California Workers’
Compensation Reform: SB 863
You can’t always get what you want…
But if you try sometimes…
you can get what you need.
Bill Zachry
VP Risk Management
Safeway
863 Celebration in the Horseshoe
CA WC: Pre-SB 863
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%
-40.0%
Filed
Rates
PPD Benefits
per PPD Claim
*PPD Based on NCCI 2012 Statistical Bulletin: Nationwide ex California excludes monopolistic states, weighted by employment
PPD benefits adjusted to California Avg. Weekly Wage
**Filed rates based on OR DCBS study 2012, wtd by CA payroll
CA WC: Background
pre-SB 863
What is driving the rates?
• Medical Costs
o High % of Total Costs
o Very Slow to Pay Out
• Loss Adjustment Expense: Very High
Workers Compensation Medical
Cost Drivers
• Severe burns / quadroplegia
• Settlement philosophy (C&R vs. Stip.)
• Treatments paid for that are not evidence based
medicine
• Treatment not authorized by UR
• Compounding and Repackaging of Pharmacy
• Hospitalizations
• Multiple body parts
• Delayed reporting of claims /
Delayed provision of benefits
Workers Compensation Cost Drivers
• Coping skills – Adverse Childhood Experience – 20% to 70%
increase per claim
• Poor Medical Practice – Inconsistency in providing service
• Addiction – 20% to 50% increase per claim
• Litigation – 40% to 50% increase per claim
• Obesity – 20% increase per claim
• Diabetes – 10% to 20% increase per claim
• Fatigue/Sleep issues
• Employee age
– Inherent increase in cost of claim
– Medicare Set Aside
Workers Compensation Cost Drivers
• Coping skills – Adverse Childhood Experience – 20% to 70%
increase per claim
• Addiction – 20% to 50% increase per claim
• Litigation – 40% to 50% increase per claim
• Obesity – 20% increase per claim
• Diabetes – 10% to 20% increase per claim
• Fatigue/Sleep issues
• Employee age
– Inherent increase in cost of claim
– Medicare Set Aside
Workers Compensation Cost Drivers
• Coping skills – Adverse Childhood Experience – 20% to 70%
increase per claim
• Addiction – 20% to 50% increase per claim
• Litigation – 40% to 50% increase per claim
• Obesity – 20% increase per claim
• Diabetes – 10% to 20% increase per claim
• Fatigue/Sleep issues
• Employee age
– Inherent increase in cost of claim
– Medicare Set Aside
CA WC: Background
California WCRI MPI-WC Index as of 2011
(2002 = Base Year of 100)
Overall
105
Pain management injections
102
Major surgery
96
Physical medicine
110
Neurological testing
108
Minor Radiology
91
Major Radiology
94
Evaluation and Management
116
Emergency
101
-
20
40
60
80
100
120
140
Yang & Fomenko, WCRI Medical Price Index for Workers’ Compensation, 4th Edition, March 2012, p. 99.
CA WC: Background
Percentage of Medical Paid by Year After Injury
California vs. Other States
Percentile
75%
Highest
65%
California
55%
80%
60%
45%
40%
35%
20%
25%
Lowest
15%
5%
-5%
Year of Injury
Year Following Injury
NCCI Annual Statistical Bulletin, 2011, Exhibit IX.
Subsequent Years
CA WC: Background
Paid Medical Management and Cost Containment
per Indemnity Claim
24 Months from Date of Injury:
Average Annual Increase = 24%
2,000
1,800
1,564
1,600
1,299
1,400
1,200
1,883
1,440
980
1,237
1,000
1,042
800
871
12 Months from Date of Injury:
Average Annual Increase = 23%
600
400
632
200
2005
2006
2007
2008
Accident Year
CWCI: “Analysis of Medical and Indemnity Benefit Payments”, Exhibit 2B, Page 14
2009
CA WC: Background
Ultimate ALAE per Indemnity Claim
4.0%
14,000
12,000
14.5%
10,184
4.8%
10,000
8,000
10.8%
8.0%
10,866
11,302
8,891
7,093
7,433
8,027
6,000
4,000
2,000
2005
2006
2007
2008
Accident Year
WCIRB July 1, 2012, Rate Filing page A:B-40
Private Insurers Only
2009
2010
2011
CA WC: Background
% of Major PD Claims with Attorney Representation
At First Survey Level
Southern California
100.0%
90.0%
87.3%
87.2%
88.3%
92.6%
80.0%
70.0%
91.0%
85.7%
75.3%
77.0%
76.6%
79.5%
60.0%
Northern California
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2005
2006
2007
Accident Year
WCIRB March 20, 2012, Actuarial Committee III-A134
2008
2009
California Background
]Claim Frequency
60.0%
40.0%
OSHA
20.0%
0.0%
-20.0%
-40.0%
Cases Lost Time
Recorded
TTD
PPD
PTD
-60.0%
-80.0%
*WC frequency Based on NCCI 2012 Statistical Bulletin: Nationwide ex California excludes monopolistic states, only states with 3-day waiting period, weighted by
employment (2008/09)
**OSHA 2011 data from BLS (private & public sectors)
CA WC: Background
Filed Loss Adjustment Expense as a Percentage of Loss
California vs. Other States
30.0%
California: WCIRB Projection 7/1/12 = 25.6%
26.4%
25.0%
20.0%
17.7%
18.9%
20.1%
15.7%
15.0%
13.2%
10.0%
5.0%
0.0%
Lowest
20%
40%
60%
State Percentile Ranking
NCCI Annual Statistical Bulletin, 2011, Exhibit VI
80%
Highest
CA WC: Background
Ultimate Indemnity Benefits per PPD Claim
60%
40%
20%
Lowest
California
NCCI Annual Statistical Bulletin, 2011, Exhibit XI (adjusted for AWW, Exhibit VIII).
