California Prop 22 – Nationwide Effect on Workers Comp Debate

November 5, 2020 By JL Risk Management Consultants

California Prop 22 – Not Just A One State Issue

California Prop 22 was overwhelmingly given a thumbs up by the Golden State’s Voters.

Pubilc Use License – Makaristos

If you are saying, yes, but I do not live in California, check out the last heading in this article – worth your time.

For many years, California had moved towards defining independent contractors as employees.

California Assembly Bill 5 (AB 5) was passed in 2019. The effects on the independent contractor vs. employee debate were chilling. The Dynamex Supreme Court decision was the basis for AB 5.

AB 5 enumerated each industry where the workers should be considered employees. The Dynamex Decision was very vague as to the exact companies that should not allow the independent contractor classifications.

From truckers to independent press contractors – AB 5 changed the rules of having independent contractors working for your firm.

For instance, many independent writers of worker’s comp articles seemed to disappear overnight. Due to privacy, I will not mention them by name.

When I traveled to what I thought was going to be an all-day WCIRB Conference earlier this year, I even asked the question to the presenter after they presented on the Class Code changes involved with AB 5

There are at least three Assembly Bills pending that contradict AB 5 – what effect will that have on how the WCIRB views any Class Code changes or premium audits that involve independent contractors? The WCIRB told me that they would have to get back to me. Fair enough.

According to the Ballotpedia (Updated 10:30 AM Eastern Time today), 58.4% of California voters checked Yes on their ballots. By the way, if you have not visited Ballotpedia, it is worth a look.

The Beginning of AB 5 – Dynamex Decision

The Dynamex Decision provided the three tests to see if a California worker was an employee or an independent contractor – they are-

The worker is:

Free from the hiring company’s control and direction in the performance of work
Doing work that is outside the company’s usual course of business; and
Engaged in an established trade, occupation, or business of the same nature as the work performed

After the Dynamex decision, many employers contacted J&L/me on premium audit and policy confusion. Their basic question was – How do we tell if the workers working for us are contractors or employees?

What California Prop 22 Does Not Do

California Prop 22 does not define any other employees/contractors beyond independent drivers such as Uber, Lyft, and Doordash.

Earlier I mentioned reporters and other types of workers – these workers are still under AB 5/Dynamex presently. Prop 22 covered a very defined section of independent contractors.

More workers may be added to the independent contractor list in the future.

What California Prop 22 Means For Companies Not in CA

One of my catchphrases is – what happens in California will be coming to a state near you. The Golden State always seems to make rules and regulations that are often adopted by other states in some form. Massachusetts and Tennessee even used some of AB 5’s wording in introduced legislation.

Bottom line – make sure your independent contractor contract spells out everything in great detail. Do not use a boilerplate contract. A different version of AB 5 or California Prop 22 may show up in your state – be prepared.

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California Workers Comp Contractor Vote – Prop 22 on Ballot

August 11, 2020 By JL Risk Management Consultants

Uber or Lyft Driver – California Workers Comp Contractor vs Employee – Prop 22

One of the most heated online and in-person (before COVID-19) debates that I had witnessed in California – Is an Uber or Lyft driver a California Workers Comp Contractor or an employee?

picture antique taxi california workers comp contractor

Public Domain – Wikimedia Commons

Some of the most widely read J&L articles over the last year came from the passage of California AB 5. AB 5 slammed the door on gig workers as independent contractors.

From a prior article –

The California Supreme Court retooled the contractor-subcontractor relationship into three points of consideration: (distilled for brevity)

The degree of control by the main contractor
The subcontractor performs work that is not the usual work performed by the contractor
The subcontractor has a business that is independently established in the same trade from the contractor
I added in this one as carriers are now including it in their workers’ comp audits – the subcontractor is not integral to the contractor’s existence.

AB 5 reiterated the infamous Dynamex decision. The rule-of-thumb became the ABC decision on a worker’s status. The ABC comes from the first three in the above list.

Why Should You Care If You Do Not Have A Business in CA?

I have referred to this statement often when writing California-based articles. What happens in California will be coming to a state near you or in your state.

California tends to lead the way on some of the Workers Comp decisions by other State Legislators. For instance, not long after the Dynamex decision, Massachusetts enacted similar regulations along with many other states.

Other states have retreaded the California Workers Comp Contractor Dynamex decision many times.

Proposition 22

(19-0026A1)
CHANGES EMPLOYMENT CLASSIFICATION RULES FOR APP-BASED TRANSPORTATION AND DELIVERY DRIVERS. INITIATIVE STATUTE.

Uber drivers in California Workers Comp Contractor can possibly worker

Wikimedia Common – ScottMLiebenson

Establishes different criteria for determining whether app-based transportation (rideshare) and delivery drivers are “employees” or “independent contractors.” Independent contractors are not entitled to certain state-law protections afforded employees—including minimum wage, overtime, unemployment insurance, and workers’ compensation. Instead, companies with independent-contractor drivers will be required to provide specified alternative benefits, including minimum compensation and healthcare subsidies based on engaged driving time, vehicle insurance, safety training, and sexual harassment policies. Restricts local regulation of app-based drivers; criminalizes impersonation of such drivers; requires background checks. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local governments

California Workers Comp Contractor Vote Results

I will return to this article and update it or write a new one after the vote on Prop 22. One would have to think the results will affect other California contractors and possible employers and contractors nationwide.

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California Assembly Bills Try To Right The Wrongs of AB 5

January 22, 2020 By JL Risk Management Consultants

Possible Corrections To AB 5 Introduced With Two New California Assembly Bills

Two California Assembly Bills were introduced very quickly after the rumble caused by California AB 5 since the Bill became law on January 1, 2020. California Assembly Bill 5 ratified the famous 2018 Dynamex court decision.

Picture of California Assembly Bills in Session

Public Domain whitehouse.gov

Many people in California do not think that AB 5 needs any correction.

An article from WorkCompCentral.com pointed out the two new bills’ introductions (behind a paywall). I will not load in both of the complete new bills. California always has a great useful Legislative Counsel’s digest at the top of most bills.

AB 1925 appears first. The Bill attempts to exempt small businesses (less than 100 people) from AB 5.
AB 1928 appears second. This Bill reverses the AB 5 Bill and Dynamex court decision and reverts to the S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) court case used to determine who is an independent contractor. Follow the link to the Bill to see the most redlines I have seen in a Bill in a long time.
A comment that I found in a blog on these two Bills. The comment reeks of the confusion now in California.

Massachusetts California Assembly Bills Statehouse

Wikimedia Commons – Hsin Ju HSU

Articles on the California Assembly Bills and other changes may be coming to your states if your company has no workers’ comp interests in CA. Some of AB 5 came from Massachusetts. Independent contractor determination Bills have been heavily produced across the nation over the last five years. (coming to a state near you).

These two Bills were introduced within one day of each other. The speed speaks volumes.

Introduced by Assembly Member Obernolte January 14, 2020

An act to amend Section 2750.3 of the Labor Code, relating to employment.

LEGISLATIVE COUNSEL’S DIGEST

AB 1925, as introduced, Obernolte.

Worker status: independent contractors: small businesses.

Existing law, as established in the case of Dynamex Operations W. Inc. v. Superior Court (2018) 4 Cal.5th 903 (Dynamex), creates a presumption that a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits arising under wage orders issued by the Industrial Welfare Commission.

Existing law requires a 3-part test, commonly known as the “ABC” test, to determine if workers are employees or independent contractors for purposes of specified wage orders.

Hiring entity California Assembly Bills Job interview

Wikimedia Commons – Alan Cleaver

Existing law establishes that, for purposes of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration is considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation, or business.

This test is commonly known as the “ABC” test. Existing law charges the Labor Commissioner with the enforcement of labor laws, including worker classification.

Existing law exempts specified occupations and business relationships from the application of Dynamex and these provisions. Existing law instead provides that these exempt relationships are governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.

This bill would expand the above-described exemptions to also include small businesses, as defined.

An act to amend Section 2750.5 of, to add Section 2750.7 to, and to repeal Section 2750.3 of, the Labor Code, relating to employment, and declaring the urgency thereof, to take effect immediately.

Introduced by Assembly Members Kiley and Melendez
(Coauthors: Assembly Members Fong and Gallagher)
(Coauthors: Senators Jones and Moorlach)

January 15, 2020

LEGISLATIVE COUNSEL’S DIGEST

AB 1928, as introduced, Kiley. Employment standards: independent contractors and employees.

Ceremonial Mallet California Assembly Bills used by legislatures and courts of law

Wikimedia Commons – howtostartablogonline.net

Existing law requires a 3-part test, commonly known as the “ABC” test, to determine if workers are employees or independent contractors for purposes of specified wage orders.

This test is commonly known as the “ABC” test. Existing law charges the Labor Commissioner with the enforcement of labor laws, including worker classification.

This bill would repeal those existing provisions and instead require a determination of whether a person is an employee or an independent contractor to be based on the specific multifactor test set forth in Borello, including whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired, and other identified factors. The bill would make related, conforming changes.

This bill would declare that it is to take effect immediately as an urgency statute.

Blog Comment Covers The Situation Well

This whole thing just seems awkward.
1. Dynamex for all Labor issues, but Borello for WC.
2. Dynamex for all Labor issues, and Dynamex for WC if there are more than 100 Employees, but Borello for Employers with under 100.
3. Dynamex for Labor and WC if there are more than 100 Employees, but Borello for both if there are less than 100.

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California Assembly BIll 5 Article Response Gig Employers Very Concerned

January 9, 2020 By JL Risk Management Consultants

California Assembly Bill 5 Cranks Up the Questions – Email and Phone Calls

The California Assembly Bill 5 (also known as AB 5) article published by me this week generated the most phone calls and emails on an article in months.

Map of California Assembly Bill 5 Interstate

Public Domain License – User:NE2

J&L heard in the last 48 hours from a:

Dog walking company
Stonecutter
Trucking line
Attorney
Associated consultant
Insurance agency
Temporary employer
Reporter
Researcher
Medical clinic
Other employers

Some of the forward-thinking employers and entrepreneurs were not directly affected by California Assembly Bill 5. Their companies were located in other states. Their concern originated with my statement 10 years ago that I included in the recent article. <<<Check out that article here.

The statement – what happens in California may be coming to a state near you – raised many questions within the general employer community on who was an independent contractor and who is an employee.

The IRS website names even more categories of employees or contractors. I use the website as my go-to starting point for employers. Check out the IRS determinations here. Yes, I know that many states have exceptions. I use the website as a rule-of-thumb only.

The IRS categorizes workers as:

An independent contractor
An employee (common-law employee)
A statutory employee
A statutory nonemployee
A government worker

If you had thought only two employee categories of workers exist, you might want to check out the definitions of each type. I will be updating my IRS subcontractor page analysis next week with a new article. The IRS always provides a plethora of information on taxes on their website.

Certificates of Insurance become very valuable at the time of the premium audit. Make sure that the premium auditor sees any certificates of insurance. More proof of the type of relationship exists, but if you have the certificates, attach them to your organized spreadsheets to lower your workers’ comp audit stress level.

Wait, do you organize your employees and contractors on a spreadsheet for the premium audit? If not, an employer should immediately start that project when the notice of premium audit letter arrives with a proposed date of audit.

Organization and neatness count tremendously during any audit (premium, tax, unemployment, etc.). Excel(r) can be your best friend.

Dynamex Decision

Work at California Assembly Bill 5 over the phone

Wikimedia Commons – Daviesmo

The California Assembly Bill 5 was a codification of the Dynamex court decision that added in one major concern that had previously not been considered:

Is the worker an integral part of your business? Google defines the word integral as:

necessary to make a whole complete; essential or fundamental.

You may want to refer to the actual decision using this Dynamex court decision link. This court decision became the basis for California Assembly Bill 5.

The chain of events was:

Dynamex decision
AB 5 produced
AB 5 passed
Governor signed into law
Law became effective January 1, 2020
Gig-based companies are ignoring the law
Trucking companies filed for an injunction against AB 5
Large gig-based companies pledging $100 million to repeal the law

Please remember we/I are not attorneys or agents, so you may wish to consult with your agent and attorney on your compliance with California Assembly Bill 5.

©J&L Risk Management Inc Copyright Notice

California AB 5 Causes Workers Comp Conundrum For Gig Workers

January 7, 2020 By JL Risk Management Consultants

New California AB 5 Legislation Causes Confusion for Gig Workers And Comp Carriers

The New California AB 5 (Assembly Bill 5) has the gig worker economy up in arms. Let us start with the Bill itself. The Bill can be found here. Reading it over may be a good idea.

Public Domain License

The Bill was introduced by Lorena Gonzalez and supported by Governor Gavin Newsom.

Why is this bill so important? Because it codifies The Dynamex Decision. What is the Dynamex decision? Check here for that court ruling. I had written on the subject a few times. My newsletter has the article on Dynamex in the viral archive section. The article became viral after I first posted it in 2018.

Many phone calls and emails have come into J&L’s offices from employers concerning workers’ comp premium auditors addressing their audits with the main question from the Dynamex decision. Take the time to read the archived article. Understanding the decision is well worth your time.

California AB 5 initiated a firestorm on if gig workers become employees or stay as independent contractors. The Law of Unintended Consequences kicked in as truckers came under the jurisdiction of the AB 5.

Uber, Lyft, and Postmates have all refused to follow the new law that became effective January 1, 2020. To date, the companies did not reclassify their workers are employees. Many parties filed temporary injunctions against the new rules. The companies have pledged $90 million in California to have AB 5 reversed.

The misclassification of employees as independent contractors remains a hot button for people on both sides of the issue. Freelance writers and photographers fall under this law. Many have experienced having their contracts terminated. Some gig workers have supported California AB 5 as a way to have fair living wages.

The IRS publishes a rather involved website on how to determine if a worker is a subcontractor or employee. The guide does not fit every jurisdiction. Think of it as a rule of thumb.

Workers’ Comp Carrier Premium Audits

Wikimedia Commons – KG Shreyas Thimmaiah

The premium auditors have their work cut out for them. If an employer objects to having a worker or workers reclassified as an employee, what does the auditor do about an unsettled issue? OK, so say a premium auditor audits an employer where gig economy individuals write articles as a side job. The auditor reclassifies them as employees. The premium auditor may be wrong. Why?

The new law does provide a specific carveout for freelancers: They can contribute up to 35 submissions per year to a single outlet and still be considered contractors. Wow – my head hurts.

