Report: Workers’ Comp Reform Saving California’s System $770M Annually

The Workers’ Compensation Insurance Rating Bureau in mid-November released this year’s evaluation of California’s workers’ comp reform law.

The WCIRB Cost Monitoring Report — 2015 Retrospective Evaluation is part of a multi-year cost monitoring plan developed by the WCIRB following the signing of Senate Bill No. 863 by California Gov. Jerry Brown on Sept. 18, 2012.

The report includes an updated evaluation of the cost impact of a number of SB 863 provisions based on data emerging through the third quarter of 2015. Based on the most current information, the WCIRB estimates the impact of SB 863 is an annual net savings of $770 million, or 4.1 percent, of total system costs.

Here are some findings of the report:

• The impacts of increases to weekly permanent disability minimums and maximums for 2013 and 2014 injuries are emerging consistent with initial projections.
• Changes to PD ratings related to the elimination of the future earning capacity and PD add-ons were projected to increase average PD ratings by roughly 6 percent (prior to any impact from the Ogilvie v. City and County of San Francisco decision). This is generally comparable to data on early 2013 PD ratings, which suggests increases in average PD ratings at 3 percent to 8 percent above the pre-reform rate of growth.
• The changes to PD related to Federal Employees Compensation were estimated to eliminate any increases to PD for the Ogilvie decision and included significant savings to frictional costs resulting from the elimination of Ogilvie. However, since the implementation of SB 863, average allocated loss adjustment expense costs per claim have not declined and, in fact, have increased significantly, suggesting no savings to ALAE from the elimination of Ogilvie are emerging.
• Indemnity claim frequency was projected to increase modestly from 2012 to 2014, in part due to SB 863 changes to indemnity benefits. Indemnity claim frequency for accident years 2013 and 2014 is emerging generally consistent with projections. Although indemnity claim frequency increased significantly in 2012, it had been increasing prior to the enactment of SB 863 in the third quarter of 2012.
• The number of lien filings was projected to fall by roughly 41 percent as a result of the SB 863 lien filing fee and statute of limitations. Although filings in 2013 and 2014 fell by roughly 60 percent annually when compared with 2011 levels, the number of liens filed rose significantly in 2015 and are projected to be only 20 percent lower than 2011 levels. However, some of this increase may be due to temporary increases in lien filings following the transition of the statute of limitations on filing from three years to 18 months for dates of service on or after July 1, 2013. At this time it is not clear whether the SB 863 lien provisions will produce saving more or less than originally projected.
• SB 863’s elimination of the duplicate payment for spinal surgical implants was estimated to save roughly $20,000 per procedure, while WCIRB Medical Data Call data shows a more than $25,000 reduction in the average cost of these procedures since 2013.
• SB 863’s reduction in maximum ambulatory surgical center facility fees was estimated to reduce those costs by 25 percent, which is consistent with the reductions observed based the data estimates comparing post-Jan. 1, 2013, reimbursements to pre-SB 863 levels. In addition, the proportion of post-Jan. 1, 2013, services performed in outpatient hospitals compared to ASCs is consistent with pre-reform levels, suggesting no cost-shifting to outpatient hospitals.
• The frequency of independent medical review requests through the third quarter of 2015 is far above initially projected levels. As a result, fees paid for IMRs are expected to increase ALAE costs by roughly 2.4 percent compared with a 1 percent increase prospectively estimated in 2012.
• Expedited hearings related to medical treatment disputes were expected to be substantially eliminated by the new IMR process, while roughly 5,500 more expedited hearings have been held per year since the implementation of SB 863.
• While average unallocated loss adjustment expenses fell from 2012 to 2014, medical-legal costs, utilization review costs and litigation costs have continued to emerge at pre-reform levels and average ALAE costs rose significantly through 2014, suggesting the prospectively estimated significant savings to frictional costs from IMR or other SB 863 provisions are not materializing.
• Relatively few independent bill review requests have been filed compared with IMR filings, with information suggesting that the majority of decisions favor the provider and result in additional payments. However, as with IMR, MPNs, and other SB 863 provisions, the IBR process may be having a significant impact on recent declines in overall medical severities.
• SB 863 changes to liens, IMR, IBR, MPNs and other areas could significantly impact medical treatment levels, and overall medical claim severities declined in 2013 and 2014 with clear indications of reduced utilization levels particularly in 2014. While it is difficult to attribute changes in medical treatment levels to specific components of SB 863, the WCIRB estimates the SB 863 changes have resulted in an overall 5 percent decline in medical treatment costs.