Worker’s Compensation – Hard to Calculate the Savings

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, Sept. 8, 2003 Share this on FacebookTweet thisEmail this to a friend

Members of the conference committee on Workers’ Compensation want to protect employers from further premium increases and even reduce current premium costs to 2002 levels. The challenge to reaching this goal is two-fold. First, significant reforms must be developed and agreed upon. Second, the savings to be delivered from the reforms must be calculated. Insurance companies will not reduce prices unless the savings can be assured.

The insurance companies are advised by the Workers’ Compensation Insurance Rating Bureau what the “pure premium” cost of WC insurance will be in the future. Each six months the WCIRB recalculates the amount, and suggests a new increase or adjustment. It is not mandatory that insurance companies use these numbers, but they depart from those estimates at their own risk.

Insurance Commissioner John Garamendi says that to reduce pure premium costs to July 2002 levels, costs must be reduced by $6.2 billion. This is his goal. But he has no power to force insurance companies to reduce rates, and he warned committee members that an energy crisis outcome (flight of capital, insolvency) could be precipitated were the state to attempt to force prices below the pure premium price.

How to “score” the savings from the reforms was extensively discussed by the conference committee today, September 5th. It is easier to score the removal of the vocational rehabilitation benefit (about $1 billion) than reforms to reduce fraud and abuse in the system, for example. Eliminating fraud, abuse and over-utilization of the system is hard to accurately score because the amount lost to this is unknown – there is no baseline from which to calculate savings from instituting a particular reform measure. However, the Commissioner believes that the savings from making these reforms will be significant and should be undertaken.

Another important problem discussed by the committee is the high WC increases seen by certain segments of the workforce. Roofers, construction workers, etc. are in a risk pool that has shrunk, and more risk is being spread over fewer employers. As a result, they have seen much higher increases than the average employer. Other employers complain that they are classified at a higher risk than they should be, and want to shed risk from their pool (thus exacerbating the problem of shrinking risk pools noted above). Garamendi recommends that a major study to address these issues should be done after reforms are adopted by this committee.

The bottom line for employers is that with just five days remaining before the end of session, no language is available for employers to review and evaluate for systemic changes that would result in real savings to employers. CMTA is very concerned that the committee will meet at some yet unscheduled time and take a hurried vote on loosely drafted language that will result in fewer reforms and far less savings than advertised.
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