WC Cost Trends

Bright Spot in California’s Costly WC Landscape

California payers still face exorbitant premiums and claims costs, but a drop in the rate of medical inflation is a welcome piece of good news.
By: | August 3, 2015 • 3 min read

The mere mention of California usually causes workers’ compensation claims payers to cringe.

Yet there is one bright spot where the Golden State outshines other jurisdictions despite its infamously exorbitant claim expenses and workers’ comp insurance costs.

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California’s workers’ comp medical inflation is growing at 40 percent of the rate of increase that most other states are experiencing, according to a Workers’ Compensation Insurance Rating Bureau of California report published July 29.

The “State of the California Workers’ Compensation Insurance System” report summarizes several forces shaping a system insuring more than 500,000 employers and generating the highest insurance rates in the nation.

Those 500,000 insured employers fund medical and wage replacement benefits for nearly 800,000 injured workers annually. During 2014, California’s employers paid a total of $16.5 billion in premiums, or 27 percent of the nation’s total.

On average, employers nationwide pay workers’ comp insurance rates of $1.85 per $100 of payroll while California employers pay more than $3.00 per $100 of payroll.

Factors contributing to California’s markedly higher rates include the highest frequency of permanent disability claims in the nation, medical costs driven by prolonged treatments and larger than average costs for claims handling and benefit delivery.

The high cost of delivering benefits is documented by a ratio of loss adjustment expense to losses of 28.2 percent for California, nearly 10 percent greater than the nationwide median.

California’s 2014 workers’ comp costs would be nearly $3 billion greater had it posted similar growth in medical inflation as the other states did.

California’s greater-than-average proportion of permanent disability claims, excessive litigation rates, and a high frequency of independent medical reviews contribute to its disproportionate loss adjustment costs.

Expenditures for medical cost containment programs also drive California’s high loss-adjustment costs, the WCIRB reports. The state’s total medical cost containment expenses reached $471 million during 2014.

Bill review and utilization review services comprise the largest components of WCRIB’s calculation of medical cost containment expenditures, said Dave Bellusci, the rating bureau’s executive VP, chief operating officer and chief actuary.

The WCIRB did not include expenses such as nurse case management in its calculation of cost containment services.

While California’s spend on medical cost containment services has nearly doubled over the past seven years, rising from $245 million in 2007 to the $471 million in 2014, the spending contributes to the state’s bright spot of lower than average medical inflation.

California’s average annual cost of medical inflation per indemnity claim grew only 1.9 percent between 2001 and 20014. In contrast, a similar measure for 35 other states showed an average annual growth of 5 percent in medical inflation.

California’s 2014 workers’ comp costs would be nearly $3 billion greater had it posted similar growth in medical inflation as the other states did.

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The lower medical inflation over the past decade is narrowing the gap between workers’ comp medical expenses paid in California and those paid in other states, Bellusci said.

Yet California is still no bargain.

The WCIRB report shows that California’s average medical benefit per claim cost exceeds 90 percent of the countrywide median despite more than a decade of the lower rate of medical inflation.

California still has such high medical costs per claim because its medical expenses rose more than in other states before California workers’ comp reforms in 2003, 2004 and 2012 helped tackle the inflation, Bellusci explained.

“California started from a very high level,” he said.

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]