And this is one example of making a premium auditor’s job more difficult and possibly having the employer paying excess premiums. There are more exceptions, such as:

Several businesses were granted exemptions because they were able to demonstrate the following:

Whether or not their independent contractors had the wherewithal to set or negotiate their own prices – this is left to much interpretation – define negotiate
Whether they had access to direct communication with customers – once again – an interpretation – define direct communication
Whether they earned at least twice the minimum wage – An Uber driver can write off their mileage on their taxes, does that count as income?

One could go on and on debating the fine points of the three above bullet points for hours on end.

Ouch – this whole situation is getting very complicated for workers’ comp insurance carriers, their insured clients, agents, underwriters, and premium auditors.

Why Is This CA Law So Important

Supreme Court of California AB 5 State building

Wikimedia Commons – Tobias Kleinlercher

The California Courts patterned their decision off a Massachusetts rule. In other words, this law is not isolated to California AB 5. It is coming to a state near you. I have always advised readers and clients that their state or states of operation may adopt something similar to California AB 5 very soon. Be prepared.

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California Dynamex Decision – Another Workers Comp Crisis Recycled?

April 4, 2019 By JL Risk Management Consultants

California Dynamex Decision – Overreaction or Harsh Reality?

The California Dynamex decision hit the Workers Compensation airwaves and blogosphere over the last few weeks.

picture of agreement California dynamex decision signing

Public Domain – US DOE

An article by WorkCompCentral noted reactions across the country. I cannot link to the article as it is behind a paywall.

Check out this article on the previous recycled crises – no, this one is not counted as a recycled crisis yet. A great article by Tony Marks in Forbes Magazine covered the case very well – more from a franchising perspective.

The California Supreme Court retooled the contractor-subcontractor relationship into three points of consideration: (distilled for brevity)

The degree of control by the main contractor
The subcontractor performs work that is not the usual work performed by the contractor
The subcontractor has a business that is independently established in the same trade from the contractor
I added in this one as carriers are now including it in their workers’ comp audits – the subcontractor is not integral to the contractor’s existence.

Bullet point #4 was added by me as this question has been asked of me by a few California companies that have recently gone through the premium audit process.

The case of Curry v. Equilon Enterprises, LLC (2018) (CA Court of Appeals) limited the four tests in the area of joint employment. The link takes you to a search for the case.

IRS Has Great Tests for Subcontractor vs Employee

The Internal Revenue Service has a great test that still satisfies most of the concerns when deciding on whether a worker is a subcontractor or employee. The IRS has more worker classifications such as Statutory Employee, Non-StatutoryEmployee, and even a governmental employee.

Yes, I realize it may not fit every state. The three tests are:

Behavioral Control
Financial Control
Relationship of the Parties – contracts are important

A great PDF from the IRS can be found at this link. The PDF breaks the three elements down even further. Of course, discussing everything with your tax professional is always recommended by the IRS. The California Dynamex decision should be a conversation starter.

One area from the PDF that I had not covered was the test the IRS gives when doing an employee audit. They are:

Consistency test – everyone that has the same job type is paid as a subcontractor
Reasonable basis test – this one needs to be covered in the same manner as the IRS

In order to meet the reasonable basis test, you must have treated the worker as a subcontractor because you reasonably relied on:
· a court case or ruling to support your position,<<interesting statement
· a prior IRS audit,
· a long-standing practice in your industry, OR
· demonstrate, in some other manner, any other reasonable basis for treating the worker as a subcontractor

Tennessee Says 20 Point Test

According to Business Insurance Tennessee wants to have a 20 point test that was established by the IRS. I do not see 20 points in the IRS websites. The Legislature may be counting even the test subsets as a test.

Tennessee referring to the IRS test may be seen as a good sign for consistency. The IRS standard may be the best method for considering whether a subcontractor is not an employee, regardless of the Calfornia Dynamex decision.

Bottom line – even before the California Dynamex decision, the states and Feds started enforcing the contractor rules more stringently.

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California Supreme Court Decision Independent Contractors Definition

August 29, 2018 By JL Risk Management Consultants

California Supreme Court Changes Definition of Independent Contractor

The California Supreme Court recently decided how to distinguish a contractor from an employee for the Golden State’s employers.

The decision is called Dynamex decision. The California Supreme Court decision can be found here. For the legal diehards, the decision is 85+ pages.

Postcard Graphic California Supreme Court Golden Gate Bridge

Public Domain – Tichnor Bros

However, I do recommend downloading it and reading over it as “what happens in California’s Workers Comp system will be coming to your state or states in the future.” <<<saying that I coined>>>

Many articles have been written in this blog that centers around the IRS definition of an independent contractor. The IRS has not updated the subcontractor pages since April 2018. We watch to see when the contractor pages are updated to pass them along to our readers.

California’s former rules and laws on subcontractors vs. employees seemed to be more liberal on allowing companies to operate as independent contractors. California’s gig economy remains massive and still growing.

According to Workcompcentral.com, (behind paywall) the high court in the Dynamex created a three-part test:

Requires businesses to show that a person who is classified as an independent contractor is free from control and direction
Was hired to provide a service that the company doesn’t usually offer
Is customarily engaged in an independently established trade.

The decision seems more restrictive than what California had in place. The second part of the test (bolded above) creates a new wrinkle in the employment determination.

For comparison, the most update IRS determination is (with links that explain each aspect):

_____________

Common-Law Rules

Judge California Supreme Court Holding Gavel

by StockUnlimited

Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or an independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “make” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors that are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

____________

Even the IRS says there is no “magic way” to determine the employee/subcontractor relationship. The California Legislature will likely review in their next session the likely effects of this recent California Supreme Court decision.

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Workers Comp Loss Prevention Throughout Claim = Loss Reduction

December 19, 2017 By JL Risk Management Consultants

Workers Comp Loss Prevention Should Never Stop

Workers Comp loss prevention and claims loss reduction should be considered as the same function – just more defined.

money barrels workers comp loss prevention money

Wikimedia Public Use License

When I present at safety or risk management conferences, one of the subjects I cover is the continued involvement of the safety officer or staff even after a claim occurrence. Why?

Many times, the handling of the claim for an employer is passed to someone in the human resources or other associated department. Some of the same safety techniques could be applied to claims handling – in other words safety on the back end of the claim instead of only on the front end. I have been writing on this subject for over 10 years. Check the first link in this article as it points to an article written in 2007.

The common post-accident term is loss reduction. Most claims have everything set in place within 48 hours.

The accident has been reported to the employer.
The treating doctor is chosen and the first visit has occurred.
A determination has been made on whether the injured employee can return to work.
The injured employee experiences good, bad, or indifferent treatment by his/her employer.
The proper forms have been filed with the Workers Comp Commission or Board.
The safety and risk management departments usually have the most knowledge concerning the prior four five bullet points.

The first four resulted in my Six Keys To Workers Comp Savings that I wrote in this blog 10 years ago.

Why should the safety department concern themselves with post-accident safety? Safety and Risk Management has long since been judged on the level of the Experience Modification Factor (E-Mod or X-Mod). While it is best in keeping an accident from ever happening, the back-end of the process should have them interested in how the adjuster views the employer’s internal handling of the safety and claim process.

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Safety Consultant Disagreed With Me On Article – His Take

November 1, 2017 By JL Risk Management Consultants

Our Safety Consultant Glen Disagrees With Using Mod As Only Bellwether

Our safety consultant, Glen, sent over an article in response to a recent article by me. I always like to hear from the Safety realm as that is where a company can save on Workers Compensation premiums on the front end.

picture of safety consultant program chart

Public License Used

Several weeks ago, an article was written on this blog stating that the experience modifier number (X-Mod) was the single best data element to determine if a company has a good safety program. While I don’t disagree with this statement, I am reluctant to embrace it fully.
When passing judgment on the merits or lack of merits of anything, one must find more than one data point. One item is like a dot on a piece of paper, but if we have three or more data points we can connect them into a meaningful shape.

Here are a few other things to look at in the analysis.

The number of safety trainings being done each year.
Does anyone at the company inspect and sign off on the fire extinguisher monthly tags?
Does the company have an up to date injury and illness prevention plan (IIPP)?
Does it cover all recognized hazards for that entities industry?
Do the people working there even know who is responsible for the IIPP?

The law requires this document to name a specific person as the IIPP coordinator. If people in the company knows who the IIPP Coordinator is, chances are he/she is bringing his/her message to them in an effective way.

Two Colleagues Safety Consultant At Work

StockUnlimited

There are more than a few reasons why a company with a poor safety program may have a low EMR. For example, a small company who has had no claims in the past five years. On the flip side, a company with a stellar safety program may have a poor EMR because they had one large claim. Another problem might be Claims Examiner who over-reserved a claim.

In closing, I think of the expression, “one drop of rain does not make a storm.” In like manner one number is not enough to lead to a solid conclusion.

Please note that any articles written by outside sources, other than James J Moore, are not necessarily the opinions of James J Moore, J&L Risk Management Consultants, or J&L Insurance Consultants,as should be treated as such.

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WCAN WCIRB California Workers Compensation – 2017

October 4, 2017 By JL Risk Management Consultants

WCAN WCIRB California Workers Comp Full Analysis (Great Charts)

The WCAN WCIRB California Analysis of Workers Comp consisted of many great charts. The WCAN (Workers Comp Action Network) provided a great link to a very thorough breakdown of everything you want to know about California Workers Compensation in 2017.

corona wcan wcirb california city picture

Corona CA Public Domain

The WCAN always provides a great summary. However, the California study at the WCIRB (Workers Compensation Insurance Rating Bureau) website contained a massive amount of information which no summary would do justice.

Please note the document is a rather large PDF file that may take some time to download. The WCAN summary is a one page document. WCAN appears often in articles on this website.

Even if you do not have California interests in Workers Comp, I heavily recommend downloading the WCIRB document. If you do not want to go over every chart, the last few pages of the study include a summary of each chart. These charts are priceless for a California Workers Comp presentation. The underlying data in Excel format can be found on page 3 in the link (page 1 of the body of the study).

A few of the highlights from the analysis are:

Business People WCAN WCIRB California Looking At Chart In White Board

StockUnlimited

Chart 26 – Virginia, Louisiana, Alaska, and Delaware are more expensive for medical costs in indemnity claims.
Chart 29 – Opioid costs per 100 claims reduced by 2/3. Would any of the cost be due to cheaper/generic opioids/
Chart 31 – California has a very high ratio of unreported claims at the 12 month mark (cumulative trauma?)
Chart 36 – $1 of benefits cost 53 cents for delivery of that benefit (Wow!)
Chart 44 – The quick and dirty summary for California

Many charts cover other areas well. You may want to check out the other charts provided by the WCIRB.

I am often asked why do I cover California so extensively. California is one of the more complicated and expensive states for Workers Comp in the nation. The other main reason points to the Golden State often enacts laws and rules which other states consider using in their Workers Comp regulations.

The WCAN WCIRB California analysis should be updated in the coming months.

©J&L Risk Management Inc Copyright Notice

California Workers Comp Status Conferences – Adjuster Guest Author

March 22, 2017 By JL Risk Management Consultants

Setting California Workers Comp Status Conferences

This article on setting California Workers Comp Status conferences definitely applies to Workers’ Compensation claims at the WCAB level. However, I think that the technique could be useful in other jurisdictions so use your own judgment and apply the techniques as they apply to your business.

Graphic of California Workers Comp Status Conferences Techniques

StockUnlimited

Have you ever been frustrated with a case that just seems to be going nowhere? Do you have a case that is ready to settle, but can’t get a hold of opposing counsel? Do you work in a busy California WCAB venue, or another venue that allows the setting of
status conferences?

If the answers to any of these questions are “yes”, then I think this tidbit of information would be helpful to you. Having worked in our industry for 16 years now, with 15 years of that being adjusting claims, I know that in our industry, everyone is busy on a daily basis.

From phone calls to emails to faxes, the days just go by so fast. Many times, co-defense or counsel for the opposing side are just simply busy at hearings.

Pen And Paper California Workers Comp Status Conferences Vector

StockUnlimited

So my tip to get the communication going again, and to move the case along when you are trying to settle is to set a “Status Conference”.

This type of conference does not trigger closure of discovery, but it does basically “force” the parties to appear at the WCAB and discuss the case. Make sure your counsel is prepared for the hearing, and that you have given them benefit printouts, current medical reports and proper settlement authority.

Be sure to make an offer at the hearing for settlement based on the evidence at hand in the case. Make the offer in writing, thus “requiring” that counsel shows it to their client.

Please consider any unresolved factors like EDD liens, Retro Temporary Disability or additional body parts in your valuation of the settlement.

More often than not, when I use this approach, we settle the case faster. If not, then at least we have a solid plan and usually a counter demand (to get authority for if needed to get closer to settlement).

Now move forth and use this technique. But of course listen to the advice of your counsel as they usually know the venues and judges pretty well!

An excerpt from “Setting Status Conferences” (The Work Comp Diaries by Dean Sultani).

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Safety Incentive Plans – OSHA’s New Posture

February 22, 2017 By JL Risk Management Consultants

OSHA’s Surprising New Posture On Safety Incentive Plans

This article on safety incentive plans was written by our ept Safety Consultant Glen Dulac.

Always remember that a well-crafted safety incentive plan will bring dramatic results in moving your safety program from good to great. Studies show as much as a three to one return on investment, from a good incentive plan.

Graphic of Safety Incentive Plans Dollars

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So, what kind of a tempest in a teapot has OSHA been brewing up to spoil your incentive plan ?

Https://www.osha.gov/recordkeeping/finalrule_faq.html OSHA slipped it into the record-keeping rules, you can find it in the frequently asked questions.

And what does it say?

“ The rule does not prohibit incentive programs. However, EMPLOYERS must not create incentive programs that deter or discourage an employee from reporting an injury or illness. Incentive programs should encourage safe work practices and promote worker participation in safety-related activities.”

Please notice I fully capitalized EMPLOYERS. Hold that thought or read the last sentence of this article now. Let’s boil this down to key tangibles.

Incentive plans are not outlawed, but the wrong kind could get you fined by the OSHA guys. Never discriminate, all employees deserve equal pay, and an incentive is considered pay or compensation. Focus on activity standards, AKA leading indicators.

Examples would be:

Participating on a safety inspection team
Keeping ones work area clean, or
Attending safety training.

Downplay big ticket monetary rewards given for reductions in accident frequency or reduction in experience modification.

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In closing let me stress the following, OSHA has no scientific foundation for its position that monetary incentives lead to underreporting of injuries. There has been no major court case on this topic. Issues on incentives have been published as memos not as final rules.

