Thursday, August 16, 2012

CA Reform Can't be Priced - So Where's the Savings?

"Saying something has to have a fee schedule doesn't generate savings."

That's what California Workers' Compensation Insurance Rating Bureau's (WCIRB) chief actuary Dave Bellusci said to WorkCompCentral about the proposed reform that would impose new fee schedules in announcing the WCIRB's pure premium rate filing yesterday.

Likewise, the WCIRB would need more time to calculate savings from a proposal to use Medicare's Resource-Based Relative Value Scale (RBRVS) or a requirement that medical disputes be sent to independent medical review.

"Even though, ultimately, those may be the biggest pieces, they're hard to price," Bellusci said.

Bellusci said the WCIRB can estimate the financial impact of an increase in permanent disability benefits and what would happen to costs if the ability to increase permanent disability awards based on an injured worker's diminished future earning capacity and age are eliminated.

The Labor Code section 4628(d) adjustment to permanent disability indemnity based on return to work status, elimination of spinal fusion hardware pass-through and reduction of out-patient surgical center reimbursement can also be estimated.

Labor and Business negotiated a deal that they claim would cut $1.4 billion in costs from the California workers' compensation system and increase permanent disability benefits by $714 million. Legislation hasn't been introduced, but Bellusci said the Rating Bureau has seen some proposals.

But the bottom line is that the people whose job it is to convert the law into money don't know what the true impact of the proposed reform would be, and they are privy to the various proposals that have been batted around Sacramento, including the version that was widely reported as the reform package headed to vote.

Which is why I keep asking how the proponents of the current reform change can claim a net savings of almost $700M while still raising indemnity by that same amount.

There is a disconnect between what employers actually pay for workers' compensation insurance and the estimates claimed by reformists.

And the reason is because of the long tail nature of workers' compensation and the fact that pricing of work comp is ultimately tied to the wage base - the higher unemployment is for any given period of time, the less wage base there is to generate premiums which means that those employers who still have employees pay more per employee than before.

In other words the risk of work injury and its financial consequences is spread out against a smaller pool of funding resources.

The WCIRB recognizes that the wage pool isn't going to grow fast any time soon. California's unemployment rate is still above 10%, representing a couple million workers and is not projected to decline for several years. That's a lot of wage base that can't be included in the risk allocation equation.

This fundamental concept is why the claim of a net savings while boosting benefits claimed by reformists must be met with skepticism.

Because at the end of the day any claim of system savings must translate to how much premium the employer pays. And reformists can't control the economy or the unemployment rate.

Reform opponents are hard at work lobbying legislators to reject the current reform proposal and they have a very powerful argument - the cost versus benefit claim being made can not be supported by real time data. And proponents failure to release their projections bolsters that argument.

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