Everyone in the workers compensation industry has been following California’s legislative debates and work on Senate Bill 863. This goal of the bill was to help resolve some of the issues plaguing workers compensation in CA.
Insurers in California have been struggling to write workman’s comp profitably for several years now and the industry has been running a combined score well into the 1.20’s to 1.30’s. Simply put, a combined score is the ratio of money an insurer pays out for every $1 it takes in. It’s the same principle as if you handed me $1 right now and I gave you back $1.25 — that won’t keep me in business for very long.
That’s what’s happened in California in recent years, and a few insurers have gone bankrupt as a result. Why is that bad for the employers in California? Because this means that there are fewer valid markets willing to write workers compensation in CA today than there were a few years ago. The law of supply and demand applies, and with fewer carriers and known industry losses, the rates have been going up significantly.
So, that’s where we get Senate Bill 863. The bill attempts to make significant changes to several areas of payments on workers compensation claims. Here are some of the key aspects addressed:
- Increases permanent disability values
- Simplifies the permanent disability rating method
- Resolves medical treatment disagreements through independent medical review
- Resolves bill payment disputes through independent bill review
- Simplifies the supplemental job displacement voucher system
- Requires payment of a filing or activation fee for liens
- Improves medical provider networks
- Updates the Official Medical Fee Schedule
- Establishes fee schedules for copy services, interpreters, vocational experts, and in-home health care
- Provides additional payments for workers with disproportionate wage loss.
It’s actual impact has yet to be known and carriers aren’t confident that this will be a major change in the ultimate pricing — at least not immediately. Many carriers do expect at least a few pieces of the legislation to have a positive impact.
The independent medical review (IMR) was established to provide a quick, efficient way of resolving medical treatment disputes. The goal is to reduce the timeline on disputes for treatment of injured workers to about 40 days. This system has been fully in place since July 1, and carriers are seeing results.
“The IMR process is proving effective and is keeping medical decisions out of the hands of the courts,” the insurer Employers Insurance said in a written statement regarding SB 863. “71% of reviewed IMR cases for the industry have resulted in denial of treatment. We expect to see a positive impact on medical payments as these accelerate.”
Employers said that Maximus (the IMR organization) is overloaded with requests currently and they are behind the timeline goal, but they think that backlog can be cleared by the end of the first quarter of 2014.
The impact on lien decisions is still very much up in the air. To this point, the courts are holding to the intent of the new law and firmly dismissing cases where no filing fee is paid without requiring a petition from the defendant. However, there was a recent court decision that placed an injunction on the activation fees for legacy liens, which will result in those liens remaining in the system and force carriers like Employers to settle/litigate many liens that they had expected to be dismissed under the new legislation.
The permanent disability changes are still too new to tell whether carriers are being impacted by these changes. Employers feels it can start to accurately evaluate this portion of SB 863 by June of 2014.
Given the scope of influence this bill has, I do believe it can have a positive impact on the California system. This may create a slow change in pricing and carriers’ willingness to insure employers in CA, but it is at least a positive first step toward bringing work comp prices back in line with the majority of the country.