State OSHA may differ from Federal OSHA. Any discussions about the delicate details of your incentive plan should be discussed in the presence of an attorney, so they will fall under the client-attorney privilege. This makes it very difficult for the OSHA octopus to get its tentacles on said communication.

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California AB 1643 Changes Apportionment For Worse

September 27, 2016 By JL Risk Management Consultants

California AB 1643 Warning Memo From WCAN

The new California AB 1643 House Bill has caused quite a bit of controversy. WCAN has produced a reminder to contact Governor Brown to veto the bill. The bill summary is below.

Wikimedia Commons – Makaristos

Apportionment is basically assigning a permanent disability rating to only the new injury and to not allow the rating of previous injuries or conditions. Many states have the same type of rules/law on not rating old injures or conditions.

WCAN (Workers Compensation Action Network) produces the best charts and graphs in the Workers Comp world. Their California AB 1643 memo is here.

A similar attack on apportionment occurred a few years ago. Governor Brown’s Veto of AB 305 covered the same ground but from a different angle.

An act to amend Section 4663 of, and to add Section 4660.2 to, the Labor Code, relating to employment.

Will Governor Brown veto California AB 1643? Only time will tell, however he has vetoed similar bills.

LEGISLATIVE COUNSEL’S DIGEST

AB 1643, Gonzalez. Workers’ compensation: permanent disability apportionment.

Sacramento California AB 1643 in California

Wikimedia Commons – Rafał Konieczny

Existing workers’ compensation law generally requires employers to secure payment of workers’ compensation, including medical treatment, for injuries incurred by their employees that arise out of, or in the course of, employment. An employer is liable only for the percentage of the permanent disability directly caused by the injury arising out of, and occurring in the course of, employment.

Existing law requires apportionment of permanent disability to be based on causation, and a physician who prepares a report addressing the issue of permanent disability due to a claimed industrial injury is required to address the issue of causation of the permanent disability. The physician is required to make an apportionment determination by finding the approximate percentage of the permanent disability that was caused by the direct result of injury arising out of and occurring in the course of employment, and the approximate percentage of the permanent disability that was caused by other factors both before and subsequent to the industrial injury, including prior industrial injuries.

This bill would prohibit apportionment of permanent disability, in the case of a physical injury occurring on or after January 1, 2017, from being based on pregnancy, menopause, osteoporosis, or carpal tunnel syndrome. The bill would also prohibit apportionment of permanent disability, in the case of a psychiatric injury occurring on or after January 1, 2017, from being based on psychiatric disability or impairment caused by any of those conditions.

The bill would also provide, notwithstanding any other law, for injuries occurring on or after January 1, 2017, that the impairment ratings for breast cancer and the aftereffects of the disease, known as sequelae, shall in no event be less than comparable ratings for prostate cancer and its sequelae.

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California CWCI Independent Medical Reviews – Other Statistics

June 9, 2016 By JL Risk Management Consultants

California CWCI Publishes Quarterly Report on IMR Statistics – The Other Numbers

The California CWCI (California Workers Compensation Institute) recently published a spotlight report on the state’s Independent Medical Review (IMR) process. The IMR process was initiated due to Senate Bill 863.

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If a UR (utilization review) physician provides an opinion which denies the medical treatment, the injured employee has the right to dispute that finding.

If the injured employee decides to dispute the decision of the UR physician, the IMR process provides an avenue to have an independent physician review the denial of services. The IMR physician can overturn or uphold the decision.

The main statistics that created a buzz in the Workers Comp blogosphere are:

90% of all denials were upheld
160,000 review letters
1/2 of the reviews were for medications (40% of the medication reviews were for opioids)

As they say in Monty Python(c), now for something completely different:

Over 20% of psychological services denials were overturned by the IMR physician
Almost 30% of the “evaluation and management” services denials were overturned by the IMR physician

Both of these two service categories did not make up a large amount of the IMR reviews. However, the percentage of overturned denials was remarkable.

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One area from the medication IMR statistics by CWCI was antidepressants. The IMR physicians had overturned almost 30% of the antidepressant denials. Even though antidepressants accounted for only 4% of the reviews, this was a striking number.

The most interesting statistic, in my opinion that came from the CWCI study was that the top 10% of medical providers that were mentioned in the IMR letters accounted for 75% of the reviews.

Will California’s Department of Workers Comp look more into that statistic? We shall see.

The study can be found here.

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WCIRB WCAN WCRI = Confusion on California WC Statistics

December 10, 2015 By JL Risk Management Consultants

Confusion on California WC Statistics

WCIRB WCAN WCRI – Three trusted statistical providers that now have me confused on whether or not SB 863 actually had an effect on California’s Workers Comp system.

Workers Comp Reform SB863 WCIRB WCAN WCRI emblem from web

Acronyms –

WCIRB – Workers Compensation Insurance Rating Bureau – The Rating Bureau for California’s WC system
WCAN – Workers Compensation Action Network – An independent group that studies and advocates for reform in CA’s Workers Compensation system
WCRI – Workers Compensation Research Institute – An independent organization that studies WC nationwide and produces reams of good data
SB 863 – A Senate Bill passed and enacted on January 1, 2013 which was supposed to reduce WC costs by controlling certain aspects of the California WC system

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After receiving a press release from WCRI today, confusion abounds as I had thought that SB 863 had failed in its mission. WCRI today published a study of California’s WC system that actually indicated a 5% reduction in medical costs.

Any of my comments on SB 863 are in this J&L Blog search. After searching back through 15+ articles ( wow, I actually wrote that many) on SB 863, I may have broken one of the Cardinal Sins of Workers Comp.

The actual results of a system change are not going to start really showing for two (at the beginning) to five years (full effect). WC is a delayed system. Immediate changes do not show for many months. I have seen Safety and Risk Manager jobs being eliminated as companies do not wish to be patient in our “instant information and results” workplace of today.

According to WCRI, some of the main reasons for the 5% decrease in costs were:

Reduced fee schedule rates for services at ambulatory surgical centers (ASCs)
Elimination of separate reimbursement for implantable medical devices, hardware, and instruments for spinal surgeries
Requiring a $150 fee to file liens against an employee’s workers’ compensation benefits and a $100 activation fee for liens already filed.

There will be more information published by WCIRB WCAN WCRI in the future. One has to only anticipate an improved situation in California (or will it be improved).

©J&L Risk Management Inc Copyright Notice

California Claims Adjustment Costs Are Massive – WCAN

September 1, 2015 By JL Risk Management Consultants

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.

Picture of California Claims Adjustment Costs Files and Documents in Cabinet in Office

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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.

©J&L Risk Management Inc Copyright Notice

California WCIRB Rating Formula Major Changes

July 2, 2015 By JL Risk Management Consultants

California WCIRB Rating Formula

The California WCIRB rating formula changes for January 2017 stood out in one of their recent press releases. The WCIRB (Workers Compensation Insurance Rating Bureau) is the rating organization for WC similar to NCCI.

Before I start to analyze the press release, the WCIRB personnel (for the most part) have been nothing but kind and helpful to me. Their educational conferences are always very informative.

The eye-catching phrase in the recent WCIRB press release alluded to the primary loss figure being changed to match the size of the employer. The primary loss figure for California is now set at $7,000.

Small companies took it on the chin in California two years ago with the elimination of the small employer adjustment. Will small employers take it on the chin again in 2017?

The WCIRB is not alone in making major changes to the rating formula. A series of articles earlier in this blog covered the major changes made by NCCI to their rating formulas in 2013.

Hand Holding Calculator California WCIRB Rating Formula Icon

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According to the WCIRB press release there are two areas that will be the most affected by the changes:

Allow the WCIRB to issue debit modifications, in specified circumstances, excluding the unaudited payroll for policyholders who are uncooperative at the time of a final audit. One has to ask as to what is uncooperative and who determines when a company is so called “being uncooperative. Also, what would be the level of unaudited payroll if there are no payroll figures on which to base this figure?”
The second replaces the fixed $7,000 primary and excess loss split point with a variable split point that varies based on the size of the employer. A variable split point enhances the accuracy of the experience rating formula, especially for smaller employers; reduces volatility and provides flexibility for simplifying the experience rating formula in future years. One cannot help but notice the mention of small employers in this second point.

As we all know the per-unit cost of risk under the rating formulas is much higher for smaller companies than larger ones. I hope the new variable split point changes will not be in the same vein.

I will update this post or add additional posts as the new rules for the California WCIRB rating formula changes are published.

©J&L Risk Management Inc Copyright Notice

California Workers Comp System – What Happened To The Reform(s)?

May 6, 2015 By JL Risk Management Consultants

California Workers Comp System Reforms Fizzled?

The California Workers Comp System was supposed to reduce costs after SB 863 was enacted in 2013.

SB 899 was the previous cost-saving measure that seemed to hold California’s Workers Comp costs which seemed to work for five to seven years.

Picture Of Hand Putting Money California Workers Comp System In Piggy Bank

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Check out this summary page from WCAN (Workers Compensation Action Network). The surprising figures show the California Workers Comp system:

Total costs increased by 17% from 2012 to 2013
Was/Is the most costly WC system when comparing insurance premiums paid by employers
Cost more than double the median workers compensation amounts
Average ultimate cost per claim was $86.845 – which explains the increased premium cost to employers
California employers paid $3.48 per $100 of payroll for WC coverage.

The nationwide median was $1.83. The lowest rate was North Dakota at $.88 per $100 of payroll. WC is usually measured per $100 of payroll.

Woman California Workers Comp System Putting Coins On Piggy Bank

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North Dakota may be changing over time as many of the very unsafe oil worker jobs would have recently increased due to the oil boom in North Dakota.

In the early 2000s, a few of our California roofing clients were paying over $138 per $100 of payroll. The roofers had a very large overhead from just WC alone. I had sometimes wondered how they were able to stay afloat.

Most of this data came from the Premium Rate Ranking Summary from Oregon’s Department of Consumer and Business Services. The Oregon study, however, should not be taken as the final word on these figures.

The WCIRB – California workers comp system rating bureau- had also recommended a heavy rate increase even after the reforms were put in place.

The reason I cover the California workers comp system extensively is that many of the conundrums that are present in the state are ones that other states have faced or will face in the future.

I will cover the reasons to look further beyond this study later this week. The studies that many people base the costs of WC in the nation may be skewed.

©J&L Risk Management Inc Copyright Notice

California’s Workers Compensation Difficulties – Great Primer

April 10, 2015 By JL Risk Management Consultants

California’s Workers Compensation Difficulties

California’s Workers Compensation difficulties may have subsided for a few years. However, it seems that it was only a temporary situation.

Workers Compensation Action Network (WCAN) recently responded to ProPublica’s and NPR’s analysis of Workers Comp in California. A recent responsive article was also published on this blog – In Defense of Workers Compensation.

I am often asked why I write a large number of articles on California’s Workers Compensation system. California is a leading bellwether of WC (of sorts). In other words, what happens in the state will likely become part of the WC environment in your location or states of operations.

The article actually turned out to be a great quick primer on quite a few developments in California over the last few years. One note is Propublica did meet with a few of the Workers Comp press and requested input on future WC subject matter.

Even if your company has not exposure in CA, I recommended reading the seven page analysis published by WCAN. They performed a yeoman’s job to bring together the article. Please note the response is a PDF file.

Hand Illustrating California's Workers Compensation Difficulties Chart

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Some of the statistics in the report are:

Premium rates in California are 30% higher than they were four years ago. That is a significant increase when many states are experiencing rate decreases.
Since 2004, average total benefits per claim in California have increased by 35%, or $18,000 per claim.
Average payments for medical benefits per claim increased by 40%.
Average indemnity (cash) benefits paid to injured workers increased by 27%.
Benefit costs did decline briefly after enactment of SB 899 (2004). However, this trend only lasted for three years and costs declined by only 17% before beginning to increase again in 2006.

When one looks at these statistics, California may not necessarily be in an “insurance crisis“, however the cost of covering workers is becoming even more of a significant budget burden on California employers.

©J&L Risk Management Inc Copyright Notice

Are Telephonic Payroll Audits Legitimate- Reader Question

February 4, 2015 By JL Risk Management Consultants

Telephonic Payroll Audits Legitimate For Smaller Employers

Payroll audits, also known as premium audits can take many forms. Telephonic payroll audits have gained in popularity for smaller employers. There are different audit types such as:

Telephonic- yes they are legitimate but read on for more info
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Hybrid
Physical
Mail-in (Voluntary)
Estimated

Telephonic payroll audits are usually for very small employers. Many states have a minimum premium threshold which requires an in-person audit for establishing the proper premium.

Each state has its own specific rules on the minimum premium that would require a physical audit. For instance, as the reader is from California – the minimum rule from the WCIRB for payroll audits: (The 13,000 minimum premium was just changed from 10,000). This is a great example of the rules for most states.

Section VI

4. Audit of Payroll The audit and assignment of payroll shall be governed by the rules and classifications contained herein and the approved pure premium rates, subject to the following specific requirements:

a. The insurer shall audit the employer’s records for the purpose of determining the payroll in accordance with the

following (See Part 1, Section II, General Definitions, for the definition of “Physical Audit” and “Voluntary Audit” and Part 4, Section II, Definitions, for the definition of “Final Premium(s)”):

(1) Each policy producing a final premium of $13,000 or more shall be subject to a physical audit at least once a year. On policies subject to monthly, quarterly, or semiannual interim audits, voluntary audits may be accepted in lieu of interim physical audits. The last audit of the policy shall be a physical audit of the complete policy period.

(2) Each policy producing a final premium of less than $13,000 shall be physically audited at sufficient intervals to ensure determination of proper payrolls. For each policy that is not physically audited, a voluntary audit shall be performed.

Picture of Hand Presenting Payroll audits Concept

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(3) Each policy producing a final premium of less than $13,000 and developing exposure in a dual wage construction or erection classification that requires the regular hourly wage to equal or exceed a specified amount shall be physically audited, unless the policy is a renewal and the insurer physically audited one of the two immediately preceding policy periods.

(4) Notwithstanding the above, a physical audit shall be conducted on the complete policy period of each policy insuring the holder of a C-39 license from the Contractors State License Board. See California Insurance Code Section 11665(a) for additional requirements regarding the audit of C-39 license holders.

(5) In every instance, the audit report shall show the source or sources from which the payrolls were obtained. b. If a policy is not audited as required by this Rule, the insurer shall comply with the rules for reporting unaudited exposure on unit statistical reports found in Part 4, Section III, Rule 5, Estimated Audit Code, and Section IV, Rule 4, Exposure Amount, of this Plan.

