(August 28, 2008) The Workers’ Compensation Insurance Rating Bureau (WCIRB) has recommended a 16 percent increase in rates for workers’ compensation insurance due to rising medical costs related to workers’ compensation claims.

The WCIRB’s August 15 proposal is an advisory figure used by insurance companies in determining how much to charge policyholders and does not necessarily mean employers will see an increase in their rates.

The recommended rate increase, however, is an indication of volatility in the system.

Hearing

The California Department of Insurance will hold a hearing on the proposal on September 15. Then Insurance Commissioner Steve Poizner has 45 days to either accept or modify the proposal.

The rate increase is recommended to take effect in January 2009.

Average insurance rates are down by 60 percent from the peak of California’s workers’ comp crisis, according to the WCIRB.

Cause for Concern

Prior to the reforms of 2004, California’s workers’ compensation system was out of control. It harmed employees by creating an adversarial system focused on litigation and disability instead of reasonable and appropriate medical treatment and return-to-work, and it did so at incredible cost to employers. Workers’ compensation premiums and system costs tripled from 1999 to 2003. Outside of the high cost of operating in California, skyrocketing workers’ compensation premiums had a negative impact on businesses and local governments to the point where expansion of the workforce came at a high price and public services suffered.

According to the Public Policy Institute of California, one of the major reasons for skyrocketing costs was the increasing number of permanent disability (PD) claims. Before the 2004 CalChamber-supported reform legislation, SB 899 (Poochigian), PD claims were filed at a rate of three times the national average, and California was 20 percent higher than the next highest state. A subjective system of work preclusions led to injured workers getting higher permanent disability rates, and litigation that preyed on this subjectivity compounded the situation.

Legislation

As the WCIRB ponders the rate increase, the Legislature has been acting on proposals to roll back the workers’ compensation reforms.

Two bills rolling back portions of the workers’ compensation reforms will go next to the Governor:

• SB 1115 (Migden: D-San Francisco)  is a “job killer” bill that increases workers` compensation costs and rolls back the workers’ compensation reforms from 2004 by making apportionment very difficult to prove. The bill passed the Assembly on August 19.
• AB 2969 (Lieber; D-Mountain View) increases the cost of utilization review services and makes it harder for employers to apply objective medical treatment guidelines and control costs. The bill passed the Senate on August 14 and the Assembly concurred in Senate amendments on August 18.

Awaiting action by the full Assembly is SB 1717 (Perata; D-Oakland),  a “job killer” bill that increases workers` compensation costs and rolls back the workers` compensation reforms from 2004 by arbitrarily doubling permanent disability benefits and altering the 15 percent bump up/down provision in current law.

In opposing the bills, the CalChamber and other employers have pointed out that California’s private and public employers stand ready to resolve any inequities that have resulted from the reforms; however, California cannot proceed on a path that will lead the state back to the days of skyrocketing premiums, adversarial litigation and an unbalanced system.

With budget pressures weighing heavily on local governments, and economic concerns weighing on private businesses, this is not the time to arbitrarily increase costs on California’s public and private sectors. 

WCIRB Hearing

A hearing on WCIRB’s recommended rate hike will be held on September 16, at 1 p.m. in the 22nd Floor hearing room at the California Department of Insurance office, 45 Fremont Street, San Francisco.

The complete filing and all related documents may be viewed and downloaded from the Regulatory Filing Section of the WCIRB website.

Staff Contact: Jason Schmelzer