The Workers' Compensation Insurance Rating Bureau has now issued its 2017 report on the state of the California workers’ comp system.
If you’re headed to a desert island and want to take along one resource for understanding California workers’ comp now, this is probably the best choice.
As with so many studies, different stakeholders will read the report from their own perspective, seeing success or problems as the case may be.
This year’s report is a great improvement in terms of format and ease of use. Most of the charts come with an “Insights and Recent Trends” box that summarizes what is shown in the various graphs. I’ll summarize some of the findings and reference the charts.
But first, a word of caution: As with any study, attorneys and individuals caught up in the system may well find that the trends and the conclusions in no way reflect the difficulties they face as they are caught up in California’s system.
Employers and insurers will find a lot to like in the report, as it paints a picture of a system where costs have moderated (chart 23) though they are still higher than in many states (charts 4, 18, and 19). Increases in the workforce and average wages have led to premium growth (chart 2).
Average charged rates per $100 of payroll were $2.58 in early 2017, a decrease of around 15% since early 2015. Advisory-only recommended “pure premium” rates had decreased 27% over the same time span (chart 3), showing that average charged rates did not always follow the rate of decline in the insurance commissioner’s rate recommendation.
Cumulative trauma claims (charts 16 and 17) and Los Angeles-area claims (charts 14, 15 and 17) continue to stick out as areas of concern, according to the report.
On the other hand, worker advocates will note that the system continues to be very expensive to operate in terms of benefits delivered.
Chart 7 notes that for 2016, out of a $16.9 billion system, medical costs were 36% and indemnity costs 28%. The remainder were costs to run the system (loss adjustment expenses 17%, commissions 12%, and general expenses/taxes 7%). You can do the math. For a dollar spent, only 64 cents goes to worker benefits (medical and indemnity), and the rest to some sort of overhead/administrative expense category.
That commissions take up 12% of a $16.9 billion system seems like a scandalous amount, given that workers’ comp coverage of some kind is a mandatory product that employers must have. Surely this is one statistic that bears more scrutiny.
Be that as it may, chart 11 tells us that $3.5 billion goes to “friction costs.” This includes applicant and defense attorney fees (applicant fees are just under half of defense attorney expenses), med-legal costs, medical cost-containment costs, and various allocated and unallocated loss expense costs. The slide notes that “The $3.5 billion of frictional costs paid in 2016 exceeds the cost of paid indemnity benefits (after excluding applicant’s attorney fees, which are typically reported in indemnity benefits).”
Comparing California insureds, self-insureds, other states and California group health premiums shows the state's workers comp medical costs have increased much less than group medical costs (chart 24). The impact of the Senate Bill 863 reforms on medical costs is cited in many slides (charts 24, 25, 27 and 28).
Opioid costs are down significantly from 2013 levels (chart 29).
California has a higher number of claims that are reported later on (chart 30) and claims stay open longer than in many states (charts 31 and 32).
ALAE (allocated loss adjustment expenses) per indemnity claim have been rising sharply and continued to climb in 2016 (chart 34).
The ratio of loss adjustment expenses to losses is higher than in any other state (chart 35) and is almost twice the median.
Chart 36 shows the cost to deliver $1 of benefits in comparison to other systems. For Medicare, it is 2 cents per dollar. For private health insurance, it is 18 cents per dollar. The median state cost is 22 cents per dollar. In the California workers’ comp system, it is 53 cents per dollar.
Despite high loss adjustment expenses, chart 39 predicts a reduction in future ALAE.
If you had any lingering doubt as to whether 2012 predictions of the impact of SB 863 benefit increases versus SB 863 savings would be accurate, chart 40 will set you straight. The slide concludes that, “In total, SB 863 has saved $1.3 billion in annual statewide costs compared to $0.2 billion initially projected.”
One would think that any labor leader approached about signing on to proposed future reforms would want to be sure that increased benefits flow to workers in a more 1-to-1 ratio than what resulted from SB 863.
Chart 41 gives us another look at losses (medical payments and indemnity) in comparison to overhead. Losses are 57% while loss adjustment expense (22%) and “other expenses” (18%) total 40%.
Chart 44 has a summary of recent trends and a comparison with other states.
Julius Young is a claimants' attorney for the Boxer & Gerson law firm in Oakland. This column was reprinted with his permission from his blog, www.workerscompzone.com.
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