1. You can’t always get what you want… But if you try sometimes… you can get what you need. California Workers’ Compensation Reform: SB 863 Bill Zachry VP Risk Management Safeway

2. 863 Celebration in the Horseshoe

3. CA WC: Pre-SB 863 *PPD Based on NCCI 2012 Statistical Bulletin: Nationwide ex California excludes monopolistic states, weighted by employment PPD benefits adjusted to California Avg. Weekly Wage **Filed rates based on OR DCBS study 2012, wtd by CA payroll Filed Rates PPD Benefits per PPD Claim

4. CA WC: Background pre-SB 863 What is driving the rates? Medical Costs o High % of Total Costs o Very Slow to Pay Out Loss Adjustment Expense: Very High

5. Workers Compensation Medical Cost Drivers Severe burns / quadroplegia Settlement philosophy (C&R vs. Stip.) Treatments paid for that are not evidence based medicine Treatment not authorized by UR Compounding and Repackaging of Pharmacy Hospitalizations Multiple body parts Delayed reporting of claims / Delayed provision of benefits

6. Workers Compensation Cost Drivers Coping skills – Adverse Childhood Experience – 20% to 70% increase per claim Poor Medical Practice – Inconsistency in providing service Addiction – 20% to 50% increase per claim Litigation – 40% to 50% increase per claim Obesity – 20% increase per claim Diabetes – 10% to 20% increase per claim Fatigue/Sleep issues Employee age – Inherent increase in cost of claim – Medicare Set Aside

7. Workers Compensation Cost Drivers Coping skills – Adverse Childhood Experience – 20% to 70% increase per claim Addiction – 20% to 50% increase per claim Litigation – 40% to 50% increase per claim Obesity – 20% increase per claim Diabetes – 10% to 20% increase per claim Fatigue/Sleep issues Employee age – Inherent increase in cost of claim – Medicare Set Aside

8. Workers Compensation Cost Drivers Coping skills – Adverse Childhood Experience – 20% to 70% increase per claim Addiction – 20% to 50% increase per claim Litigation – 40% to 50% increase per claim Obesity – 20% increase per claim Diabetes – 10% to 20% increase per claim Fatigue/Sleep issues Employee age – Inherent increase in cost of claim – Medicare Set Aside

9. CA WC: Background California WCRI MPI-WC Index as of 2011 (2002 = Base Year of 100) Yang & Fomenko, WCRI Medical Price Index for Workers’ Compensation, 4 th Edition, March 2012, p. 99.

10. CA WC: Background Percentage of Medical Paid by Year After Injury California vs. Other States NCCI Annual Statistical Bulletin, 2011, Exhibit IX. 60% 40% 20% Lowest California Highest

11. CA WC: Background Paid Medical Management and Cost Containment per Indemnity Claim CWCI: “Analysis of Medical and Indemnity Benefit Payments”, Exhibit 2B, Page 14

12. CA WC: Background Ultimate ALAE per Indemnity Claim WCIRB July 1, 2012, Rate Filing page A:B-40 Private Insurers Only

13. CA WC: Background % of Major PD Claims with Attorney Representation At First Survey Level WCIRB March 20, 2012, Actuarial Committee III-A134

14. California Background ]Claim Frequency *WC frequency Based on NCCI 2012 Statistical Bulletin: Nationwide ex California excludes monopolistic states, only states with 3-day waiting period, weighted by employment (2008/09) **OSHA 2011 data from BLS (private & public sectors) OSHA

15. CA WC: Background Filed Loss Adjustment Expense as a Percentage of Loss California vs. Other States NCCI Annual Statistical Bulletin, 2011, Exhibit VI

16. CA WC: Background Ultimate Indemnity Benefits per PPD Claim 60% 40% 20% Lowest California NCCI Annual Statistical Bulletin, 2011, Exhibit XI (adjusted for AWW, Exhibit VIII).

