AFWD presents: Minimizing Worker’s Compensation Costs What Employers Can Do to Help Reduce Work Comp Expenses

Introduction Many CA employers are frustrated and feel that they have no control over the ever increasing expensive and “out-of-control” w/c costs.

In April, 2004 Gov. Schwarzenegger and the CA legislature passed sweeping work comp reform with SB899.

This is not the first time that CA lawmakers have passed w/c reform laws. Past reforms, primarily the last 2 decades, have fallen short of their goal of reining in workers’ comp costs.

Overview Today we will cover a Brief history of workers’ comp in California –Review of most recent w/c reform SB Key provisions including intended effects -Impact on employers, employees What action employers can take to reduce or minimize work comp costs -A simple and effective approach that every employer can take to ensure work place health and safety and minimized work comp costs

Worker’s Compensation Benefits Depending on the circumstances of the injury or illness, workers are entitled to one or more of five basic benefits: –Medical care –Temporary disability payments –Permanent disability benefits –Vocational rehabilitation/Training vouchers –Death benefits

History Early California's workers’ compensation law was passed by the state Legislature in 1911, and in The compromise between labor and management was designed to shield employers from liability regardless of fault, and to provide workers with appropriate benefits for all workplace injuries.

In the 1960’s the w/c system was liberalized by the state judicial system. By the 1980’s with the liberal courts as a backdrop, w/c rates that employers paid began a steady climb. (AB110) (SB 1005) 1993, did end up not reforming the w/c system as intended. Then (SB 30) 1995, regulation was lifted and the rating became “open”; no minimum rate structure.

From w/c rate (average) was $2.27 per $100 of payroll. From rate (average) grew to $6.30 per $100 of payroll. (source: Worker’s Compensation raring Bureau, WCIRB)

Total rate expenditure for was $5 billion a year and that grew to over $15 billion a year for (source: Worker’s Compensation raring Bureau, WCIRB)

During the late 1990s private work comp insurance companies cut their rates and hoped to make up the difference in volume. The result: More than 30 private work comp insurance companies went broke and many more have left the California market.

In California: The (medical) cost of each claim has dramatically risen from an average of $9,000 in 1992 to $36,000 in source: Worker’s Compensation Rating Bureau, WICRB)

Other skyrocketing costs: Medical care –Presumption of correctness of primary physician –utilization (# of visits per claim) –Cost of prescriptions Disability claims/benefits Litigation Fraud

Medical Costs have doubled since Medical costs of disability claims 40% higher than national average. CA medical inflation rate averages 14% over last decade vs. national 4% average.

Disability Claims/Benefits CA w/c claims 29% higher than national average, while permanent partial disability claims are nearly 3 times the national rate. Permanent partial disability claims equal 82% of total benefit cost in CA, more than any state other than New Jersey. CA has nearly 20% more permanent partial disability claims per 100,000 workers than the next highest state. Permanent disability costs have increased 79% since 1995.

Litigation Worker’s compensation was designed to pay benefits without the delay and expense of lawyers and litigation. In CA lawyers are involved in 3 of 4 permanent disability cases. And, ranges from 69% in the lowest rated disabilities to over 96% for those with the highest ratings.

Litigation Subjective, irrational disability ratings often under compensate severely injured workers and often over compensate those with minor injuries. Attorney fees and legal costs have added to the burden of work comp costs.

Fraud National Insurance Crime Bureau (NICB) estimates w/c insurance fraud is the fastest growing insurance scam in the U.S. SB 1218 (1991) passed to combat w/c fraud making it a felony. Requires insurers to report suspected fraud and established funding enforcement and prosecution activities.

The result after decades: Many carriers became under reserved, not having enough money in “reserve” to pay for claims and were forced from the market. Resulting in California employers having fewer carrier choices and paying skyrocketing rates.

As more and more insurance carriers went broke or left California, leaving the private w/c insurance industry in ruins, more employers had to obtain insurance from State Fund. In recent years, State Fund went from insuring 20% of CA employers to close to 55%.