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Buzz Around California’s AB 1897 Has Been Amazing

January 20, 2015 By JL Risk Management Consultants

Big Buzz Around California’s AB 1897 and Temporary Employment Agencies

The Buzz around California’s AB 1897. Please note that this article will likely apply to other states than just California. Senate Bill AB 1897 has caused quite a stir in California. Our California clients have begun to pay attention in a big way since January 1st. There are pages and pages of analyses on AB 1897.

Map Of Buzz Around California's AB 1897 With Location Icon

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I first heard of the bill at the National Workers Comp and Disability Conference last November. When I first heard of AB 1897, I thought the presenters were just being too paranoid. That was until I actually read the bill.

I then started receiving emails from California companies and multi-state companies with interests in the state.

A great summary of the bill, its effects, and a few strategies to avert a claim from a temporary employee or employees were written by CalChamber. If you read the bottom of page 2 of the guide, there can be catastrophic results such as a class action lawsuit.

[From The CalChamber guide: ]

Basically, if the labor contractor fails to pay its employees properly or fails to provide workers’ compensation coverage for those employees, the client employer will now be legally responsible.

Why do I reference California so often on Workers Compensation? The laws and rules from the state often end up as similar concerns in other states. As we often say at J&L Insurance Consultants, what happens in California will be coming to a state near you in the future. California remains the Work Comp pacesetter for change.

Making sure your temporary employee provider has a legitimate policy in place is tantamount to not paying for employees your company did not realize it had in place.

Reviewing your contracts with your temporary service provider and verifying their Workers Comp policy in effect is going to be very important in the future.

©J&L Risk Management Inc Copyright Notice

NWCDC Temp Nation – California AB 1897

November 26, 2014 By JL Risk Management Consultants

California AB 1897 Changes The Temporary Employee – Employer Relationship

The upcoming effects of California AB 1897 caught me slightly by surprise. Many states had discussed laws that reinforced the ladder of insurance. This new statute addressed it directly.

Picture of Judge California AB 1897 NWCDC

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I tried to blog live on many of the sessions at the NWCDC in Las Vegas last week. However, internet connectivity, power plugs, etc. made it a little tough in a few instances. I wrote this session out by hand. It was one of the most important ones for employers, especially California employers.

Many states are passing laws currently that make temporary agencies and client-employers equally responsible for providing Workers Compensation benefits for an injured employee. These types of laws will quickly erode the hallmark of the temporary agency being the responsible party for their workers’ benefits resulting from a WC accident.

As I have pointed out very often in this blog, California will usually be the first state at enacting rules and laws that will be coming to your state(s) very soon.

California AB 1897 seems to be one of the first of its kind. California AB 1897 does not let the employer off the hook for Workers Compensation benefits for temporary employees that were hired through an agency.

Businessman Pointing California AB 1897 Employee Interview

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Some of the important aspects of the new law are:

Effective January 1st, 2015
One of the exceptions were key employees such as executive temps.
Temporary agency, PEO, or leasing employer cannot be self insured
All parties are equally responsible for employee safety
Some of the exclusions are:
- Small business – 25 or less employees
- Business facility with 5 or less temporary workers
- Local government

The presenters, who I will add into this article or add in a completely different article, recommended that the temporary agency contracts need to be reviewed very extensively as to the responsible party for WC benefits for an injured temporary worker.

This was one of the sessions that should have been given some attention with the advent of co-responsibility between employer and temp agency. You may want to check the upcoming employment law changes in your state as the presenters had acknowledged other states were considering similar law changes to California AB 1897.

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California SB 863 Failure Result In 6.7% WCIRB Rate Increase?

August 26, 2014 By JL Risk Management Consultants

California SB 863

California SB 863 was supposed to be a cost-cutting measure for all parties involved in their WC system. Last week, the WCIRB (Workers Comp Insurance Rating Bureau) recommended a 6.7% increase due to a number of factors for policies effective January 1, 2015.

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According to the WCIRB press release, there were numerous factors that led to the recommended rate increase:

Continued adverse medical loss development
Greater recognition of changing long-term medical paid loss development patterns
Continued high levels of indemnity claim frequency
Higher than anticipated loss adjustment expense inflation in part attributable to less than projected frictional costs savings resulting from Senate Bill No. 863 (2012)
Lower than forecast wage growth
Modest increase in the experience rating off-balance correction factor

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The Cost Driver Section in WCIRB’s rate filing report delved further into the reasons for the recommended increase. SB 863 was supposed to save $200 million which never materialized due to the Independent Medical Review (IMR) process. The WCIRB had to remove the $200 million in savings from their calculations.

The WCIRB went on to say:

The WCIRB’s estimated frictional cost savings related to IMR were predicated on replacing higher cost medical treatment dispute resolution mechanisms such as medical liens and the qualified medical evaluator (QME) and expedited hearing processes with lower cost IMRs.

However, Division of Workers’ Compensation (DWC) data on IMR suggests the volume of IMRs is two to four times higher than that contemplated in the initial cost estimates. Also, while at a reduced volume, medical treatment on a lien basis is still occurring.

Finally, while qualified medical evaluations are generally not being conducted on medical necessity issues, many claims, partially in response to the Dubon decision, are having expedited hearings on utilization review issues.

©J&L Risk Management Inc Copyright Notice

Live CA WCIRB Webinar On State Of California’s Work Comp System

August 7, 2014 By JL Risk Management Consultants

CA WCIRB Webinar

The following is a great live CA WCIRB webinar that was typed in as it happened.

Please excuse any typos, weird language as I am typing this live as I hear it. Thanks for the understanding.

Map Of Live CA WCIRB Webinar With California Quail

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Check back often as this blog will keep updating, if things go as planned.I will try to input info that will not be in the written report provided by WCIRB.

There were a few technical difficulties (as in 99.9%of webinars) with the sound. Everything is A-OK now.

The Agenda for today is:

Employer Costs
Cost Distributions
Cost Drivers
Senate Bill 863
Insurer Results

Employer Costs –

Total Premium estimated for 2014 16.3 Billion, steady double digit increase since 2006

Most of the increased Employer Cost Factors are from increases in what premium carriers charge employers

Average charged payrolls are the same as the 1970’s(?) – $2.97 per $100 of payroll

California has always had a higher charged rates when compared to the national average.

Graphic Of Human Head Live CA WCIRB Webinar With Dollar an Question Mark

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Published rate (average) are extremely high for Transportation and Utilities – almost $10 per $100. That is normal for most states- Transportation is usually highest or almost the highest

Cost Distributions

Medical benefits – 37% of total comp payouts – very similar to most states.WCIRB actuaries say Permanent Disability benefits will increase sharply over the next few years.

The largest growth in medical payments – is medical payments made to employees

Cost Drivers

Accident rates are much lower than n the 1990’s with a high in 1991 of 5% of all employees filing a WC claim for indemnity – Frequency has fallen to under 2%- possibly due to CA becoming a service-oriented state

Indemnity claims frequency was highest in central California. Los Angeles area is starting to increase in the 2012 data.

As compared to NCCI data, since 2012, CA has had a much higher rate of claims reported.

As expected, California has much more Permanent Disability rate on indemnity claims = 47% There are actually six states higher than CA. South Carolina is a surprise state.

Indemnity claim severity has been flat for CA since 2005.

Medical costs increase on indemnity claims have increased by 500% since 1991. The recent medical costs have leveled off for the most part.

CA is highest on the Incurred Medical Benefits per indemnity claim except for Delaware and Alaska.

Allocated Loss Adjustment Expenses (ALAE) have actually increased since SB 863 as WCIRB had projected a 6% reduction. ALAE expenses actually grew 6 – 9% in 2013 – alarming.

Flag of Live CA WCIRB Webinar California

Wikimedia commons – Makaristos

Senate Bill 863 (SB 863)

Liens seem to be the only positive result so far when compared to the WCIRB’s forecasts. However, it is much too early to really have any full assessments of the involved factors.

Participant questions- Will the legal push-back on lien affect costs? Yes, but unknown effect,

Any surprises from SB 863? Basically, no reductions in SB 863 frictional costs which was the reason for enacting the bill.

Overall Outlook

CA has very high volatility on profitability, but still indicates some profitability.

Summary – I will cover this more in depth next week. (Slide 37)

Final Participant Questions – Does/will the Affordable Health Care Act affect CA WC? – Still studying the matter, supply and demand on health care access, workers may not try to shift a health claim to WC if they have health insurance instead of being uninsured – premature estimations

SB 863 question – Forecast on ALAE? Alarming increases instead of projected decreases. There are many possible changes that may decrease frictional costs.

Any info on Physician Dispensed Medication? WCIRB released report late last year on this subject.

Overall – a good webinar. This live CA WCIRB webinar went well and covered a very difficult subject.

©J&L Risk Management Inc Copyright Notice

New Mexico Supreme Court – Bad Decision on Temporary Total Disability

June 10, 2014 By JL Risk Management Consultants

New Mexico Supreme Court Turns TTD into PTD

The New Mexico Supreme Court recently ruled that Temporary Total (TTD) can be a permanent disability. These types of decisions are often not underwritten by the Workers Compensation carrier.

Outside of New Mexico Supreme Court Building

Wikimedia Commons – Thelmadatter

As discussed earlier in this blog, the WC insurance process is a delayed system. The carriers have no way to immediately recover the reserving shortfalls when covering benefits that are totally unexpected. Such a decision will likely be followed with the plaintiff bar using the decision to pursue permanent TTD benefits for their clients.

One has to wonder whatever happened to Permanent Total benefits as the proper benefit and not Permanent TTD. According to the case Fowler v. Vista Care, an injured worker can receive Permanent Total Temporary Disability benefits – (sounds confusing?)

One of the more concerning passages from the New Mexico Supreme Court decision was:

The fact that the Legislature removed the duration limits from Section 52–1–41(A) in the same year it expressly created “temporary total disability” as a new subsection of the definition for total disability strongly suggests that the Legislature intended to classify both temporary total disability benefits and permanent total disability benefits as lifetime benefits. See State v. Davis, 2003–NMSC–022, ¶ 12, 134 N.M. 172, 74 P.3d 1064 (observing that the principle of reading statutes together to discern legislative intent “has the greatest probative force in the case of statutes relating to the same subject matter passed at the same session of the legislature”

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A decision that rewrites the way that Workers Compensation is underwritten and handled by claims adjusters basically out of the blue can wreak havoc on future policies. Rewriting basic WC benefit definitions may result in sharp future premium increases.

Temporary Total is just that – temporary in nature.

The New Mexico Courts issued a controversial medical marijuana decision last month. In 2013, the Florida courts attempted to rewrite the basic definitions of Workers Comp benefits.

The worst case result is that WC carriers decide not to write business in a state due to court decisions or legislation which create a very unprofitable environment.

California is the most obvious example where carriers could not afford to write business. SCIF ended up writing over 60% of the premiums as the insurer of last resort.

©J&L Risk Management Inc Copyright Notice

SB 863 Actually Increased California Medical Costs?

May 22, 2014 By JL Risk Management Consultants

California’s SB 863 – Unintended Consequences?

Did California’s SB 863 increase the Workers Comp medical costs for the state?

Workers Compensation Research Institute WCRI recently published a study that showed that California’s medical cost growth had slowed from 8% growth per year to 3% just before SB 863 was enacted. When looking over WCRI’s CompScope™ Medical Benchmarks for California, 14th Edition, the impact of the RBRVS adoption was noticeable.

Picture Of Dollars Stethoscope SB 863 And Calculator

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According to WCRI – “The moderating trend stemmed from the stabilization in utilization of nonhospital services and little change in prices paid for professional services. Hospital payments per inpatient episode continued to grow rapidly from 2006 to 2011.”

According to the study, the potential impact from the transition to a resource-based relative value scale (RBRVS) fee schedule would likely shift payments from specialty care to primary care, based on experiences from other states.

The study reported that in Maryland and Georgia, the prior transition to the RBRVS-based fee schedules led to increases in prices paid for office visits and physical medicine, and decreases in prices paid for surgical services.

One area that WCRI and other groups have documented is the very high level of medical-legal reviews on CA WC medical charges.

There will be many updates in the next few months on the effect of Californias SB 863 on overall WC costs.

©J&L Risk Management Inc Copyright Notice

Claim Costs Effect on WC Insurance Rates – Great Graph

May 14, 2014 By JL Risk Management Consultants

Claim Costs Effect on Rates Direct and Delayed

The claim costs effect has a direct but delayed relationship on insurance rates.

California’s Workers Comp Action Network (WCAN) has produced a few great infographics over the last few weeks. The infographic shows how claim costs affect insurance rates. As posted in previous articles, Workers Comp is a delayed system where current costs affect future rates.

Graphic of California Map Claim Costs Effect States of America

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One can see on the graph that even though claim costs were increasing, the corresponding rates actually dropped in 2008 and 2009. In 2011, the claim costs leveled off at almost $75,000 per claim. However, the rates kept increasing afterward.

This is not a California WC system anomaly. Rating bureaus will often increase the rates in subsequent years to an increase in claim costs. The increases are often not immediate. The rates may not be increased across-the-board, but instead, focus in on certain classification codes.

Rates in California are among the nation’s highest. Hopefully, Senate Bill 863 will reduce costs. That has not necessarily been the case since its inception. SB 899 from ten years ago did reduce costs over time possibly due to the inception of MPN (Medical Provider Networks).

Medical provider networks remain a low-cost way to reduce Workers’ Comp costs and provide injured employees with the best of care.

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Workers Compensation Action Network (WCAN) – Great California Chart

April 29, 2014 By JL Risk Management Consultants

Workers Compensation Action Network

Workers Compensation Action Network (WCAN) produced another great graphic on the Workers Comp situation in California. Click here for the chart. Why do I try to point out most of the happenings on WC in CA? This is a WC system that is becoming prohibitively expensive for employers.Some of the same variables are present or growing in other states’ Workers Comp systems can be seen in California presently.The most startling number was the 41% medical cost increases in such a short time (2007- 2008 and 2011-2012). SB 863 may shorten the continuation on some of the increases.

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As pointed out often in these articles, California seems to be on the cutting edge quite often for any workers comp developments. What happens in CA may soon be coming to your state.

The trends that occur in CA seems to flow out into other states’ WC systems. That is why I try to point out any significant developments that occur in CA..

Sitting behind a desk and thinking that your Workers Comp related job will always be the same is just not going to work in today’s insurance and legal environment.

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Workers Comp Action Network – California SB 863 – Great Infographic

April 21, 2014 By JL Risk Management Consultants

Workers Comp Action Network Produces Great SB 863 Infographic

The Workers Comp Action Network produces great summary charts for California work comp analysis. They have once again made the complicated much simpler with their great work.

