Insurance Commissioner Pushes for Workers’ Comp Premium Rollback

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

Capitol Update, Oct. 2, 2003 Share this on FacebookTweet thisEmail this to a friend

Previously the Department of Insurance instructed the Workers’ Compensation Insurance Rating Bureau (WCIRB) to consider the proposed January 1, 2004 pure premium rate increases of 12%. The WCIRB, on September 29th, presented its recommendations based on its analysis of workers’ compensation reform legislation in SB 228 (Richard Alarcon, D-Sun Valley) and AB 227 (Juan Vargas, D-San Diego). Led by Insurance Commissioner Garamendi, the rate filing hearing officers had many piercing questions for the WCIRB representatives.

WCIRB estimates that 2004 rates will decrease by 13.3% as a result of SB 228 and AB 227. Therefore, WCIRB recommended that the pure premium rates applicable to new and renewal policies with anniversary rating dates on or after January 1, 2004 reflect a 2.9% decrease from the current pure premium rates adopted on July 1, 2003. Accordingly, the estimated dollar impact of the bills on accident year 2004 losses would be a savings of approximately $3.5 billion.

Commissioner Garamendi questioned the $3.5 billion savings as being too conservative considering that earlier estimates of $5.3 billion for 2004 and $5.92 billion ongoing by legislative committee consultants. The Bureau responded with a presentation on all the reforms considered with a breakdown of savings. For those reforms not recommended for savings, an explanation was given of why no savings were recommended.

CMTA knows that when evaluating legislation, “the devil is in the details”. This is especially true with workers’ compensation because the bills involve complex multi-dimensional changes that make them extremely difficult to quantify. Moreover, some of the changes intended to provide cost savings contain vague or ambiguous language that may actually reduce savings. Accordingly, WCIRB's most recent evaluation shows how important it is to have clear, unambiguous language to calculate cost savings in the bills.

Provisions evaluated by the WCIRB for cost savings in accident year 2004:

• Physician Fees. Savings of $100 million;
• Limit Chiropractic Treatment. Savings of $500 million;
• Limit Physical Therapy Treatment. Savings of $400 million;
• Inpatient Hospital Fees. Savings of $100 million;
• Pharmaceutical Fees. Savings of $400 million;
• Outpatient Fees. Savings of $1 billion; and
• Vocational Rehabilitation. Savings of $1.2 billion.

Provisions considered but not recommended for cost savings:

• Medical Treatment Utilization Guidelines.
Not recommended due to lack of guidelines and because treatment patterns are likely to be gradual. The dispute resolution process may still allow for circumvention because disputes are still resolved by a judge, and the presumption of correctness may be easily overcome and there is concern about application of liberal construction to extend benefits.
• Repeal of Primary Treating Physician Presumption.
No adjustment for pre-January 1, 2003 because the provision does not impact medical costs projected to arise under 2004 policies.
• Spinal Surgeries.
No adjustment recommended because it is unclear to what extent, if any, these provisions will decrease surgeries. The timeframes in which to procure AME or QME (medical evaluators') opinions may be unrealistic. Even with a second opinion indicating that surgery is unnecessary, the employer would need to challenge the surgery before the WCAB where the liberal construction provision may be applied by the judge.
• Outpatient Self-Referrals.
No adjustment recommended because there is no information available on the percentage of outpatient costs that are incurred in connection with treatments provided at surgery centers owned by referring doctors, or the cost differential and the percentage of these cost that would be eliminated as a result of the prohibition.
• Expansion of Carve-Out Programs.
No adjustment recommended because there is no information available on the potential increase in the utilization of “carve-out” programs in 2004 or the impact on benefit costs when these programs are utilized.
• Fraud.
No adjustment because protocols have not yet been adopted by the Administrative Director, nor is there a required adoption date. There is no information on the cost of medical fraud currently in the system, and there is no sound basis to estimate the proportion of the fraud that would be eliminated by the reporting protocols.
• Loss Adjustment Expenses.
No adjustment recommended because this provision is estimated to increase cost by $600 million in order to provide the loss control services required by the bills.

The rate filing record was scheduled to close on September 29, 2003, but Commissioner Garamendi extended the filing date to the end of October to give the WCIRB more time to review and revise the projections for the reforms not recommended for savings. In addition, other suggestions for generating savings were offered – one would remove the 2.8% earthquake load from the filing to save approximately $800 million. The general consensus is that Commissioner Garamendi is pushing to reduce total costs by at least $4 billion.

CMTA cautions the Commissioner to make sure the savings are REAL.
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