Tuesday, October 30, 2012

There Is No Logic Anymore

In the past I have been critical of California's SB 863 as the product of Big Self Insured Business (BSIB) and Big Labor (BL) because those constituents simply do not represent the interests of the majority of employers and workers in the state.

What was negotiated in SB 863 is good for BSIB and BL, but the impact on other employers and workers was simply not considered, or was at best dismissed as inconsequential.

And the unintended consequences of trying to control costs while simultaneously increasing benefits does extra duty against self-insured governmental agencies like the City and County of San Francisco.

Peggy Sugarman, former chief deputy administrative director of the California Division of Workers’ Compensation, has taken on the job of director of workers’ compensation for the City and County of San Francisco as of the beginning of October. Sugarman has plenty of experience with workers' compensation, having joined the Division back in 1986.

As part of her new job, Sugarman has been studying how SB 863 is going to affect San Francisco's workers' compensation program. 

Many city and county employees are higher wage earners, and the permanent disability increase will have a direct effect, she says. At the same time, she doesn’t anticipate significant savings from provisions addressing liens because the municipal program doesn’t litigate many payment disputes.

She said her biggest concern is the possible increase in workload necessary to maintain records for independent medical review and independent bill review, new administrative processes for resolving treatment and billing disputes.

That increased workload directly affects the costs of the program.

I've heard this from private insurance executives as well - that the cost the independent medical and bill review programs may not generate the savings contemplated. The expense of getting into the review, the risk of losing the review, and the result of having to pay regardless, plus penalties and interest, may mean that employers just permit treatment and pay the bills as presented to avoid any further dispute and expense.

I recall Los Angeles County Risk Management Chief, Alex Rossi, telling me one time that the difference between the workers' compensation program at the County compared to the vast majority of other employers is that when someone yells "fire" his employees run into it, when most other employers' workers flee the scene.

These are the risks that are not contemplated by BSIB or BL - their interests simply don't align with the experience of most.

I am annually tasked with editing the WorkCompCentral California Flowchart - a graphical reference to the claims process.

Every year I bemoan the increased complexity of the system, as I tweak various references, move other topical items, and introduce more legislative, regulatory and adjudicatory sources.

This year my hairline has receded considerably more - the complexity of the new sub-systems has completely altered the claims landscape and we don't even have draft regulations to plug into it yet!

These changes are cost drivers in themselves and will require significant outlays of capital and other resources to implement at the state level, at the employer level, and most significantly at the self-insured municipal level. These are costs that can not be very well spread against a larger risk category.

These are costs that are not contemplated by BSIB or BL because they don't experience these elements in their daily risk management lives.

The WCIRB projects costs and savings for the insured market. The Department of Insurance reports what self-insureds are experiencing. Self-insured governmental entities report their experience too, but their costs are related differently because most people don't equate government costs as having any direct impact other than increased taxes.

SB 863 though changed the funding for the management of governmental self- insureds from the General Fund to the Workers' Compensation Revolving Fund. In other words, instead of Joe Taxpayer paying for the cost of San Francisco's independent medical and bill review processes, the balance of the employer population pays for it even though that population derives no benefit from that program.

In other words, governmental self- insureds now have a direct impact on the cost of private insurance premiums.

I have been staring at the Flowchart every day since the end of the legislative session trying to make everything fit in a logical order. I used to believe that there was some logic behind workers' compensation.

I don't have that faith anymore.


  1. David,

    Those who seek logic and reason in workers' compensation are destined to be disappointed. The best we can hope for is internal consistency and that is all to often elusive as well. Those of us who deal with WC every day are often left in stunned disbelief at what actually happens. How much more confusing must it be for those who only come in contact with the system on rare occasions. Add multiple jurisdictions to the mix and the effect is multiplied.
    SB 863 has added yet another layer of complexity to a system already known to be one of the most challenging. As I have mentioned before I am unconvinced SB 863 will actually result in lower overall costs, even for BSIB's. As an adjuster working in the Los Angeles area recently told me, it will be years before we know. In the mean time folks will have to do what they can with the rules they are given.

  2. Thanks for your comments Sam. We are on the same wave - we just have to remember that workers' compensation is a political endeavor, and thus moves with the winds of politics.