Garamendi Advises 14.9% Rate Reduction

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

Capitol Update, Nov. 7, 2003 Share this on FacebookTweet thisEmail this to a friend

Following a speech in Silicon Valley on November 6, Insurance Commissioner John Garamendi announced an advisory 14.9 percent pure premium rate reduction for 2004. The announcement follows the Department of Insurance rate filing hearing on November 3 in San Francisco where the Workers’ Compensation Insurance Rating Bureau (Bureau) amended their previous recommendation on savings from SB 228 (Richard Alarcon, D-Sun Valley) and AB 227 (Juan Vargas, D-San Diego).

Earlier, the Commissioner criticized the Bureau for being too conservative. “If we assume no impact, there will be no impact. That is an assumption, we cannot, we will not, allow to happen,” Commissioner Garamendi said.

Acting on the request of the Commissioner, the Bureau reanalyzed the recently enacted workers’ compensation reform legislation and changed the potential savings from 2.9 percent to a range between 2.9 and 5.3 percent. As a result, the Bureau recommended that the pure premium rates applicable to new and renewed policies with anniversary rating dates on or after January 1, 2004 reflect a range of 2.9 to 5.3 percent 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 in the range of $3.5 to $4.2 billion, based on a $24.9 billion estimate of the total cost of benefits. However, the huge 14.9 percent rate reduction announced by commissioner Garamendi would result in savings of approximately $5.6 billion.

The Bureau explained that the reason for the range of savings was due to lack of credible information on which to base a solid projection of the cost impact of the medical treatment guidelines and how they would impact rates. Some examples given were: no guidelines are currently in place and treatment patterns are likely to be gradual; the dispute resolution process may still allow for circumvention because disputes are still to be resolved by a judge; the presumption of correctness may be easily overcome; and concerns with an application of liberal construction for extending benefits. No new savings were recommended for the partial repeal of the primary treating physician presumption contained in AB 749 (Ronald Calderon, D-Montebello), Chaptered in 2002, because the projected medical costs underlying the proposed 2004 pure premium rates has already been reduced by $1.2 billion.

The Bureau also acknowledged the potential for significant savings from the American College of Occupational and Environmental Medical (ACOEM) practice guidelines, but they were still concerned about the uncertainty of implementation and the absence of reliable statistics.

According to Commissioner Garamendi, the rate reduction will eliminate the 7.2% premium increase that went into effect on July 1, 2003, the 10.5% increase that took effect six months earlier, and the 12% increase that would have gone into effect January 1, 2004.

CMTA applauds the Commissioner for taking aggressive steps to reduce employers' workers' compensation premium costs. However, CMTA is keenly aware that the “devil is in the details” and that the projected savings will depend heavily on how clearly the language is written and subsequently interpreted by the Workers’ Compensation Appeals Board, and how effectively the changes are implemented and administered by the Division of Workers’ Compensation.

The problem now is that the Commissioner's 14.9 percent pure premium rate reduction is only an "advisory" and insurers are not required to comply. Rumor is that the State Compensation Insurance Fund has signaled they will comply with the reduction and that it will trigger other insurers to follow. However, CMTA was unable to confirm the rumor with insurer's.
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