Calif. Insurance Commish Commends Self-Insureds
By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
Last week, California Insurance Commissioner Steve Poizner made headlines when he denied a request to increase the claims cost benchmark by 23.7 percent from the Workers' Compensation Insurance Rating Bureau of California, which represents the state's insurers. What may have surprised most industry veterans was that, in making his case against the rate increase, Poizner held up self-insured employers as superior, examples for inefficient insurers to follow.
"While self-insured employers face the same medical inflation and other cost drivers challenging the rest of the industry, they have cut costs in other areas that have resulted in a net decrease in overall workers' compensation costs," Poizner said in a statement released July 8.
In fact, Poizner declared that he expects insurers to implement many of his 27 recommendations for gaining efficiencies in their workers' comp operations--some of them straight out of self-insureds' playbooks, like Safeway's use of pharmacy networks--before he will think about raising the benchmark rate.
Of course, Poizner could just be sucking up to the business owners and voters and citizens of California, with statements like: "My response to this requested record increase by workers' comp insurance companies is this--no." And his mention of a "faltering economy" and "record unemployment levels" and how "small businesses and their employees" would feel the "brunt of cost increases."
Don't forget that Poizner has no authority to enforce his proclamation. The benchmark rate is only advisory, and under California law workers' comp insurers are free to charge what they want and make as big a profit as they want.
As industry veterans are whispering in the Golden State, it was a "publicity stunt."
What's more, not all self-insured employers are bastions of efficiency and sophistication, nor all insurers terrible at what they do, said Philip Millhollon, executive director of the California Self-Insurers Association. Millhollon was surprised the commissioner held up self-insureds in such high regard, considering that the perception of their superiority is "anecdotal."
Some insurers in the state are also keeping up with self-insureds on key paths toward efficiencies, such as medical utilization review.
"I think we're seeing very progressive self-insureds and some carriers that are being much more judicious about medical utilization review," said Douglas Benner, coordinator of occupational health in Northern California for Kaiser Permanente. They tend to order far less utilization reviews and only for high-cost procedures, such as surgery or chronic pain.
"Others seem to be wasting a lot of money on it," he said.
TO BE HONEST
Overall, though, self-insured employers are superior when it comes to cutting costs versus insurers.
"Maybe by being just self-insured comes a level of ability to control costs better because that company can dedicate resources to do that," said Millhollon, who also spent nearly three decades at Chevron heading its claims program.
Even greater control and sophistication can be seen at CSIA members that also self-administer claims, the likes of Marriott, Chevron, Southern California Edison, Safeway, according to Millhollon.
These kinds of companies have the resources and discipline to set up their own managed provider networks and handpick their healthcare providers, said Millhollon. When regulations change, they can still meet them and still maximize efficiencies in their claims organization. And these employers also tend to be stable, with low turnover in their workers' comp staffs and personnel who tend to be well-compensated and comfortable.
These advantages of a larger self-insured employer are the "nature of the beast," he said. Many insurers and third-party claims administrators might inherently not be able to match them, regardless of the motives, political or otherwise, of state insurance appointees like Poizner.
July 14, 2009
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