California: Critics say court decision will increase comp costs

A California court has affirmed a decision by the Workers' Compensation Appeals Board that some experts say will have an impact on the amount of permanent disability awards.

The California Court of Appeal, 6th District upheld the board's decision in Milpitas Unified School District v. Workers' Compensation Appeals Board and Joyce Guzman, one of three controversial 2009 rulings that employers and insurers have argued would undo cost-saving measures enacted by the 2004 legislative reforms. In the case, the board held that the American Medical Association Guides to the Evaluation of Permanent Impairment, Fifth Edition could be rebutted even though the reform legislation expressly requires that physicians use the Guides. The court affirmed the board's ruling, which allows a physician to exercise "clinical judgment" and utilize any part of the Guides in determining impairment ratings.

Critics of the decision, including Gov. Arnold Schwarzenegger, said it runs contrary to the reform's mandate that the permanent disability rating schedule promote consistency, uniformity and objectivity, and predicted that it would lead to higher permanent disability awards.

Washington: DLI looks to establish medical provider network (09/10/12)
New York: Temporary insurance rule in effect (11/07/11)
Washington: Safety and health grants program rules allow for funding (03/05/12)
Oregon: Division sets claims processing administrative cost factor (01/30/12)
Alaska: Amendments would tweak medical benefits rules (09/29/11)

"We would have liked to see a different outcome," said Steve Suchil, assistant vice president of state affairs for the American Insurance Association. "The ultimate result is subjectivity and frictional costs remaining in the system from the Guzman decision. One of the goals of California's workers' compensation reforms was to provide for objectivity in permanent disability determinations -- this court decision affirms a move away from that goal."

Rate increase requested. On the heels of the Court of Appeals' decision, the Workers' Compensation Insurance Rating Bureau of California, which had previously cited the case as a potential driver for rate increases, called for a 29.6 percent increase in 2011 in pure premium rates, which are a benchmark that insurers may use as a tool to determine their own rates. This was the third increase in excess of 20 percent proposed by the WCIRB since the rates were last adjusted Jan. 1, 2009.

Shortly after the filing, Schwarzenegger voiced his displeasure. In a letter to Insurance Commissioner Steve Poizner, the governor said the potential increase raises concerns about the impact it will have on businesses.

"We must protect the 2004 workers' compensation reforms, which reduced rates by 65 percent and have saved employers more than $50 billion," Schwarzenegger wrote. "These reforms provided insurance companies with powerful tools to control costs, and they must use these tools effectively before we consider raising employer rates."

The governor said he was troubled by the bureau's report that indicated that insurers spent 74 percent of their premium dollars on medical costs and direct payments to injured workers -- 11 percent more than they spent in 2008.While medical costs escalated quickly in 2007, Schwarzenegger said medical expenses in 2009 were up only 2 percent over 2008.In addition, the governor said that initial findings for medical costs in 2010 show that they are no longer escalating at the rate they did in 2007.The letter also noted that insurers have indicated that their costs for administering, adjudicating and settling claims went down between 2008 and 2009 -- $3.9 billion in expenses in 2009 compared to $4.1 billion in 2008.

"Medical costs have increased only slightly, while loss expenses have declined," Schwarzenegger wrote. "Where is the money being spent?This question must be answered before employers are asked to pay more."

The WCIRB will review accident year experience valued as of June 30, once it is received and, if appropriate, will amend the pure premium rates proposed in this filing. The Department of Insurance has scheduled a public hearing on the proposed rate increase for Sept. 28 in San Francisco.

Read more at the WorkersComp Forum homepage.

September 16, 2010

Newsletter Sign-up