Graphic Of Computer Screen Workers Comp Action Network With Analysis

WCAN (Workers Comp Action Network) has created the best explanation of the implementation and cost of California’s SB 863. You can find the infographic here. (Requires PDF reader).WCAN’s position is that if not all of SB 863 is after implementation the costs may end up outweighing the benefits. Nine of the 14 areas of SB 863 have been implemented overall. Three of the nine are on track for cost: savings. Those areas are:

Lien filing fees
Ambulatory Service Center fees
Spinal Hardware pass-through payments

There are three areas where costs have increased post SB 863:

Workload has tripled for IMR’s (Independent Medical Reviews)
Litigation
Permanent disability filings have increased 5% after SB 863 vs. the 1% forecast

It is highly recommended that you download the infographic. The infographic is the simplest analysis of SB 863 that I have seen to date. The link to the infograph has been provided at the top of this article. Upgrades to WordPress now allow the graphics/charts to be included in some of the articles.

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California’s Rating Bureau (WCIRB) Great E-Mod X-Mod Explanation

January 15, 2014 By JL Risk Management Consultants

California’s Rating Bureau (WCIRB)

The WCRIB – California’s Workers Compensation Rating Bureau (similar to NCCI) has written quite a few great plain-language documents on explaining how X-Mods (E-Mods, EMR’s, Mods,etc.) affect employers. One of those can be found by clicking here.

Their X-Mod formula is slightly different from most of the other rating bureaus including NCCI.

The Experience Rating Formula Rating Bureau Emblem from web

The bottom line is that Mods of any type are calculated with the formula:

E-Mod = Actual Losses / Expected Losses

One of the areas that differentiate the CA WC system from most other states is the split points. The NCCI had recently changed the split points. A quick definition is that any loss values under the split points are much more costly than the amount after the split point.

In CA, the split point is 7,000 which is low compared to the recent increased NCCI split points.

According to the WCIRB –

“Actual losses are segregated into actual primary losses and actual excess losses. The first $7,000 of losses for a claim are considered primary losses. Any remaining amount above $7,000 is considered excess losses. Once segregated, the experience rating formula places additional weight on the primary portion. This additional weighting of primary losses places more weight on claim frequency than on severity and limits somewhat the impact of claim severity in the experience rating calculation.”

Picture Businessman Giving Presentation Rating Bureau Explanation

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As with all Mod calculations from any rating bureau, the emphasis is on penalizing employers that have many accidents while not penalizing a safe employer that had one or two very serious accidents.

There was one major change on how small employers are affected by losses. CA no longer provides a small employer credit. See that article here. If your company has less than $38,000 in Total Incurred your company needs to prepare for possibly a higher X-Mod.

Senate Bill 863 may have some effect on your X-Mod. However, it will not affect how the Mod is calculated.

©J&L Risk Management Inc Copyright Notice

California’s WC Reform(?) Produces Startling Numbers

November 20, 2013 By JL Risk Management Consultants

California’s WC Reform Not Yet A Cost Saver

A few startling numbers from California’s WC Reform are listed below. One wonders if the reform is working or if not enough time has elapsed to the differences.

Workers Compensation Action Network (WCAN) recently published a press release and email on the effects on SB 863. Even if you have no California Workers Compensation interests, it may behoove you to track their changes.

Wikimedia Commons – Makaristos

There are so many states that have just enacted or have reforms in the future. Reforms do not necessarily equal cost savings. The same type of changes may be coming to the states where you have WC interests.

A few of the most recent updates for the California reforms (?) are:

An 8.7% increase in the base rates
Claim frequency has risen – not really reform-related
An increase in Permanent Disability benefits
A new fee schedule for physicians – these usually cause a reduction in fees. This one caused an increase in medical costs.

Since 2009, the base Workers Compensation rates have increased by 35% for CA employers. This figure does not take into account the proposed additional 8.7% increase for 2014.

There are many projected cost reductions that will not be listed as they are forecasted results and not actual numbers.

Picture Hand Putting Money in Piggy Bank California's WC Reform Cost Saver

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After analyzing Workers Comp for so many states, the one conclusion I have concerning reforms is they are never permanent. California’s SB 899 was a landmark cost-savings group of laws that were meant to ease the crisis that occurred from the mid-’90s until the bill was passed.

I lauded the creation of Medical Provider Networks (MPN’s) as a method to quickly reduce medical costs by enhancing the employers’ medical control when sending their workers for post-accident treatment. MPN’s were one of my Five Keys To Saving on Workers Comp.

The changes from cost savings to cost increases with SB 899 were not surprising as WC systems change over time. The rapidness of the changes was surprising to me.

One very important consideration is the WC reforms take at least two years to show in the X-Mods. The full result of SB 863 may not be seen until 2015 and after.

The bottom line is reforms by name only do not result in automatic costs savings.

©J&L Risk Management Inc Copyright Notice

Statistical Madness – Another Shining Example From Internet

November 14, 2013 By JL Risk Management Consultants

Statistical Madness – Eating While Driving

More statistical madness was created with another shining example this month. Over time, a few Workers Comp statistics articles are published that basically have no basis in fact. For example, many pundits said that California SB 863 was going to save employers large amount of premium. That just did not happen. The WC system is a delayed system. The results are really not known for 4 – 6 years after any law is enacted in any state.

Picture Of Man Calling On Phone Statistical Madness Car Accident

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How can statistics be so far from reality? The following example is one the general public even caught onto very quickly. The comments section says it all. This was likely just a headline – attention grabber, better known as clickbait for website traffic.

This article on distracted driving from CBS Los Angeles has the title: Eating While Driving Significantly Increases Chances Of A Car Accident, Experts Say. Where did the reporter get the idea there was an 80% risk increase while eating? Of course, if someone says an expert says so, then it must be a fact.

A quote from the article:

Asked if the CHP has seen an increase in drivers who eat, Galvan said, “We did have a [Distracted Driving Awareness Month] in April. Over 10,000 enforcement contacts were made and over 240 citations were issued for an unsafe speed related to distracted driving. So, quite possibly, there could have been a good majority that were eating.”

Man And Woman Statistical Madness Traveling Fast In Car

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That is 2.4% for speeding due to distracted driving, not 80%. The reference to 80% might have resulted from a 2009 study by the National Highway Transportation Safety Administration (NHTSA). I followed three pages of Google search links and then tried to use the NHTSA website which is always very slow.

Regardless, I wonder if this would fall under distracted driving even though it was in a Dunkin’ Donuts parking lot.

©J&L Risk Management Inc Copyright Notice

Pay ACA Penalty File Workers Comp Claim For Medical Treatment

October 29, 2013 By JL Risk Management Consultants

ACA Penalty May Not Deter Workers Comp Claims

What if a worker decided to pay the ACA penalty and file a WC claims for medical treatment? The Affordable Care Act (ACA) may cause an unintended spike in Workers Compensation claims.

Wikimedia Commons – Careilly5801

One of the concerns over the years in claims departments is an employee substituting Workers Comp for health insurance. The ACA may also cause medical treatment rationing.Now that almost two million health policyholders that were previously insured have been dropped by their health insurance carrier, could Workers Comp become a safety-net type of accident insurance? Claims for many illnesses would be immediately denied by Workers Comp carriers .

The “Monday Morning” claimant is one of the huge red flags when a claim is filed for benefits. A very limited amount of ailments could be filed by reporting Workers Comp claims. Any home accident could be reported as a claim upon returning to work the next day.

Picture Nurse Preparing Syringe for Injection Focus on Syringe ACA Penalty Medical Treatment

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An adequate claims investigation will probably uncover the fact that the accident was not related to work. One of the best places to look is in the history of the injury as recorded by the original treating physician in his/her notes. One very obvious area is the original date of treatment. The date may not necessarily match the date of the injury.

Communication between the employer and physician will be tantamount to avoid having to pay for non-work related treatment. One of the Five Keys To Saving on Workers Comp Claims is having a designated original treating physician. Some states do not allow the choice of treating physician by the employer. Other states such as California allow for medical treatment panels or MPN’s.

A rash of Workers Comp claims may not occur due to the ACA. However, only two or three claims can wreck what was previously a good Workers Compensation program.

©J&L Risk Management Inc Copyright Notice

WCIRB ‘s New Mod Formula Hefty Effects Small California Employers

August 14, 2013 By JL Risk Management Consultants

WCIRB ‘s New Mod Formula – Small Employers Must Enact Safety Programs Now

WCRIB’s new mod formula will heavy affect small employers with a less than stellar safety record.

Last Friday, I briefly covered California’s WCIRB and the change in the X-Mod Calculation effective 1/1/2013. I thought I would cover the formula to show smaller employers in CA that the new X-Mods will no longer have a smaller employer discount.

Hand Holding Calculator With Mod Formula Icon

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This may be getting into the numbers-geek area. Hang in there and read it through once or twice. You will see that small employers need to invoke or improve their safety program along with monitoring their loss runs very heavily this year and forward.

The WCIRB, in my opinion, found an anomaly that, instead of leveling the playing field between larger and smaller employers, actually gave too much of an advantage to smaller employers. One could say the safer smaller employers and all larger employers were subsidizing the smaller unsafe employers.

The old formula for calculating X-Mods was:

[(Ap x Cp) + (Ep x (1 – Cp))] + [(Ae x Ce) + (Ee x (1 –Ce))]
Modification = ——————————————————————————
E
Ap = Actual Primary Losses
Cp = Credibility Primary Value
Ep = Expected Primary Losses
Ae = Actual Excess Losses
Ce = Credibility Excess Value
Ee = Expected Excess Losses
E = Expected Losses

The Primary Loss is from $0 to $7,000 Total Incurred
The Excess Loss is any part of the loss greater than $7,000 Total Incurre

Actually the new X-Mod formula is no different. One has to look further into Cp side of the equation. The Cp is bolded in the above equation.

This is the beginning of the new Credibility Table – Effective 1/13/2013

Expected Losses Credibility Primary Credibility Excess

Below — 14,722 1.00 0.00
14,723 — 16,505 1.00 0.01
16,506 — 18,433 1.00 0.02
18,434 — 20,515 1.00 0.03
20,516 — 22,760 1.00 0.04

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This is the beginning of the old Credibility Table – Effective before 1/13/2013

Expected Losses Credibility Primary Credibility Excess

Below — 6,456 0.38 0.00
6,457 — 6,733 0.39 0.00
6,734 — 7,019 0.40 0.00
7,020 — 7,316 0.41 0.00
……
38,438 — 40,147 1.00 0.08

What does this all mean???

The WCIRB has eliminated giving credibility to and lessening the impact of smaller losses. The X-Mod formula will now be:

Ap + (Ae x Ce) + (Ee x (1 –Ce))
Modification = —————————————————————————
E

There was some type of discount up to 40,000 in primary losses. That discount is no longer in effect. The bottom line is there is no longer a discount for smaller unsafe employers. The larger similar employers (more payroll) will have higher Expected Losses – not so for smaller ones.

Regardless of whether or not this may seem as fair to smaller employers in CA, you must adjust your safety measures and loss run reviews ASAP or you may find that your Mod has jumped appreciably in one year.

©J&L Risk Management Inc Copyright Notice

Californias WCIRB New X-Mod Formula Penalizes Unsafe Employers

August 9, 2013 By JL Risk Management Consultants

Californias WCIRB X-Mod Formula Heavily Penalizes Small Unsafe Companies

This month Californias WCIRB produced a new small employer X-Mod formula.

Yesterday, I attended the WCIRB Conference in Burbank, CA. The WCIRB makes one work in their workshops. They always put on great workshops.

Businessman Waiting For Californias WCIRB Businesswoman Carrying Case

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One of the things I noticed that jumped off the page was the rating formula to calculate the X-Mods had changed considerably. The other main rating bureau in the US – NCCI – changed their formula over three years to reflect a higher split point value. The NCCI basically altered the formula to move more of the rating value from severity-based to recurrence-based.

I had wondered how and if the WCIRB would also change their rating formula to move more towards recurrence -based penalties from severity-based X-Mod Calculations.

Severity-based basically means a discounting factor is included that will not penalize employers that have one severe injury with very high payouts and reserves (Total Incurred). The WCIRB removed any discounting of the Primary Loss. The primary loss level is $7,000. The excess loss is any part of the loss over the $7,000 threshold.

Hand Pointing California's WCIRB Calculating Icon

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The discounting table (favoring small payroll employers) would discount the primary loss part of a claim. Smaller payroll employers could not easily absorb the effect of one or two major claims. The WCIRB was basically leveling the playing field between small and large employers.

As with the NCCI’s change in split-points, the WCIRB is making sure that safe employers are not subsidizing unsafe employers. By eliminating the primary loss discounting table, all employers will be penalized more for repetitive injuries. Unsafe smaller employers will feel the effects in their next X-Mod calculation.

The Californias WCIRB’s new formula will cause small unsafe employers to pay more for Workers Compensation insurance. I will cover the formula change next time.

©J&L Risk Management Inc Copyright Notice

California’s Great Insurance Database Of Construction Contractors

July 16, 2013 By JL Risk Management Consultants

California’s Great Insurance Database > CLSB

Californians have a great insurance database for construction contractors. The Contractors State License Board (CSLB) maintains a great database to see if a contractor has liability insurance. A homeowner can immediately see if the company working on their home has liability insurance.

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I have recommended the website very often for main contractors to see if their subs have a valid certificate of insurance for liability and Workers Comp. The subcontracting company can be searched by:

License number
Business name
Personnel name

This can save a main contractor or even a subcontractor that may sub out some of their work at ton of headaches. If one of the subcontractors or their employees are injured while working for your company, you can end up paying out of pocket, especially if you do not have any Workers Comp coverage for the business owners.

The data is usually up to date with a small lag time. However, one your company has found out who is the carrier for Workers Comp and/or liability a quick phone call can be made to the carrier that is very similar to a certificate of insurance verification. The CSLB includes WC info for the subcontractors such as:

Carrier
Dates of Coverage
Policy Number
Workers Comp coverage history
Expiration Date

The expiration date is very important as a contractor can tell if the subcontractor will be insured during the time of the project. Phoning the carriers (liability and Workers Comp) is a heavy recommendation as the CSLB may not have all of the correct info if a policy has been cancelled recently.

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Workers Comp Program At Bankrupt City of Stockton California

April 1, 2013 By JL Risk Management Consultants

The Bankrupt City of Stockton California

The largest bankrupt city in the nation – Stockton, CA is self insured with CorVel as the Third Party Administrator (TPA). Stockton’s Workers Comp program seems to still be a fully funded self insured program.

