California Workers’ Compensation Rate Proposals

The Workers’ Compensation Insurance Rating Bureau of California is a nonprofit association of  the private workers’ comp insurers in California.  Earlier this summer it requested a 24.4% increase in premiums for 2010, primarily due to health care cost increases and the impact of some court decisions.  The California Insurance Commissioner rejected this request.  WCIRB has recently changed its request to a more modest 22.8% increase!  California has been a relatively innovative workers’ compensation state and the Insurance Department’s response to the rate increase request provides interesting insight to at least the Department’s perspective on how well various cost control measures have worked.  (Cal. Ins. Dept. Report)

Workers’ compensation began as a form of property casualty insurance but over the last decade health costs have become the majority of paid claims.  The sector has greatly lagged developments in group health insurance, particularly in regard to use of technology and medical cost containment.   Employers and regulators have pushed for better health cost management to keep premiums affordable, but apparently in California the results have been uneven.

The Commissioner drew a distinction between self-funded employers’ and the workers’ comp insurers’ respective records on controlling medical costs.  A large part of his rationale for rejecting the requested increase was based on self-funded employers’ ability to control costs, while the rate increase request suggested insurers were not able to do so.  Insurers do not appear to be using provider networks effectively, relying on general PPOs at discounts and not measuring the providers based on outcomes.  If not carefully constructed and managed, PPOs will fail to control costs because they do nothing about utilization and may encourage increases in the fees that are then discounted.  The report suggests that insurers may want to be more selective in identifying providers with good outcomes and compensating them fairly.

Utilization review was said to be provided far too often and appeared to not be cost-effective.   It was also very frustrating to providers.  More effective use of pharmaceuticals was recommended.  The billing system is antiquated and there is often uncertainty about the propriety of the amount charged.  The fee schedules probably need updating.  Dispute resolution needs to be simplified.

All in all, one is left with the impression that the workers’ compensation insurers and their vendors have not taken full advantage of the cost control mechansims available to them under California law.