowledge of the process said there isno solid timetable for the completion of the committees work.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, August 18, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.