Monday, September 24, 2012

Best Interests At Heart - the Fluid Nature of 863

The proponents of SB 863, the massive California reform effort, had projected that benefits to injured workers would increase by $700 million and generate net savings of $770 million in 2013 and $330 million annually thereafter.

In its latest review of the bill as enacted and signed by Gov. Brown, the Workers' Compensation Insurance Rating Bureau (WCIRB) projects that benefits will increase by $310 million in 2013 and by $530 million in 2014, while still producing a net savings to employers of $872 million in 2013 and $292 million in 2014.

Okay, so proponents were off on their estimate of benefit increases by a couple hundred million dollars but let's face it - the bill moved so fast that no one was able to generate any good estimate numbers.

Nevertheless, even the latest WCIRB projections are still fluid and subject to proper implementation via the regulatory process.

One of the holdouts in supporting the legislation was the California Chamber of Commerce, whose support Republicans felt was necessary before buying into the plan. The Chamber needed a promise that the administration would quickly and effectively implement fee schedules for interpreters and copy services.

The original, early, WCIRB evaluation did not include any projection on savings from those items, but in its latest estimate the WCIRB performed a survey of 10,000 permanent disability claims primarily from accident year 2007. The survey of 30 insurer groups found at least one lien was filed in 63% of all permanent disability claims in Southern California and in 44% of cases in Northern California.

The WCIRB found that 69% of liens were related to medical procedures, while 15% were filed by interpreters and 5% were filed by copy services.

According to WCIRB's survey, the average lien demand for medical treatment was $6,695, but the average settlement rate was $1,906, or 28 cents on the dollar. Interpreter liens settled for 42 cents on the dollar, with an average resolved value of $829 and average demands for $1,952. Copy service liens were, on average, for $1,053 and settled for $545, or about 52 cents on the dollar. These numbers can be interpreted all sorts of different ways, but it demonstrates that nothing in workers' compensation can be counted accurately until actual dollars change hands.

The WCIRB savings estimate associated with liens in SB 863 increased from the original $450 million to about $482 million based on the assumption that administrative and legal savings associated with each lien eliminated will be higher than originally projected.

The Independent Medical Review (IMR) process produces savings from scaling back temporary disability (TD) indemnity. Workers experienced prolonged period on TD waiting for medical reports from either Qualified Medical Examiners or Agreed Medical Examiners concerning medical treatment requests. These reports often would take up to 6 months.

The IMR process promises a 30 day turn around, so the WCIRB projects additional savings in TD indemnity as a consequence.

Still there is skepticism that WCIRB's projections are optimistic.

Some say that the WCIRB is underestimating the anticipated increase in utilization that is typically experienced when there is an increase in permanent disability (PD) benefits, while others say that such an uptick is not likely to be dramatic because PD is paid late in the claim.

And there is the provision that if the employer offers a job at 85% or more of per injury pay or the injured worker is employed at 100% pay that PD benefit do not need to begin until there is an award. The assumption is that this will eliminate some frictional costs associated with PD advancements which need to be re-calibrated at settlement or Award time. This will be very interesting to see how this actually plays out though - I'm sure there are some unintended consequences lying in there somewhere.

The old 15% up/down adjustment to PD was thought to be a motivator when it was originally implemented, for example, but actually just turned out to be more of an administrative burden than anything else.

And we still haven't come to understand the impact on overall costs introduced by all of the changes to the self-insurance system with its decreases in reserve guarantees and changes in paperwork - surely those must drop down to the bottom line as well.

There's a lot of moving parts in SB 863 and getting any clear estimate of increases and decreases is a mind numbingly complex task that I think will change from quarter to quarter as the game plays out.

Sen. Mark Leno, D-San Francisco, said during the Senate Committee on Labor and Industrial Relations meeting, “We would love certainty, but it isn’t always possible,” adding that he can’t vote against the bill, because “not to support this is to conclude that those people who testified in support of this don’t have the best interests (of the system) at heart.”

SB 863 is the law now. We'll see who has the best interests of the system at heart sooner than later.

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