Calif. Comp Reform Is Panels Work

Everyone seems to agree that the California workers compensation system is broken. A bipartisan conference committee in the legislature has been assigned the daunting task of trying to fix it.

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

It is an historic undertaking, even in the eyes of veterans of the states legislative process. “In my 30 years covering the California legislature, Ive never seen a conference committee to which so many bills were assigned,” said Alister McAlister, counsel for the Sacramento-based Association of California Insurance Companies.

Even before the conference committee has had a chance to meet, there was more bad news for insurance buyers. The Workers Compensation Insurance Rating Bureau of California recommended a 12 percent average rate hike effective January 1, 2004, on top of the 10.2 percent increase in 2003.

The California Insurance Department will hold hearings on the rate proposal. While the increase is purely advisory in Californias open-rating environment, insurers use it as a benchmark for setting their rates.

The conference committees mission will be to “take a look at workers comp as a whole and attempt to reduce rates,” noted State Senator Richard Alarcon, a Democrat who is chair of the Senates labor and industrial relations committee. Sen. Alarcon will also chair 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 comp medical dollars spent,” he said. Implementing medical fee schedules would reduce system costs by $1 billion, Sen. Alarcon added.

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

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

Sen. Alarcon also stated that the current gubernatorial recall controversy probably would not affect the workers comp reform process. “Its beyond that,” he said, stressing the widespread support for reforms. (Sen. Alarcon spoke to NU before Californias insurance commissioner, John Garamendi, threw his hat into 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 workers comp system. “Premium increases are averaging 30 to 40 percent annually, and some of our members have had 80 to 100 percent increases,” said Mr. Shaw. “And many of these are businesses that have not had any claims.”

Mr. Shaw is cautiously optimistic about what might come out of the conference committee. “This is a positive step compared to the prior course of action with many bills and legislators involvedone committee 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 in them,” Mr. Shaw explained. He stated that the previous bills as written were “moderate reform at best.” His fear is that political considerations may turn the committees output into the “ghosts of prior bills.”

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

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

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

Mr. Shaw said that over-utilization of physical therapists and chiropractors is a problem in the state. “Nationally, in 2002 an employee with a back injury would average 15 chiropractor visits. In California, the average is 34 visits.” He hopes that including chiropractic treatments in the fee schedule will reduce the number of visits.

“There has also been a problem with permanent disability ratings,” continued Mr. Shaw. “A lot of people receiving permanent disability benefits are not in fact permanently disabled. They might have long-term temporary disabilities, but not permanent.” He noted that the disability rating is often influenced by how the employees attorney describes it. So tightening the definition of exactly what constitutes permanent disability is key, Mr. Shaw indicated.

Mr. Shaw also said that instituting an independent medical review procedure would reduce attorney involvement, especially in the early stages of workers comp cases.

Brian Perkins, staff director for the Senate insurance committee agreed with Mr. Shaw that fee schedules, especially for outpatient surgical centers, as well as independent medical review of disputed care and guidelines for medical procedures are the backbones of effective reforms.

Mr. Perkins has an incisive explanation for the origins of the current workers comp morass in California: “It is like the Tacoma Narrows Bridge (the bridge that swayed and fell apart). Based on good design and assumptions, but a confluence of events has caused its collapse.”

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

Mr. Perkins also mentioned a change in state law in the 1990s that gave final choice of medical treatment to the treating physician, failure to control excessive care, and a previous insurance commissioner with limited workers comp expertise as other root causes of the current problems.

But the crisis may be traceable to even earlier events, Mr. Perkins noted. “In the early 1900s, physicians treating workplace injuries were required to provide all care necessary to cure and relieve, which was the definition of good medical care at the time,” Mr. Perkins said. “That has to be brought up to modern standards. 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 are pleased that the legislature has recognized the need to overhaul Californias system, but a conference committee is not a panacea.”

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

At this point, those with knowledge of the process said there is no 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Calif. Comp Reform Is Panels Work

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