California Claims Adjustment Costs Very Expensive
The California claims adjustment costs are massive when compared to other states. The Workers Compensation Action Network (WCAN) published the above chart last week.
A similar study was published in an article on this blog last week which covered the newest WCIRB Study (rating bureau for CA).
Most of the claims and premium data that I have analyzed pegs the ALAE (Allocated Adjustment Expense) at 15% – 17% for most claims. Even the national median in this chart seems high.
Having 28.2 cents of each dollar paid out for non-benefits shorts the injured employee and especially the employers that are paying the premiums.
Why does California have such high claims management expenses? According to WCAN:
The reasons for these high costs include:
- Greater-than-average proportion of permanent disability claims (which are more complex to manage)
- High litigation rates (particularly in the Los Angeles area)
- Large number of active liens and
- High frequency of independent medical reviews
According to Willis ALAE usually consists of:
- Preferred Provider Organization
- State Specific Networks
- Physical Therapy Specialty Networks
- Diagnostic Testing Specialty Network
- Pharmacy Benefit Management
- Prescription First Fill
- Independent/Defense Medical Exam
- Utilization Review
- Telephonic Case Management
- Field Case Management
- Peer Review
- Drug Testing
- Vocational Rehabilitation
- Medicare Set Aside Agreements (MSAs)
- Mandatory Insurer Reporting (MIR)
- 24/7 Triage
- Attorney Fees
- Translation Services
- Surveillance Fees
- Transportation Services
How can these fees be reduced? This is one of the more difficult answers in WC today. The California claims adjustment costs may possibly only be reduced as a result of an overhaul (not Senate Bill 863) of the system.
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