No Stopping the Trend of Increasing Costs

“So, just looking at the numbers, SB 863 will help curb the pace of increasing costs, but not stop or reverse the trend.”

That's what Jerry Azevedo, spokesman for the Workers’ Compensation Action Network (WCAN), said in an email to WorkCompCentral when asked to comment about the latest findings in the Commission on Health and Safety and Workers’ Compensation (CHSWC) 2012 Annual Report about loss adjustment expenses.

WCAN was (and is) a major proponent of SB 863. Their website URL is "http://www.fixworkerscompnow.org/."

The CHSWC report shows that employers paid $6.745 billion for loss adjustment and other expenses (38%), compared to $6.672 billion for medical care (37%) and $4.506 billion for indemnity benefits (25%) in 2011.

In 2010, employers spent a total of $14.785 billion, including $6.435 billion in medical (40%), $5.343 billion for expenses (34%) and $4.235 billion on time loss (26%).

Mark Gerlach, a consultant for the California Applicants’ Attorneys Association, in my opinion hit the proverbial nail on the head with this comment to WorkCompCentral reporter Greg Jones:

“It’s an alarming wake-up call for everybody that the complications we’ve built into the system are generating such high costs that we seriously need to consider whether or not some of the changes, utilization review, MPNs, etc., are worth it to the employer community or whether they are generating such high costs that they are not achieving any net savings for employers.”

It seems that in the zeal for controlling costs the workers' compensation system in California (and other states following the example), the regulatory scheme has become so complex, so arcane, so illogical, that more money is spent on accounting compliance than delivery of benefits.

What if the system simply did away with utilization review, bill review, fraud investigation, defense attorneys, applicant attorneys, employer audits, etc.?

All of a sudden $6.745 billion in savings are realized, by simply reducing regulatory machination.

I know, I know ... there has to be some control processes in place lest the entire system gets taken over by fraudsters and sociopaths.

Still, one can't help but wonder whether we aren't just better off forgetting about all of this micro-management and just returning to operational conditions of an earlier era - when claims adjusters actually were responsible for adjusting claims; when defense attorneys were encouraged and rewarded for settling disputes as quickly as possible even if a little more money had to be paid; when there weren't fee schedules for every little possible combination of expenditures known to the work comp industry; when substance actually trumped procedure.

I edit the California Workers' Compensation Flowchart every year to account for new laws and regulations, and changes affecting the system by case law or other legal events.

And while I started 2012 with a normal male pattern baldness, the 8 weeks it took me to re-craft the Flowchart for SB 863 resulted in a substantial further recession of the hairline. The complexity introduced by SB 863 is truly staggering.

Workers' compensation is now much more about procedure than it is about the delivery of benefits, and the CHSWC numbers bear that out.

California will see a substantial savings in 2013 and into 2014 - but that is going to be a one time event due mostly to the lien genocide that SB 863 introduced.

In the meantime carriers and adjusting firms are busy implementing new processes, new systems, new computer code, more people, more paper and more management to deal with all of the new regulatory measures.

Defense firms are hiring at a record pace.

In the meantime there are dire predictions of a physician shortage already negatively impacting health care, let alone workers' compensation.

Everyone has their "fix" for workers' compensation but usually that means more legislation, more regulation, more fee schedules, more emphasis on procedure, more details, more forms...

And more expense.