Jan Vick
Ms. Vick, Information Officer, Communications Department, State Compensation Insurance Fund, summarized the main provisions of the reform legislation in our last issue (Labor Management Decisions, Fall 1993, page 9). Here she describes how the changes are beginning to affect insurance carriers and their policyholders.
The dust from the 1993 workers' compensation reform legislation continues to settle. The legislation promises to bring major changes to the workers' compensation system, and all carriers will have to change some of the ways in which they do business. At the State Compensation Insurance Fund, committees have been studying and interpreting the statutory changes, redefining internal procedures, and revising computer programs to accommodate the new law. These actions by State Fund, the state's largest workers' compensation insurer, will affect more than 250,000 of California's employers.
Rate Reductions and Pricing
In the last six months, the legislature has reduced premium rates by 7 percent, and the state insurance commissioner has reduced them by another 12.7 percent. The most far-reaching change, however, will be in the way California determines rates, both in 1994 and after the minimum rate law is repealed January 1, 1995. During 1994, State Fund is carefully evaluating the most effective plan for pricing accounts. This will be a year of testing several rating plans and choosing the one that will keep the Fund competitive while offering fair rates to all policyholders. Both employers and insurers will be facing a whole new world of pricing in 1995.
The Workers' Compensation Insurance Rating Bureau (WCIRB) must provide a schedule of pure premium rates for all industry classifications by October 1, 1994. Pure premium rates are based on the actual losses for each classification, without any overhead factored in. Insurance carriers will file their own rates and include their costs of doing business in these rates. Carriers will now have the freedom to structure their rates to attract a particular segment of the market, if they desire. All carriers must file their rates with the insurance commissioner 30 days in advance of their use. The commissioner may approve or deny the filing at any time during the ensuing 30-day period.
All insurance carriers, including State Fund, are in the midst of determining just how risks will be priced under open rating. Some employers, especially large ones with a good loss history, will see increased competition for their business. Others may see their premiums go up.
All employers should look carefully at what each insurance carrier is telling them, as well as at the past experience of the insurance company. Under open rating, the current or future solvency of a company may be an issue: Are the rates charged by the company sufficient to meet the obligations of claims?
Services provided by the insurer can also be of importance to the employer in searching for a carrier. Dividends, which have played a prominent role in the insurance industry in the past, will be less important than the rates offered by companies. A provision for dividends was built into the minimum rates but is not in the pure premium rates. Medical cost containment programs and managed-care programs will also continue to be important in controlling claims costs. Anti-fraud programs have saved millions of dollars over the past few years and will continue to be very important under open rating.
Experience Modification
As a result of the new legislation, the threshold for psychiatric claims was raised after July 16, 1993. In addition, it is more difficult for an employee to file a claim after termination, resignation, or layoff after July 16, 1993. In announcing the 12.7 percent rate reduction for January 1994, the insurance commissioner directed the WCIRB to remove claims in these categories from calculation for all experience-rated employers.
The WCIRB and insurance carriers are currently reviewing their records for claims in the 1990, 1991, and 1992 policy years that will be excluded from the experience modification calculation for 1994. The WCIRB plans to have the changes in the experience modifications completed over the next several months.
Loss Control Services
Insurance carriers and state regulatory agencies have had to make massive changes in a very short time. Part of the legislation pending implementation is a mandatory inspection program for high-hazard industries and a Cal-OSHA high-hazard consultation program. These programs are designed to reduce accidents in industries with the highest incidence of preventable occupational injuries. It may be funded by an assessment of those employers with an experience modification rating higher than 125 and by a certification fee for each carrier's loss control consultation service program.
By law, the program will include priority inspections of high-hazard industries. The Division of Occupational Safety and Health within the Department of Industrial Relations may direct employers to submit a safety plan and establish a joint labor-management health and safety committee. The division has not yet established a list of targeted industries. As part of the program to reduce occupational injuries, the division will offer consultation services to identified high-hazard employers. Services may include developing educational materials, conducting workplace surveys to identify health and safety problems, and developing plans to improve employer safety and loss records.
Repetitive motion injuries have played an increasing role in rising workers' compensation costs. The wear and tear on joints and ligaments has become recognized as a hazard in some kinds of occupations. The Occupational Safety and Health Standards Board has been directed to adopt standards for ergonomics in the workplace before January 1, 1995.
Insurance carriers will be required to provide a minimum level of loss control services to employers. The Department of Industrial Relations will certify each insurer's program. State Fund is developing a management system for loss control services provided through the district offices. Written notification to all policyholders on the availability of loss control services is being drafted, and criteria are being developed to target loss control services to specific policyholders, as mandated by the new legislation.
State Fund has safety materials available to policyholders to assist them in establishing effective injury and illness prevention programs. Posters, signs, and employee pamphlets on safe work practices are also available, as well as safety newsletters for specific industries, containing loss control information, legislation, and suggestions to help reduce on-the-job accidents and injuries. All services and materials are available to State Fund policyholders at no additional cost.
Workplace surveys of business premises will be expanded as a result of the new legislation and the open rating system that goes into effect in 1995. These workplace surveys will assist State Fund in pricing a business correctly and will help the employer identify existing and potential hazards. Larger employers will have an opportunity to affect their premiums by instituting on-going safety programs and return-to-work programs for employees who are injured on the job. The goal of all loss control services is the reduction of on-the-job injuries and improved safety in the workplace.
State Fund will continue to review loss records with policyholders and to discuss those parts of a claim that affect premiums. Policyholders can take advantage of this service by contacting the nearest district office. These services are provided in addition to the Loss Analysis sent to policyholders on a periodic basis.
The seasonal nature of agriculture makes it vitally important that farm employers have good loss control programs in place. Proper training of all employees at the beginning of hire and periodically during the period of employment is an important factor in reducing farm injuries. If a contractor acts in obtaining workers for the farmer, that does not mean that safety programs can be overlooked. The farmer still has an obligation to ensure that employees have a safe working environment, and has a right to expect that employees are thoroughly trained in handling the equipment and chemicals used in agriculture.
Managed Care and Cost Containment
The 1993 legislation provided for extended employer control of medical care by using Health Care Organizations (HCOs) to provide medical treatment for occupational injuries and illnesses. HCOs must be certified by the Administrative Director of the Division of Workers' Compensation. A self-insured employer, a group of self-insured employers, or an insurer may contract with an HCO to provide medical services for work-related injuries. Regulations implementing this provision, which becomes operational on August 1, 1994, were published in January. Employers should contact their insurance company to determine its participation in this program to find out how it is participating in this aspect of workers' compensation reform.
State Fund has expanded its managed care program through a recent agreement with Beech Street, a preferred provider network, to provide a host of integrated cost containment services, including hospital and physician preferred provider networks, medical services utilization management, and an integrated automated medical bill review program. A pilot program will be tested in four State Fund district offices initially and expanded if successful.
A second pilot program has been initiated with Medfocus Radiology Network to review the medical need for specialized diagnostic tests. The savings from both of these programs are anticipated to be significant and to lead to their implementation statewide.
As a vocal supporter of reform, State Fund is looking forward to full
implementation of the legislation. The next two or three years will see
major changes in workers' compensation pricing, services to policyholders,
and claims adjusting. When the dust finally settles, State Fund anticipates
a much healthier workers' compensation system in California.