In a Nutshell: CA employers pay the highest w/c rates in the nation while benefits are among the lowest third of all states. In 3 rd qtr of 2003 according to the WCIRB – CA employers paid on average $6.30 per $100 payroll in w/c premiums. That was 9% more than the first half of 2003 and 3 times the average rate in Also, the CA rate = 94% more than NV, 184% more than Oregon and 259% more than AZ. (Source: Worker’s Compensation Action Network, WCAN)

Effect… California has lost over 300,000 manufacturing jobs since December 2000 and many more in other industries.

True Story

Summary The worker’s compensation system in California has been revised and reformed repeatedly since the passage of the Roseberry Act in Reform issues have been inflation, rate and benefit increases, fraud, litigation and fluctuations in the economy.

2004 Work Comp Reform SB 899 SB 899 passed into CA law April 2004 Key Provisions Tightens standards for determining impairment ratings by removing subjectivity and requiring doctors to follow nationally recognized standards; Permits employers to create a medical provider network to treat injured employees;

Strengthens an employer's ability to "apportion" liability for injuries by requiring doctors to address "causation" of disabilities or impairments in their reports and employees, upon request, to disclose all previous permanent disabilities or physical impairments; Caps temporary disability benefits for most injuries at 2 years; Enhances benefits for individuals with the most severe permanent disabilities while lowering benefits for minor permanent injuries;

Repeals the "presumption of correctness" currently afforded the opinion of an employee's primary treating physician concerning the extent and scope of medical treatment; Expressly exempts workers' compensation laws from the new private right of action for penalties known as the "bounty hunter" law; Requires that findings of fact made by the Workers' Compensation Appeals Board be made impartially to ensure employees and employers are considered equal under the law;

Re-authorizes "vocational rehabilitation" benefits for pre-December 31, 2003 injuries only; and training vouchers for injuries on and after January 1, Increases permanent disability payments by 15% when reinstatement is not offered or possible while reducing benefits by 15% when employees receive reinstatement offers.

The WCIRB estimates that SB 899 will reduce benefits by nearly 15% or $3 billion and cut lost adjustment expenses by 9% or $300 million. It remains to be seen how SB899 will affect The ever increasing complexities and expense of workers comp. Since the Provisions of the latest reform are being implemented over a period of time and there are already legal challenges, the full effects of SB899 will not be felt for some time.

So What Can I Do? Current Workers Comp Policy Work with agent/insurance carrier to –Request and obtain a copy of current policy –Review ALL information in policy/Ask questions –Understand the policy including reporting and documentation requirements –Make sure all employee/business classifications are accurate –Ensure accurate premium rates –Review policy information annually

New Worker’s Comp Policy –Shop for new policy to compare rates, services, and reduce premiums.

Develop Internal W/C Processes –Develop, publicize, and maintain w/c policy Designate person to report injuries to Train person on procedures,reporting,documentation for workplace injuries/illnesses For each incident document: date; time of injury, place; and name, job title; and signature of employee; how the injury occurred; and any witnesses –Communicate expectations to employees –Enforce all rules of plan

Work Comp Claims…When an injury/illness occurs –Monitor and work closely with w/c carrier, claims/case manager on all w/c claims. Meet with claims manager to review progress of claim(s). –Bring workers back to work as soon as possible. –Report any suspicion of fraud or abuse to carrier.

Create/review/update a comprehensive Injury and Illness Prevention Program (IIPP) –Review and update or institute ongoing safety training program and schedule. –Provide ongoing employee safety training. –Determine and correct any known workplace safety issues.

Why have an IIPP?  Employers MUST have an effective Injury and Illness Safety Program, not only because it is the law, but because it is an effective tool to minimize injuries and illness in the workplace.  Employers must also enforce the safety program and document and discipline as necessary.  Employers can be proactive and have a key role in keeping insurance rates down by setting the goal of zero accidents.

Legislative Action Stay up-to-date on legislative activity regarding workers comp. Contact lawmakers, encouraging them to stay the course and fully implement all provisions of SB899.

Stay Informed Keep up to date on the latest developments in California’s Workers’ Compensation by signing up for AFWD’s Workers’ Comp Fax Facts.

Conclusion It is critical that we learn from past work comp reform experiences. If CA lawmakers and regulators do not see the recent reforms through, the projected billions in cost savings may never happen and California employers will continue to suffer and lose. If the reform is to be successful, all players must be vigilant and bold in demanding that provisions of the new law are fully implemented.