CA WC: Background
Distribution of Premium, 2011
Other, 17%
Indemnity,
22%
Loss
Adjustment,
21%
Medical,
41%
WCIRB Quarterly Market Reports, Exhibit 5
Med & Indenmity split according to 7/1/12 WCIRB rate filing
CA WC Reform: SB 863
WCIRB Estimate of Impact: 2013
Provision
$ Impact
(Millions)
% Impact
$510
+2.7%
($170)
-0.9%
Eliminate Bump Up/Down
($100M)
-0.5%
Liens
($480M)
-2.5%
Surgical Implant Hardware
($110)
-0.6%
ASC Fees
($80M)
-0.4%
Independent Medical Review
($370M)
-1.9%
Ogilvie Decision
($210M)
-1.1%
MPN Strengthening
($190M)
-1.0%
($1,200M)
-6.3%
PD Benefit Changes
Eliminate PD Add-ons
Total 2013
WCIRB 1/1/13 Rate Filing, Page A:B-34
CA WC Reform: SB 863
WCIRB Estimate of Impact: 2014
Provision
$ Impact
(Millions)
% Impact
Total Impact 2013
($1,200M)
-6.3%
$570
+3.0%
($630M)
-3.3%
2014 PD Benefit Increases
Total Impact 2014
WCIRB 1/1/13 Rate Filing, Page A:B-34
CA WC Reform: SB 863
Major Provisions not Quantified
• Fee Schedule (RBRVS, Photocopy Service,
Home Healthcare)
• Med-Legal Changes to QME
• Interpreter Regulations
• Timeframes regarding payment of paper
medical bills
• Self-Insurance Security Requirements
CA Permanent Disability
No Losers!
• From Doctor (per AMA Guides)
• Add-Ons
Impairment
• Future Earnings Capacity
• Age
Adjustments • Occupation
PD Award
Final
Adjustments
• Apportionment
• Weeks of Benefits
• Min/Max Benefit per Week
• Life Pension/Permanent Total
• Bump Up/Bump Down
CA WC Reform: SB 863
Impact of Changes to PD
• Increase Max & Min Benefits
o Most of Impact due to max not min
• Add-Ons: % of Total PD
o Sleep: 1.2% of Ratings, 1.4% of Cost
o Sex: 0.4% of Ratings, 0.3% of Cost
o Psych: 1.7% of Ratings, 3.8% of Cost
• Replace FEC with AMA Modifier
o 13% of Cost
BRS Analysis of DEU Data
CA WC Reform: SB 863
# of Weeks at Bump Up/Bump Down
180,000
160,000
140,000
120,000
100,000
No Bump
80,000
Bump Up
60,000
Bump Down
40,000
20,000
2006 (2nd
survey)
2007 (1st
survey)
2007 (2nd
survey)
2008 (1st
survey)
Data provided by WCIRB
2008 (2nd
survey)
2009 (1st
survey)
CA WC Reform: SB 863
Liens: Filing Fee
$100 Filing
Fee 1/1/04
Filing Fee
Repealed
7/12/06
CHSWC Liens Report, 1/1/11, p. 4
EAMS Goes
Live
8/25/08
CA WC Reform: SB 863
2012 Liens Filed
400,000
350,000
300,000
250,000
LA County
200,000
LA Basin (Other)
150,000
Rest of State
100,000
50,000
1Q12
2Q12
3Q12
4Q12
WCIRB Actuarial Committee 3/20/13, Page IV-A-25
CA WC Reform: SB 863
Distribution of 2012 Liens by Type
Copy
Service, 0%
Interpreter,
10%
Other,
13%
No
Petition
for Cost
MedicalLegal, 17%
Medical,
59%
WCIRB Actuarial Committee 3/20/13, Page IV-A-25
Petition
for Cost
CA WC Reform: SB 863
IMR: Texas Reforms (TD & RTW)
“Setting the Standard”, TDI, December 2010, Page vi.
CA WC Reform: SB 863
IMR: Texas Reforms (Medical Costs)
“Setting the Standard”, TDI, December 2010, Page vi.
CA WC Reform: SB 863
IMR: Texas Reforms (Shorter Medical Tail)
“Setting the Standard”, TDI, December 2010, Page 41.
CA WC Reform: SB 863
IMR: Texas Reforms (Medical Service Denials)
CA WC Reform: SB 863
Other Important Features
• Increase in PD Benefits
o Phased in Over 2 Years
o Prospective (applies to injuries on or after 1/1/13)
o Impact on Utilization is area of dispute
• Cost Reductions
o Some have retrospective components (IMR & Lien
changes apply to open claims)
o Difficult to Price
Ratio of Total Liabilities /
Case Reserves
CA WC Reform: SB 863
Change in Security Requirements
2.00
1.35
#1
#2
#3
#4
#5
#6
#7
California Private Self-Insurer
CA WC Reform: SB 863
Sometimes Even Hindsight Isn’t 20/20
899 was off on savings and subsequent
development
To be addressed next…Costs
Implementation
•
•
•
•
•
•
•
New policies
Training the examiners
Getting a feel for the new road
IMR (Maximus)
Bill Review
Liens (and the WCAB petition for costs)
Pharmacy and bill review programs
Other Issues
•
•
•
•
Regulations
AMICUS
New legislation
ADR / Opt out
Top WC Cost Drivers
•
•
•
•
•
•
Litigation
(Prescription) Opiates
Multiple Body Parts
Hospitalizations
Obesity
Liens
Safeway Programs
•
•
•
•
•
•
•
•
Hire Smartly
Functional Restoration
Pharmacy
UR connected to Bill Review
Medical Networks
Low case loads
Settlement philosophy
Medical Treatment Philosophy