Wikimedia – LPS.1

One of the Five Keys To Saving Workers Comp $$ was being implemented at the time of the bankruptcy filing. Stockton had initiated a medical treatment provider network (MPN) to cut medical treatment costs. The MPN was very likely part of the CorCare network.

Stockton’s Risk Services department requires that all employees initially treat with one of three medical clinics. This is a very conservative cost-saving approach to reducing Workers Comp medical costs. The MPN will also enable Stockton and CorVel to better administer their return to work program.

Man Bankrupt City Throwing Red Paper Plane

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The one area of concern on Stockton’s Workers Comp program is the benefits integration program. Workers Comp is meant to be a standalone program. That is why 2/3 of an injured employee’s wage is paid to them TAX FREE. Basically, the employee is being paid full wages as there is no tax on the Workers Comp benefits.

Stockton is now using the employee’s leave time to integrate with Workers Comp payments to make sure they are being paid FULL SALARY. Actually, Stockton is paying their injured employees that are out of work approximately 125% of their pre-injury wage. This overpayment will remove any of the built-in motivations to return to work.

Workers Comp laws, rules, benefits, etc. were put in place to make the injured employee be as whole as possible while recovering from their injuries. Stockton needs every dime they can find right now as they are out of $$$. The benefit integration program is a mistake that will cancel out any of the savings from the MPN they wisely put in place.

©J&L Risk Management Inc Copyright Notice

Workers Comp Audit Materials Needed For Full Review

March 21, 2013 By JL Risk Management Consultants

Workers Comp Audit Materials Needed

The materials needed for Workers Comp Audit are communications, data, information and contracts. We receive this question quite often when customers or potential clients inquire about our services.

Picture Of Group Of Workers Comp Audit On Table

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We usually do not disclose this information until a contract is signed as we use a copyrighted info grid that I constructed from working with clients over the years.

I decided to shed some light on the subject as this is where we often have a breakdown in communications as the amount of data required can sometimes be very large. The amount of data needed also depends on the states of operation for a certain business.

California insureds usually only require three years at a maximum due to the premium audit laws in CA. However, this is for states that operate only in California. We actually request the two prior years and the current years’ information.

In California, we can only examine the current year and the prior years’ WC data. This is due to the rules established by the Insurance Commissioner and the rating bureau – the WCIRB.

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Almost all other states have a three year look-back period which means that the Insurance Commissioner State Rating Bureau, and/or NCCI allow the current policy and three years’ prior policies to be examined overall. There are some very rare exceptions to this rule. I will not cover those examples.

If your company operates in multiple states, the NCCI will usually have jurisdiction over your rating better known as a multi-state rating. This can cause some confusion as some of the independent bureaus such as California or Ohio wish to have the part of the ratings as a separate policy for just their state.

I would just list all the workers comp audit items that we usually request. However, there are many documents that are requested due to a specific company such as drivers’ expense records for a trucking company. The main thing to start now is a Workers Comp file, whether scanned or paper, that has EVERY piece of info you have received or sent including emails over the last five years – three for California employers.

We actually found a mistake made on a policy resulting from a sticky note that saved an employer over $25,000 over a three year period. I also recommend not letting your agent or broker have the only copy of your WC info including policies, amendments, payroll audits, etc. You should have a local copy of everything at your disposal.

NCCI, or your State Rating Bureau will usually provide a free copy of your E-Mod rating if your company requests it on your company letterhead.

©J&L Risk Management Inc Copyright Notice

California – WCIRB Upcoming Meeting Will Affect Certain Employers

February 28, 2013 By JL Risk Management Consultants

WCIRB Upcoming Meeting Will Affect Certain Employers Heavily

The upcoming meeting of WCIRB in California may be one to mark on your calendar if you own one of the below listed companies. The WCIRB may change some classification codes depending on a meeting on March 5th. The WCIRB is California’s rating agency for Workers Compensation. I usually do not point out any meetings of the rating agencies. The meeting is open to the public.

This is the meeting reminder –

The first 2013 meeting of the WCIRB’s Classification and Rating Committee will take place on March 5, 2013 at the WCIRB office in San Francisco. The Committee will review planned changes to the WCIRB’s regulatory filing schedule for 2013, as well as review several WCIRB staff recommendations for changes to the California Workers’ Compensation Uniform Statistical Reporting Plan – 1995 .The classification code changes will affect these employers:

Contractors — Construction or Erection

Day Care Centers

Mechanized Tree Harvesting and Log Chipping

Parcel Delivery Companies

Pipe or Tube manufacturing — Riveted or Welded

Sheet Metal Products Manufacturing and Metal Stamping

Stores — Repair Departments

Weighmasters and/or Dispatchers

Weight Control Institutes, Salons or Clubs

The proposed changes can be found here at the WCIRB’s website. The link will download a large PDF file. The WCIRB Committee will also cover:

Policy Number

Reinstatement of Cancelled Policies

Self-Insured Data for Experience Rating Purposes

Any of these changes may not be a negative factor for employers. If you are one of the affected employers, then a review of the PDF file may be worth your time.

I have attended many WCIRB conferences/educational programs. They are truly a great group of people for the most part.

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California Employer Question On Experience Modification Factor (XMod)

January 23, 2013 By JL Risk Management Consultants

California Employer Question

A California employer emailed in this question last weekend. “We are a medium-sized employer (dry cleaner) in central California. Our Experience Modification Factor increased significantly over the last few years. The increase seems to have resulted in our Workers Comp premiums rising significantly. What is in included in the Experience Mod calculation? Is this the same as the Mod that is produced by NCCI?”

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The Experience Modification Factor in California is called an Xmod or X-Mod. It has the same basic function as NCCI’s Emod. E-Mods and XMods individualize the riskiness of an employer’s work environment as compared to other employers with the same job types or functions.

The XMod is produced by California’s Workers Compensation Independent Rating Bureau (WCIRB) and only applies to employers in CA. The calculation of the XMod differs from NCCI’s E-mod calculations.

NCCI has recently significantly changed the way E-mods are calculated. The WCIRB did not follow this change with any formula modifications. The WCIRB defines an X-Mod as:

Dollar symbol California Employer shadow reflection

Wikimedia Commons – Svilen.milev

a comparison of the loss or claims history of one company to all other companies in the same industry that are similar in size. Generally, an experience modification of less than 100% reflects better-than-average experience, while an experience modification of more than 100% reflects worse-than-average experience. Accordingly, an experience modification that is greater than 100% usually increases the cost of your workers’ compensation insurance premiums, while an experience modification that is less than 100% usually decreases the cost of your workers’ compensation insurance premiums.

The XMod is calculated by comparing the actual losses to the expected losses. Actual losses are the claims, both medical and indemnity, that an insurance company must pay as a result of a work-related injury. Expected losses represent a business’s share of the annualized cost of projected losses for the industry in which it operates. In other words, given its classifications and payroll, expected losses represent the statistical average losses that a business of a similar size is expected to incur. Given two businesses within the same industry, the larger the business, in terms of payroll, the more losses that business is expected to sustain.

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If you were to read the NCCI’s definition of an E-Mod, you would see almost the same definition. The one main area of difference is what is called the Primary Loss. In the NCCI states, before 2013, the primary part of the loss was set at $5,000. The WCIRB has set their primary loss at $7,000.

The primary portion of the loss is more heavily weighted into the NCCI’s or WCIRB’s formula. In essence, your company will pay premium at a much higher rate for the first $7,000 part of a claim than the part of the claim that exceeds $7,000 known as the Excess Loss.

If you want to see why it costs more, you should check Primary vs. Excess Loss. The X-Mod formula is not included in this post due to readability and fit on the page.

There are other factors such as class code rates and payroll that may also have compounded your premium increase.

California Loss Cost Multipliers Say No To Reform Measures

October 23, 2012 By JL Risk Management Consultants

California Loss Cost Multipliers Do Not Reflect Any Reform Measures

The California Loss Cost Multipliers has said no to reforms. Loss Cost Multipliers (LCM’s) are one of the concepts in Workers Comp that I have been covering for many years. LCM’s are the carriers’ own assessments of risk in the marketplace. LCM’s allow deviations from the Advisory Rates published by each state’s rating bureau or the NCCI.

Map Graphic with Beach And Forest of California Loss Cost Multiplier

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California’s rating bureau – the WCIRB left their advisory rates unchanged as they were unsure of the short or long term effects on Workers Comp. The carrier’s however, did not agree that the reforms are going to work in the short term and possibly even in the long term or at least the risk of them not working is high.

The insurance carrier’s actuaries and underwriters are basically implying there is too much risk in the general CA marketplace to not increase rates. In my humble opinion, insurance carriers and their actuaries do not like there being so many unknown variables when trying to provide employers in CA with quotes for coverage.

Insurance carriers are going to always err on the side of extreme caution. If you introduce so many concepts that are not concrete then carriers are going to increase rates and wait for the fallout. As a person that cranks through so many insurance statistics, I would have to agree with their stance. I do not agree with insurance carriers often.

If you look at a simple formula that I made up, you will see what I am concluding for the rise in rates.

A = B * C * D

Wikimedia Commons – Industryman

This is a simple formula to calculate. Let us say that B = 9, C = 10, D = 11. A = 990 without question. Adding in another, but unknown variable E to the mix would make the answer 990 * E. If E could easily be estimated, there is some type of security in calculating A.

You may not be able to calculate A directly. A is now just dependent on one variable – E. This equation to me was SB 899, the old California Reform Law. You do not know exactly what A will be but you can come close knowing what E could possibly be in the equation.

This is where insurance carriers were after SB 899 A = 990 * E.

Along comes SB 863 and the formula now changes as there are so many unknown variables. For example

A = B * C * D * E * F * G

Picture Hand Presenting Financial California Loss Cost Concept

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You now know that A = 990 * E * F * G. If E, F, and G are not necessarily known, the risk for any underwriter or actuary is going to jump off the charts. How do insurance companies reduce the risk – by raising rates substantially, thereby lowering the risk of loss due to so many unknown variables.

This is an oversimplified version of events. One can see, though, how the rates could have been sharply increased at least of the short term. As underwriters and actuaries feel more comfortable with E, F, and G, the rate corrections will follow.

For our readers in other states, there have been many pseudo-reforms over the last few years. CA is not alone in this problem.

Who Is The WCIRB And What Do They Regulate?

October 10, 2012 By JL Risk Management Consultants

Who Is The WCIRB ?

What do they regulate and who is the WCIRB ? I received this question on the WCIRB last night from a California employer that had grown large enough to receive an X-Mod. Congratulations on your company’s growth in a tough economy. Sometimes, it is best to get back to the basics when analyzing Workers Compensation.

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The WCIRB is the acronym for the Workers Compensation Insurance Rating Bureau of California. The organization is very similar to NCCI. They are the data gatherer for info that feeds into each California employer’s Experience Modification Factor (XMod).

Some companies are too small to be rated in California. The minimum pure premium for an X-Mod is presently $25,225. The pure premium figure is not the premiums your company has paid.

The bureau holds conferences/workshops usually four or more times a year. I have found them to be very educational. The staff has always treated me very professionally and would help me as much as possible in any given situation.

One very important fact is the WCIRB only sets advisory rates. They are not directly responsible for how much you are charged in Workers Comp premiums. Your insurance carrier will usually deviate from their recommended rates by filing a Loss Cost Multiplier.

This is from the WCIRB’s About Us web page.

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The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) is a California unincorporated, private, nonprofit association comprised of all companies licensed to transact workers’ compensation insurance in California, and has over 400 member companies. No state money is used to fund its operations. The operations of the WCIRB are funded primarily by membership fees and assessments.

To accurately measure the cost of providing workers’ compensation benefits, the rating agency performs a number of functions, including collection of premium and loss data on every workers’ compensation insurance policy, examination of policy documents, inspections of insured businesses, and test audits of insurer payroll audits and claims classification.

The WCIRB employs approximately 200 people and maintains two offices. The home office is located in San Francisco, and a small Southern California field office is located in Cerritos.

California SB 863 Webinar – Thumbs Up To Presenters

October 3, 2012 By JL Risk Management Consultants

Thumbs Up – California SB 863 Webinar

According to sponsors, the SB 863 Webinar turnout was massive. That is to be expected with such a confusing subject. The reforms were extensive. They presenters had to cover a large amount of info in 75 minutes.

Emoticons Color Yellow Smiley SB 863 Webinar Thumbs Up

The three sponsoring organization were:

· WCAN (Workers Comp Action Network)

· CA Chamber of Commerce

· California WC Coalition

The groups align well with our outlook as they are basing their info from the viewpoint of an employer for the most part.

The general overview was:

· Need for Reform

· Understanding SB 863 details

· What employers should know

· Where we go from here

Five year trend for medical costs +40%

Five year trend for cash benefits +35%

Volume of claims increased +9.1%

Insurers paying 36% more than they collected in premiums – ouch!!!

Insurers were paying over 35% of the claims dollars to administer the claims. That is a surprisingly high figure.

Close up of hand jigsaw SB 863 Webinar Puzzle

Wikimedia Commons – Charles Hamm

SB 863 goals were the same as any reform, reduce costs and increase efficiency especially medical care for injured workers. Reducing litigation costs was also an expected goal.

SB 863 wanted to strengthen Medical Provider Networks (MPN’s) also known as Workers Comp PPO’s. Limiting out-of-network treatment was a goal. I think that was a great idea. I have written a large numbers of posts on medical control.

There must now be an assistance staff that helps the employee find proper in-network care. That was a good idea.

Independent Medical Review (IMR) will be established and will have all jurisdiction over an employee dispute about medical treatment Division of Workers Compensation (DWC) will contract this duty to an approved third party reviewer.

Utilization Review (UR) will fit in the IMR process. Employee initiates IMR process by filing a form with the DWC within 30 days of treatment. My response is great, another form. I am not sure if adding another process on top of the other processes is that efficient. As the presenters pointed out, it is a work in process. The treating physician can also initiate the IMR process. I wonder if that could be abused in some way.

The handling of medical bill payments was also a big issue. The doctors have to provide better info such as the applicable treatment notes. Only the original treating doctor can approve any other services. This is basically what already happens in states that allow medical control.

The carrier/TPA must pay medical bills within 45 days. The Explanation of Review must have all the info for medical provider to understand the payment received from the payer.

If there is Independent Bill Review (IBR) over charges, the medical provider must pay the DWC a fee if there are no additional charges. If the carrier or TPA owes an additional amount, they will pay the DWC a fee. This functions as an incentive to pay the bill properly in the first place.

IBR will cut down the length of time on medical bills disputes and not allow them to linger for years. If the provider did not use the IBR process, there is no lien applicable. This is a good development for the CA WC system.

