Monday, January 14, 2013

Budgetary Acknowledgement of Reform Complexity

I have mixed feelings about California Governor Jerry Brown's proposed budget for the Division of Workers' Compensation (DWC).

Brown’s budget, which was released on Thursday, proposes an increase of $145.5 million – or 88.6% – in the Workers’ Compensation Administration Revolving Fund, which would grow to $309.5 million in the fiscal year that begins July 1, from $163.1 million budgeted for the current fiscal year.

Remember that the fund gets its financial life from surcharges on employer policy premiums and self-insured deposits. There had been a significant increase in these surcharges for the this year, with insured employer's assessments increasing by 44%. Self insured employer's surcharges are increased 35%.

To be fair, the allocation to the fund itself was increased by 21% in order to raise $303 million for 2013. The balance of surcharge increases are due to other funds that derive income from premium surcharges.

The increase includes $120 million that will be directed to a program to make supplemental payments to workers whose permanent disability benefits "are disproportionately low in comparison to their earning loss," which was created by new Labor Code Section 139.48 in SB 863. This provision is still subject to regulatory rule-making, and final rules are not expected until September 2014.

Here's what I like about the budget: it allocates $3.4 million to add 53 new positions at the DWC including $134,000 for an associate medical director, $353,000 for five research program specialists and $860,000 for 14 workers’ compensation consultants.

The budget also allocates $287,000 to add four new positions at the Office of Self-Insurance Plans (OSIP), including one senior audit evaluator, one staff services manager and two associate governmental program analysts.

Through the years of Governor Schwarzenegger, the DWC was starved of allocations, even though the division was not subject to the General Fund, because the administration at that time wanted to be sure that all governmental divisions shared equally in the pain of the recession even though not all divisions derived their income from the same places.

Now under Brown the DWC is finally getting the breathing room it needs to carry out its very necessary governmental functions - functions that are critical, in my mind, to a healthy economy by ensuring the timely and adequate administration and regulation of the essential economic lubricant we know as workers' compensation.

And since almost a third of SB 863 changed the rules on self-insurance the additional bodies at OSIP is particularly noteworthy and welcome.

So the fact that DWC is getting the financial love needed to carry out its mission is a positive sign.

I'm a little apprehensive, though, about some other aspects; namely, that the budget adds 53 new positions at DWC and 4 new positions at OSIP...

Greg Edwards, chief financial officer of the Department of Industrial Relations, said in an email to WorkCompCentral that the positions are being proposed as permanent, meaning they would not be eliminated after the administration has finished implementing SB 863.

I'm not a fan of big government, and I don't like it when a governmental expansion is slated to be "permanent." This is a Democrat move that plays right into the hands of Republican critics, and is an example of how government gets into financial trouble in the first place - by creating expense that is difficult, if not impossible, to remove in times of austerity.

Have money, will spend - it won't be too many years before the agency cries about lack of money because at some point employers in this state are going to object to premium surcharges. Like homeowner association dues, these kind of things always seem to increase.

The Brown Administration in a budget summary states, “These resources will support the reforms to medical provider networks, workers’ compensation liens, fee schedules, medical care administrative procedures, permanent disability benefits, the special earnings loss supplement program and independent medical and bill review processes.”

So in one breath the Brown Administration, which pushed hard for SB 863 to decrease costs in workers' compensation, essentially acknowledges that savings from one basket will increase the costs in another basket and that this law is going to require quite a bit of human power to make happen.

Since the personnel changes are going to be permanent - at least until the next reform - it essentially seems to me that the Administration acknowledges that SB 863 and its regulatory implementation is hugely complex; so much so that it requires 57 new people just to keep things running after the changes have been made.

In my mind this doesn't bode well for workers' compensation in California. If the government has to add all this extra labor, what about all of the other firms in work comp: the insurance companies, third party administrators, law firms, medical firms, etc.?

For example, I have heard several defense firm partners acknowledge that SB 863 will increase business. Seems to me that the more that defense firms are involved in the processing of claims the more costs are going to increase.

And the lien genocide that has started is a one time savings. Vendors that used to seek reimbursement through the lien process are building alternative strategies. Independent bill review, independent medical review, new fee schedules - all of this contributes to an unforeseen future that has no precedence.

There are so many moving parts to SB 863 that it will be years before anyone fully understands the impact on costs and benefits.

There's a reason why analysts were completely unable to agree on what savings, if any, SB 863 would generate.

I remain skeptical too - when there is complexity of such magnitude that it necessitates a significant increase in staffing to execute, savings are more likely to be phantom in nature, or in the least temporary.

Savings here, costs there. My suspicion is that over the next couple of years there will be no net difference in the total cost of the system. SB 863 is simply a reallocation of resources, for better or for worse.

No comments:

Post a Comment