17. CA WC: Background Distribution of Premium, 2011 WCIRB Quarterly Market Reports, Exhibit 5 Med & Indenmity split according to 7/1/12 WCIRB rate filing

18. CA WC Reform: SB 863 WCIRB Estimate of Impact: 2013 Provision$ Impact (Millions) % Impact PD Benefit Changes$510+2.7% Eliminate PD Add-ons($170)-0.9% Eliminate Bump Up/Down($100M)-0.5% Liens($480M)-2.5% Surgical Implant Hardware($110)-0.6% ASC Fees($80M)-0.4% Independent Medical Review($370M)-1.9% Ogilvie Decision($210M)-1.1% MPN Strengthening($190M)-1.0% Total 2013($1,200M)-6.3% WCIRB 1/1/13 Rate Filing, Page A:B-34

19. CA WC Reform: SB 863 WCIRB Estimate of Impact: 2014 Provision$ Impact (Millions) % Impact Total Impact 2013($1,200M)-6.3% 2014 PD Benefit Increases$570+3.0% Total Impact 2014($630M)-3.3% WCIRB 1/1/13 Rate Filing, Page A:B-34

20. CA WC Reform: SB 863 Major Provisions not Quantified Fee Schedule (RBRVS, Photocopy Service, Home Healthcare) Med-Legal Changes to QME Interpreter Regulations Timeframes regarding payment of paper medical bills Self-Insurance Security Requirements

21. CA Permanent Disability No Losers! Impairment From Doctor (per AMA Guides) Add-Ons Adjustments Future Earnings Capacity Age Occupation PD Award Apportionment Weeks of Benefits Min/Max Benefit per Week Final Adjustments Life Pension/Permanent Total Bump Up/Bump Down

22. CA WC Reform: SB 863 Impact of Changes to PD Increase Max & Min Benefits o Most of Impact due to max not min Add-Ons: % of Total PD o Sleep: 1.2% of Ratings, 1.4% of Cost o Sex: 0.4% of Ratings, 0.3% of Cost o Psych: 1.7% of Ratings, 3.8% of Cost Replace FEC with AMA Modifier o 13% of Cost BRS Analysis of DEU Data

23. CA WC Reform: SB 863 # of Weeks at Bump Up/Bump Down Data provided by WCIRB

24. CA WC Reform: SB 863 Liens: Filing Fee CHSWC Liens Report, 1/1/11, p. 4 $100 Filing Fee 1/1/04 Filing Fee Repealed 7/12/06 EAMS Goes Live 8/25/08

25. CA WC Reform: SB 863 2012 Liens Filed WCIRB Actuarial Committee 3/20/13, Page IV-A-25

26. CA WC Reform: SB 863 Distribution of 2012 Liens by Type WCIRB Actuarial Committee 3/20/13, Page IV-A-25 Petition for Cost No Petition for Cost

27. CA WC Reform: SB 863 IMR: Texas Reforms (TD & RTW) “Setting the Standard”, TDI, December 2010, Page vi.

28. CA WC Reform: SB 863 IMR: Texas Reforms (Medical Costs) “Setting the Standard”, TDI, December 2010, Page vi.

29. CA WC Reform: SB 863 IMR: Texas Reforms (Shorter Medical Tail) “Setting the Standard”, TDI, December 2010, Page 41.

30. CA WC Reform: SB 863 IMR: Texas Reforms (Medical Service Denials)

31. CA WC Reform: SB 863 Other Important Features Increase in PD Benefits o Phased in Over 2 Years o Prospective (applies to injuries on or after 1/1/13) o Impact on Utilization is area of dispute Cost Reductions o Some have retrospective components (IMR & Lien changes apply to open claims) o Difficult to Price

32. CA WC Reform: SB 863 California Private Self-Insurer Ratio of Total Liabilities / Case Reserves #1 #2 #3 #4 #5#6#7 Change in Security Requirements 1.35 2.00

33. CA WC Reform: SB 863 Sometimes Even Hindsight Isn’t 20/20 899 was off on savings and subsequent development

34. To be addressed next…Costs

35. Implementation New policies Training the examiners Getting a feel for the new road IMR (Maximus) Bill Review Liens (and the WCAB petition for costs) Pharmacy and bill review programs

36. Other Issues Regulations AMICUS New legislation ADR / Opt out

37. Top WC Cost Drivers Litigation (Prescription) Opiates Multiple Body Parts Hospitalizations Obesity Liens

38. Safeway Programs Hire Smartly Functional Restoration Pharmacy UR connected to Bill Review Medical Networks Low case loads Settlement philosophy Medical Treatment Philosophy