Medical legal reforms required that chiropractors pass the same qualified medical examiner (QME) tests as other medical providers. QME’s are limited to a maximum of 10 locations.

The reforms limited spine surgeons receiving a rebate for a medical implantable device from the manufacturer and then receiving full payment by the carrier/TPA.

Fee schedules will be now based on Medicaid/Medicare fee schedules. This is the same as most states have been doing for many years.

Permanent disability (PD) payments are going to increase. The law that allowed this was legislated in 2009, but it was never enacted or enforced.

As with the SB 899 reforms, expect a large amount of litigation on SB 863 along with legislative attacks to dilute the reforms.

The presenters said the advisory rates recommended by the WCIRB (CA Rating Bureau) will be unchanged with no increases. However, the word on the street is that some of the major carriers are asking for 21+% increases. As I pointed out a few weeks ago, the advisory rates are nefarious figures if they carriers deviate heavily from the advisory rates.

Overall, heavy kudos should be given to the presenters and their organizations. They did a good job in presenting a concise overview of a very large reform.Even if you are not a CA employer, some of these reforms and concerns will be coming to states in which you operate your business.

California’s WCIRB Has New Policy Ombudsman in Place

June 7, 2012 By JL Risk Management Consultants

New Policy Ombudsman – Addie Wong

The new policy ombudsman for CA’s WCIRB is Addie Wong. She was recently named the new ombudsman for the California Workers Compensation Insurance Rating Board (WCIRB). I thought I would add in her introduction letter and the functions of the Ombudsman position.

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Introduction Letter

California employers have a new workers’ compensation Policyholder Ombudsman. Ms. Addie Wong took over the Ombudsman position in March and has begun developing an outreach program aimed at raising awareness of the Ombudsman office and the services she offers to California employers.

Created as part of the 1993 reforms that led to open rating, the Policyholder Ombudsman is an independent position within the WCIRB and receives guidance from an oversight committee whose membership includes an insurer representative, an employer representative, and a representative from the California Department of Insurance.

The Ombudsman helps policyholders better understand the workers’ compensation system and their insurance policies, and the Ombudsman can be of assistance to policyholders in effectively resolving disputes with their insurers. “The Ombudsman’s job is to work directly with the policyholder and listen to his/her concerns and give voice to those concerns to the insurer.

Picture Office of the Ombudsman New Policy California

Wikimedia Commons – Henryk Kotowski

The worker’s comp system is complex and employers sometimes aren’t aware of the resources that are available to them. Or, they may not understand why their insurer took a particular action. That’s where I can help,” remarked Mrs. Wong.

In the coming weeks, Ms. Wong will be reaching out to employer associations across the state making certain that policyholders are aware of the assistance she can provide. “I am excited about the opportunity to help California employers, especially small employers who may be struggling to understand the workers’ comp system. I think I can provide a valuable service.”

Functions

The Policyholder Ombudsman is available to employers (policyholders) to provide information and answers about the workers’ compensation system.

Picture Of Lady Hand Writing New Policy On Paper

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Although agents, brokers, insurance companies, attorneys, and others may represent an employer, it is not within the scope of the Ombudsman’s duties to provide assistance to these parties. They should continue to make inquiries through traditional avenues.

Employers are always entitled to receive information from the WCIRB about their loss experience, claims, classification assignments, policy contracts, rating plans, rating systems, and other information affecting the policy premium.

The Policyholder Ombudsman may facilitate matters for you with the WCIRB or your insurer but cannot make decisions on behalf of the WCIRB or your insurer. Your contact with the Policyholder Ombudsman does not constitute initiation of any dispute resolution process with the WCIRB or with your insurer.

A Caveat

As mentioned in the preceding paragraph, there are certain tasks that must be undertaken with certain time limits. Your Workers Comp insurance policy will have all of the necessary steps to commence a dispute. As Ms. Wong has noted, it is better to work things out with your insurer directly.

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I have written many posts on Disputing Your Premium Audit and Bill. You may want to search this blog for the word dispute using the search box on the right side of the screen. The caveat is to know if you have a valid dispute – not my company’s:

X-Mod/E-Mod increased dramatically
Premium increased sharply
Insurance carrier accepted an invalid claim
Insurance carrier paid too much on a claim

As an employer, you need to have supporting documents and numbers that validate your concerns. If not, you could end up paying more premium than before the dispute and possibly ruin the relationship with your insurance carrier.

I have found working with the rating agencies (NCCI, WCIRB, or independent state rating bureau) to be a good experience if the research had been done properly with supporting documentation.

One recent inquiry came from a CA medical instrument manufacturer. They had felt some of their workers were misclassified. The carrier returned to do a re-audit that ended up increasing their prior years’ premium by 23% and will increase their future premiums.

California Workers Comp Costs Growing Quickly

February 1, 2012 By JL Risk Management Consultants

CA Workers Comp Costs

The quickly growing Workers Comp costs in California places it as the most expensive state. I was perusing an article from the Workers Compensation Action Network that contained a few astounding statistics. If you are in CA or want to see what your Workers Comp situation may look like in a few years, it is a good website. I receive their email updates frequently.

Percentage Workers Comp Costs of Health care

Wikimedia commons – Sugar-Baby-Love

Why is CA so important for Workers Comp Statistics? As I have posted many times in the past, what happens in California will be coming to your state very soon if it has not already affected your premiums.

According to the California Workers’ Compensation Institute, individual medical costs per claim between 2005 and 2009 grew by the following amounts:

149 percent increase for physician medical-legal reports
68 percent increase for pharmaceuticals and medical equipment*
29 percent increase for physician ―evaluation and management,‖ driven by more doctors’ office visits and more treatments per visit
23 percent increase for all outpatient services
15 percent increase for physical medicine
9 percent increase for surgery costs

Pill Capsules Workers Comp Costs On US Paper Currency

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The increase in pharmaceutical costs has included a dramatic increase in the prescribing of ―schedule II opioids‖ – narcotics such as oxycodone – and ―compound drugs‖ that include medical foods. Between 2005 and 2009, according to CWCI research, reimbursements for Schedule II drugs increased from 3.8 percent to 23.6 percent of total prescription drug payments in the California workers’ compensation system – an increase of more than 500 percent.

Recent research has found that more than half of these drugs are prescribed by less than three percent of medical providers in California. These providers collect nearly two-thirds of all reimbursements for these drugs. During the same time period, prescribing of compounds, the most common of which are mixtures of topical creams, grew from 2 percent of all workers’ compensation prescription costs in 2006 to 12 percent in 2009 – an increase of more than 400 percent.

This post on Fentanyl in California was a shocker to me. This is a large amount of statistics to digest. Do you track your Workers Comp payouts in this depth – especially on RX’s?

California Changes Landscape On Premium Audits And Other Disputes

October 12, 2011 By JL Risk Management Consultants

California Changes Disputes With Bill Signed By Governor Brown

The State of California changes landscape of premium audits and others disputes. Last night, I was reading over a short article that covered a new area for insureds in California Workers Comp disputes. I will actually cover more on CA over the next few weeks. The state has been very active lately on Workers Compensation law changes.

Wikipedia – State of California

One caveat is the bill signed by Governor Brown does not say that you can actually negotiate contract provisions AFTER the policy have been signed off on by all parties. Your company must act BEFORE the policy goes into effect. This is Risk Management at its best. Insureds being able to possibly change their insurance policies provisions BEFORE the policy may be of benefit.

We usually receive calls and emails after a policy dispute has begun with a carrier. One thing that we write in all of our reports to clients is that we must follow what is in the policy. Workers Comp policies are usually created cookie-cutter style when it comes to the policy provisions. By the way, when is the last time that you or one of your staff read your WHOLE Workers Comp insurance policy?

Landscape With Sun Set California Changes Graphic

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There are certain sections of the policy that define when and how your company has to proceed with any type of dispute. There are also provisions on coverages such as states in which your company has insurance. We have seen companies having to pay out-of-pocket in CA as their employee was injured in another state and filed a claim that was accepted in another state. This happens very often with trucking/transportation companies. Do you know which states your Workers Comp policy provides coverage?

We find those provisions in the back pages of the policy. I also recommend that you read your Workers Comp policy like you are studying for a test with highlighter in hand. If you find clauses in your policy that you do not understand or question, please forward those to your agent or you can always send me an email.

State Funds – Are They Really Worth It As Insurers Of Last Resort?

May 24, 2011 By JL Risk Management Consultants

State Funds – Are They Losing Viability?

The State Funds that cover just their headquarters state have begun to look elsewhere. I read today where SCIF (State of California Insurance Fund) has requested legislation where they can expand their coverage into non-California states for their insureds. I was wondering if this would be the first step into privatization and expanding into other states to write coverage there as Brickstreet had done in West Virginia. That would be covered best in another post.

Picture of Plant in Jar with Coins State Funds California

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I actually thought it would be better to look at the forest and not the trees in this situation. Are State Funds – be they monopolistic or as insurer of last resort – actually worth having in place for Workers Compensation insurance?

State funds such as SCIF (CA) and BWC (OH) have come under heavy scrutiny for various legal problems such as investments and vendors. If one looks at what the state funds actually charge or deviate from the advisory loss costs, it can be a shocker.

In our premium reviews for employers, we have seen state funds file for up to a 211% increase over the advisory loss costs where the next highest carrier was 147% . I will not name the state as I have been threatened with enough lawsuits due to this blog.

Hands putting coin State Funds on piggy bank with dollars

Wikimedia Commons – 401(K) 2012

Some of our clients have expressed frustration over the service level they receive from state funds. The deficient level of service has often resulted in companies contacting us about our services. I wanted to add in that the level of service has improved from comments we have received lately about state funds.

One of the concerns that we have during premium and reserve reviews is finding out the proper person to talk to about an issue. We have often discovered the person handling, for example, audit disputes for a certain region has been moved to another region, been promoted, or left for another company. This means the client employer has to start from square one again.

One thing that makes me have an assurance that state funds are necessary is when the fund operates as an insurer of last resort. The aforementioned 211% factors in the “we do not turn away any company” legislative requirement of most state funds. When a carrier decides to write very risk or high E-Mod/X-Mod/Ex-Mod companies, it has to make up for the deficit somehow.

Two Workers Comp Bills Vetoed By California Governor Schwarzenegger

September 28, 2010 By JL Risk Management Consultants

Two Workers Comp Bills Vetoed by Governor Schwarzenegger

The Governator has two Workers Comp bills Vetoed,that opponents said would have had dire effects on the current Workers Comp system in California. Instead of explaining the bills, I included the veto memos from the Governor to the California Senate and State Assembly.

Map Of California Two Workers Comp Bills Composition of California State Senate

Wikimedia Commons – Kurykh

I agree with the first one wholeheartedly. The Governor took a national viewpoint that is consistent with most states.

To the Members of the California State Assembly:

I am returning Assembly Bill 933 without my signature.

This bill would require a physician conducting utilization review in the workers’ compensation system to be licensed in California. Such a requirement would be inconsistent with how utilization review is conducted in other areas of medicine and not in line with best practices nationwide. The proponents of this measure have not demonstrated a need for this disparity in treatment.

For this reason, I am returning this bill without my signature.

Sincerely,

Wikimedia Commons – Nate Mandos

Arnold Schwarzenegger

To the Members of the California State Senate:

I am returning Senate Bill 145 without my signature.

This bill would prevent a workers’ compensation claim from being denied or impacted by an apportionment determination because the employee’s injury or death was related to the employee’s race, religious creed, color, national origin, age, gender, marital status, sex, or genetic characteristics. This measure, like Senate Bill 1115 (2008), which I previously vetoed, would significantly undermined the state’s workers’ compensation apportionment reforms of 2004. In addition, although this measure purports to address instances where a workers’ compensation claim was improperly denied when a hate crime was committed against an employee, this issue has been addressed by Assembly Bill 1093, which I signed last year.

For these reasons, I am unable to sign this bill.

Sincerely,

Arnold Schwarzenegger

Update – I wonder what the Governor would have thought of the upcoming SB 863 that was signed into law after his tenure.

Governator Says NO To WCIRB 30% Increase On Workers Comp Rates

August 11, 2010 By JL Risk Management Consultants

Governator Says No To WCIRB 30% Increase

Picture Of Man Hand Illustrating Governator Says NO Arrow With Bar Graph

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The governator says no to WCIRB 30% increase in pure premium rates. I was surprised to see this one. I understand that Governor Schwarzenegger has always been as pro-business as possible. I cannot remember when he has offered any input into a recommended increase. Was it political in nature?

Now that California Insurance Commissioner Poizner has no immediate political aspirations, is the Governor worried that the increase will be approved in full? Could the Governor want to seem even more pro-business before an election?

I am full of questions. The one thing that I would worry about is akin to charging on a credit card all the time, but only making the minimum payments. An increase has to come along at some time. California’s Workers Comp medical rates are skyrocketing. Will this type of outlook cause a return to the 1994 insurance crisis where the State Fund ended up with most of the insureds in the state?

As promised, I am going to graph the recommended Workers Comp insurance increases by the WCIRB and the approved rates by the Commissioner over a number of years. I think everyone will be surprised.

Lookback Period California Workers Comp System Is Shorting Employers

March 3, 2010 By JL Risk Management Consultants

Shorting Employers – California Workers Comp System Lookback Period

According to the California Workers Comp System rules, the employers are being shorted. We have been very fortunate to have a large amount of our premium and reserve review services in California. I feel the employers in the state are not necessarily being treated fairly. The reason is the look-back period has been shortened severely in California. This is unfortunate as CA policies seem to have the highest error rate.

Graphic Of Man Holding Magnifying Glass California Workers Comp System With Bar Graph

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In California, the employer may only have their Workers Comp policies and audits reviewed for one year in the past. Most states allow a three year look-back period. I have had to explain this conundrum to more than a few aggravated California employers. Basically, when a mistake is found, that mistake may possibly be in triplicate in other states. A small error turns out to more significant when tripled.

The other side of the coin means carriers cannot audit beyond one year in the past. However, I have rarely seen an premium auditor review more than one year in California.

Is it still worth the effort to review Workers Comp policies and premium audits in CA? Yes, as once the error is found, it usually becomes a permanent fix for the future. Our largest single error was found in a California Workers Compensation audit.

2019 Update- The California Workers Comp system has not changed the lookback period length whatsoever. The WCIRB changed many rating rules over the last three years. Two years of premiums remains off the table in performing premium audit reviews. I do not see this changing any time in the future unless a court case would redefine the audit scope length.

I will update this article if the situation changes in the future.

