Study Finds Bigger Drop In Calif. Comp Costs

Legislative reforms to California's workers' compensation system have cut costs sharply, according to a study by the state Workers' Compensation Insurance Rating Bureau.

In its 2007 Legislative Cost Monitoring Report, the WCIRB found that fees and utilization of services have been reduced, in some cases heavily, as a result of legislation passed by the state since 2002. The effect of these reductions, the report found, was billions of dollars more than even it had projected.

The bureau initially projected that cost savings from the reform, as reflected by its pure premium filings, would be 49 percent of what the bureau estimated the costs to the system would have been without the reforms, totaling an estimated $10.1 billion.

Based on the actual costs that have been incurred, the WCIRB said it now believes the reforms trimmed the system by roughly 70 percent of what costs would have been, or $14.5 billion.

Among the sharpest declines, the WCIRB noted in the study, was a drop in chiropractic utilization of 82 percent and in physical therapy utilization of 66 percent following the enactment of SB 228 in 2003. The legislation also resulted in a decrease in vocational rehabilitation costs per claim of 80 percent.

The fees paid by the workers' compensation system also fell as a result of the reforms.

According to the WCIRB, physicians fess and inpatient facility fees both fell by 4 percent, while outpatient facility fees decreased 39 percent. Following the enactment of SB 228, the WCIRB said in the report, pharmaceutical fees decreased by approximately 13 percent.

The reduction in the number of medical service office visits varies depending on where a worker falls in the system's fee schedule and diagnostic groupings, but on average the WCIRB found that visits per claim decreased by roughly 9 percent after the reforms were enacted.

"If a pre-reform annual growth rate in medical services of approximately 10 percent is assumed, this would equate to an approximate 25 percent reduction in medical utilization costs compared with pre-reform projected levels over the two years the medical utilization reforms were adopted," the WCIRB said in the report.

The report also noted significant declines in benefit costs. The duration of temporary disability has fallen by roughly 15 percent following the enactment of reforms. Permanent disability benefit costs have been cut by roughly 14 percent, the WCIRB noted, due to changes made in the number of weeks per rating point by SB 899, which was signed into law by Governor Arnold Schwarzenegger in 2004.

Changes made by SB 899 to the system's rating schedule have caused an even greater reduction to permanent disability benefit costs of 60 percent, the study found.