Most Expensive Workers Compensation Classification Codes California

September 2, 2009 By JL Risk Management Consultants

Most Expensive Workers Compensation Classification Codes California Version

For the most expensive Workers Compensation classification codes California seems to be the highest in the US.

Picture Of Hand Illustrating Classification Codes California Balancing Dollar Signs And Human Figure

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In performing recent premium audits for California employers, I decided to check out which type of employers paid the most for workers compensation coverage in California. The most expensive was not a surprise. The second most expensive was an unexpected one.

There are hundreds of Classification Codes in the California Workers Compensation system. The most expensive classification code in California is:

5552: Roofing —hourly wage below $23.00 per hour

When the insurance crisis in California existed a few years ago, insurers were charging well over $100 per $100 of payroll for Class Code 5552. This is the same as a 100%+ tax on a certain line of business. Why is this Classification Code the highest? The severity and number of accidents that involve roofers are very high compared with all other job types.

One only needs to read the California or national workers comp publications to see Cal-OSHA fining a roofing company for some type of safety violation – usually lack of fall protection.

The next most expensive California Classification Code is:

9185 Carnival or Circus – all workers

The all workers designation means that there are no Standard Exceptions (Class Code 8810 or 8742) with this code. As with roofers, carnival and circus workers expose themselves injuries while performing or while tending to the animals.

Insurance Commissioner @ California Says 27 Ways To Cut Comp Costs

July 11, 2009 By JL Risk Management Consultants

CA Insurance Commissioner – 27 Recommendations For Cutting Comp Costs

CA Insurance Commissioner issues recommendations to cut WC costs. After rejecting any increase in the pure premium rates for California this week, Commissioner Steve Poizner issued a proclamation citing 27 ways to cut Workers Comp Costs in CA. A summary of those recommendations is: :

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All insurers should implement pharmacy networks with or without regulations based upon the example set by Safeway and the fact that the provisions of Labor Code Section 4600.2 do not require regulations as a prerequisite.
Regulations should be implemented regarding physician dispensing of pharmaceuticals. Legislation may be necessary to deal with this.
Require the prescribing and/or dispensing of generic drug equivalents.
Utilization Review needs some utilization review of itself. If a majority of medical requests are going to utilization review and are approved, it is not effective. Utilization review, as it was intended for health care, was for the outlier circumstance.
Require billing and payment at the fee schedule.
DWC should update the fee schedule immediately and continue to do it as an ongoing process.
Regulations for electronic billing and a standard medical bill form need to be implemented.

These recommendations seem to center around the subjects of pharmaceuticals, utilization review, and billing practices.

Commissioner Poizner also announced the creation of a Workers’ Compensation Costs Advisory Group. This group, comprised of a cross-section of all participants, will meet on an ongoing basis. This will accomplish the purpose, similar to the investigatory hearing, of informing the commissioner and CDI staff regarding the key cost drivers in the system and make ongoing recommendations to deal with them.

California is usually at the forefront of Workers Compensation. These developments could be coming soon to your state. Check with your state’s office of the insurance commissioner for updates.

California’s Complex Workers Comp Situation Deepens With Rate Increase

May 7, 2009 By JL Risk Management Consultants

California’s Complex Workers Comp Situation Deepens

California’s complex Workers Comp situation deepens with a recommendation by the WCIRB.I had posted a few week ago regarding the 24%+ rate increase that was recommended by California’s WCIRB (Workers Compensation Insurance Rating Bureau). There has been a large amount of discussion in the press about the upcoming increase.

California Map Complex Workers Comp With California Quail

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I noticed in a few articles where even a small decrease was recommended and there were extremely diverse estimations of what increase was needed. The danger of underestimating the rate increase is that a snowball effect will occur when the rates are underestimated over a long period of time. California could be creating an off-the-books crisis. If two workers compensation rate increases fall short of say 20% for two years, then there will a need for a 40%+ increase sooner or later.

The danger of overestimating the basic rate increase is overburdening employers with an unneeded increase further stymieing a recovery from a very rough economy. The insurance market would likely head back to the 1990’s and early 2000’s with the State Fund (SCIF) having almost all of the insurance market A competitive workers compensation insurance market is always better than a virtual insurance monopoly by the State Fund.

The WCIRB and the Insurance Commissioner must perform a very tough balancing act to keep the market healthy. My advice is to take the brunt of the 24% increase and very carefully monitor the market for the next round of rate recommendations.

Picture Of Building Complex Workers Comp Insurance Funds

Wikimedia Commons – BrokenSphere

Why do I keep bringing up California in this blog? The events happening in California will be coming to a rating bureau near you. California’s Workers Compensation system can be a test case for the rest of the country. West Virginia is also a test case for a workers comp system coming out of a State Fund to an open market.

Do you see the similarity? California and West Virginia are both systems that have just gone from monopolistic states to an open market. How they survive may be the future for other states. The best way to know the future of the workers comp market in your state(s) is to observe what is happening in similar states.

California Workers Comp System – Possible Changes Coming Soon

March 16, 2009 By JL Risk Management Consultants

California Workers Comp System Upcoming Changes

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California has performed well in finding ways to control their runaway Workers Compensation system. As I predicted a few years ago, the California Workers Comp system would see the return of insurers once the environment stabilized enough that carriers would be able to underwrite Workers Comp policies at an anticipated profit.

The State Compensation Insurance Fund (SCIF) went from being the insurer of last resort to practically the only insurer of Workers Comp in California. That is not a good situation when one carrier is writing coverage similar to a monopolistic state fund.

As I mentioned two blog posts ago, the average premium paid per $100 of payroll for California employers was reduced almost 70% from 2003 to 2009. Senate Bill 899 allowed the employers and insurance carriers to exercise more control over Workers Compensation claims including the all important medical provider networks (MPN’s).

Bar Graph California Workers Comp System With Hand Thumbs Up

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My opinion is that the Workers Compensation rates in CA will increase steadily over the coming years due to the medical costs associated with the claims. The rating bureau for CA – The WCIRB has said that the upcoming medical costs will rise 13% per year. I think there will be a loosening of the physical medicine guidelines such as physical/occupational therapy and chiropractic. How I came to this conclusion was in a study that I performed for a large physical medicine provider group late last year. I forecasted that the state of CA will allow more chiropractic and physical therapy visits per patient after examining all the data.

However, I do not think that the permanent disability rating system based on AMA guidelines will change. I do not think there will be an increase over the 104 week maximum for temporary total disability benefits.

Even if the premium rates grow a small amount each year, anything will be better for California employers than the incredible increases in Workers Comp rates from 1999 to 2003.

California Workers Comp Policies Have Disadvantage

July 30, 2008 By JL Risk Management Consultants

California Workers Comp Policies Have Built in Disadvantage

California Workers Comp policies have a built-in disadvantage when compared to other states.

Vector Style of hands pointing California Workers Comp Policies star rating

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California has changed their rating rules quite often over the last few years. After attending many of the WCIRB conferences, I noticed that the CA rules for rating Workers Comp policies is becoming very similar to the rating regs 0f the NCCI.

One area that is very unfair to California policyholders is the limitation of the lookback period if a mistake is found in an employer’s Workers Comp policy. If the employer is owed a refund, they can only ask for a refund from their insurance carrier for one year in the past and the present year. Most states allow for a lookback period of three years and the current year.

What does that mean to CA employers? If you find an error in your Workers Comp policy that results in a refund, you will only be entitled to approximately 50% of what is received by employers in other states.

California Insurance Commissioner Poizner will hopefully be able to modify this rule. If an employer has been overpaying for many years, why should there be a refund limit of only one year in the past and not three?

Can California’s WC Judicial System Go Paperless Without Crashing System

July 16, 2008 By JL Risk Management Consultants

CA Workers Comp Judicial System = Paperless

Will California’s Workers Comp judicial system go paperless? Is the update/upgrade going to be the funds and time invested?

One of the goals of many Workers Comp carriers and TPA’s is to be totally paperless. Being totally paperless may not solve as many problems as expected. However, being paperless represents a “fashionable update” to any department. The upgrade usually hits many snags along the way.

When I started as an adjuster many years ago, the carrier that I was working for had been using microfiche and a very rudimentary system to handle Workers Comp claims. It was actually a true paperless system.

Picture of Man Worker Pushing Judicial System Giant Stack Documents

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However, the adjusters of today will print off what they need to review instead of reading it on a screen.

If all goes according to plan, by the end of this year the paperwork for disputed claims by injured workers will be missing an important ingredient — paper.

This month California began testing a controversial new paperless system for handling disputed workers’ compensation claims, and officials hope to completely switch over on Nov. 10. The shift, planned for four years, will affect tens of thousands of people, both inside and outside of the state Division of Workers’ Compensation and the state Workers’ Compensation Appeals Board.

Although program officials say the digital system will be faster and easier, critics contend it has significant problems that could make maneuvering through the already-complex workers’ comp system more cumbersome.

Launching the Electronic Adjudication Management System, or EAMS, will mean a fundamental shift for 1,160 state employees, 140,000 to 150,000 injured workers each year, about 7,000 workers’ comp attorneys plus their staffs, and numerous insurance companies and self-insured employers.

I hope this system works. I think there will be a huge amount of printing at the beginning of the process if it survives.

California Workers Comp Reform Blog Reader Question

May 25, 2008 By JL Risk Management Consultants

California Workers Comp Reform

What do you see for the future of the California Workers Comp Reform System?

I think the applicants’ attorneys are going to try to penetrate some of the new laws enacted with Senate Bill 899 by numerous appeals. I am not sure they will be successful. They will give quite an effort to have the courts change some of the interpretations of the laws in SB899. This could turn out negative for employers.

Map of California Workers Comp black with coconut tree

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There will be a huge influx of new carriers, and the old Workers Comp carriers will expand their business greatly. As I said in my last posts, the barriers to market entry have been lowered extensively. The Workers Comp market in CA is one of the largest in the world. This could turn out positively for the employers, as increased competition will always lower the price and increase the service level for any type of product.

The Medical Provider Networks (MPN’s) will become even more popular as employers, carriers, and the MPN’s themselves become acquainted with the workings of and the savings with using an MPN. This will be a big positive development for CA employers.

Next Up – Fraud

California Workers Compensation Crisis Question

May 20, 2008 By JL Risk Management Consultants

Question – The California Workers Compensation Crisis

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Our blog readers sent in this question on the California Workers Compensation Crisis. This is a timely question. I thought I would answer the question now.

Workers Comp Crisis – What happened to it and what settled everything down in the state with the worst Workers Comp environment?

The California Workers Compensation Crisis was in my opinion almost eliminated due to seven things occurring over the last four years.

The Governor becoming very involved with Workers Comp – Governor Schwarzenegger stepped in quickly to fix the system.
Senate Bill 899 which introduced Medical Provider Networks was critical to the success of the California workers compensation.
The emergence of Medical Provider Networks (MPN’s) – these are one of the best cost controls
A new Insurance Commissioner
More Workers Comp insurance carriers entering the market – The State Compensation Insurance Fund (SCIF) now has more competitors.
The cleaning up of the State Fund
More control exerted on the California Workers Comp Insurance Rating Bureau (WCIRB)

The Governor – The fix(es) to the failing Workers Comp system in California, in my opinion, began when Governor Schwarzenegger took office. He made Workers Comp reform part of his main platform in his campaign.

The quickest way to fix a Workers Comp program is the buy-in of higher management of the need to fix the current situation. The buy-in is very crucial whether the organization is a governmental entity or an employer. The Governor was not going to take no for an answer.

Senate Bill 899 – This Bill brought in a Workers Comp theory of law that was already established in other states. Quite a large portion of the bill had worked in the State of Florida during Florida’s Workers Comp reforms. The main part of the bill that cut the Workers Comp Cost for employers was the establishment of Medical Provider Networks. (MPN’s)

MPN’s – The real application of MPN’s was to enable California employers to control who the employee treated with medically, and removed doctor-shopping by employees. Controlling the medical treatment by the employer is one of my Five Secrets to Controlling Workers Comp Costs. Medical control leads to the control of most of the Workers Comp claim. Please see my previous posts on the Five Keys to Cutting Workers Comp Costs.

A New Insurance Commissioner – when Commissioner Steve Poizner came into office, immediate changes occurred in the California Workers Compensation arena. The following are some of the changes he enacted:

The cleaning up of the California State Fund (SCIF) – There was a large amount of conflicts of interest and lack of accountability in SCIF. Commissioner Poizner made SCIF more accountable in all areas. He also eliminated all the conflicts of interest that existed in SCIF. The conflicts of interest centered on officials and Board of Directors referring work to companies that they privately owned.
More control exerted on the California Workers Comp Insurance Rating Bureau (WCIRB) – Commissioner Poizner made the WCIRB more accountable for their increases and decreases in the pure premium rates. He immediately overruled a rate increase. The figures that he predicted have seemed to be accurate.

More Workers Comp insurance carriers entering the market – this is the final positive and the most important result of the California Workers Compensation reform. With all the reforms in place now in California, the market became more competitive. The barriers to entry to the Workers Comp insurance carriers were removed. The more carriers in the marketplace, the more healthy the competition. Now that Workers Comp insurance carriers can now forecast a profit, there are more carriers writing policies which will reduce the Workers Comp premiums that they charge.

Up Next – A Question from One of Our Readers on the CA Workers Comp Reform

J&L Premium Review Services – California Reader Question

April 28, 2008 By JL Risk Management Consultants

California Reader Question – Can J&L Premium Review Services Work Here?

A California reader had a great question. Is California a tougher state than other states for J&L premium review services?

Vector Graphic of Three Men Reading California J&L Premium Review Services

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We have heard this question often over the past five years. Fortunately, we have aided employers in recovering premiums from SCIF and have been able to reduce quite a few CA companies’ Workers Comp costs. The rules in CA are somewhat different than most other states. I have noticed that quite a few of the rules from the WCIRB (Workers Compensation Insurance Rating Bureau) have been modified to be more like the NCCI. This was a good move by the WCIRB.

The main differences are the span of time that can be examined for overcharges, and that there was only one provider of Workers Comp insurance for many years. The latter made it very complicated to look elsewhere for Workers Comp insurance coverage. That has all changed with SB 899, which has finally enabled a semi-open market for Workers Comp insurance.

That being said, please look at one of my old posts on The Red Flags for Overcharges. This list applies to any state or states.

We have also heard the same question often from employers in:

Ohio
West Virginia
New York
North Dakota
Wyoming

The bottom line is to not let the states that you are operating in dictate your insurance budgets.

Up Next – How Hallmark (r) Can Help Your Insurance Budget