- a weekly column published in the Pioneer Press

The skyrocketing cost of workers’ compensation (W.C.) is a major factor in the health of the California economy, and in the survival and competitiveness of local businesses. In 1995, employer-paid W.C. premiums amounted to $5.7 billion statewide. Today, premiums have reached the level of $15 billion, with an anticipated jump to $20 billion within the next six months.

Recently, Chairman Bill Overman of the Siskiyou County Board of Supervisors contacted State Insurance Commissioner John Garamendi to express concern and advocate for much needed reform.

In a letter of July 31, Commissioner Garamendi responded that he had conducted a hearing on May 8, 2003, to identify the factors that are driving costs.  He indicated that to date, 27 W.C. insurance companies had gone bankrupt and some remaining insurers are in trouble.

He had determined that factors leading to this near collapse are:

• Medical costs in California;
• Over-utilization of medical treatment;
• Use of name brand drugs;
• Inefficient claims handling;
• Fraud; and
• Inconsistent determination of disability status.

From 1997 to 2002, medical costs per W.C. claim have increased 125%, rising from an average of $13,845 to $31,120 per claim. (This compares with medical inflation of 22% and W.C. claim increases of 32% on a national basis for the same period of time.) Commissioner Garamendi proposes tying a new W.C. fee schedule to the Medicare index at 120%.

California far exceeds other states in both the average number of services per visit and the number of visits per W.C. claim. Clinical treatment guidelines, strong standards of medical necessity and an independent medical review process have been suggested as a solution.

Law requires pharmacies to provide a generic equivalent of a name brand drug for W.C. prescriptions unless unavailable or the physician has specified otherwise. Currently, hospitals, clinics and physicians are not held to the same requirements.

It has been suggested that claims examiners would benefit from increased quality training and the establishment of certification standards. Lack of efficiency and timeliness contributes to unmonitored medical utilization and increased litigation. Penalty structures for unreasonably delayed or refused benefit payments are extremely high. There is also an absence of “alternative dispute resolution mechanisms,” so all grievances must go through the Workers Compensation Appeals Board. This leads to costly litigation.      

Abuse and fraud have been determined to be widespread in the California W.C. system. This includes fraudulent provider billing, as well as applicant and insider fraud. The California Department of Insurance is helping to step up identification, investigation, reporting and prosecuting of fraud.

The current system for determining an injured worker’s level of disability is highly subjective and inconsistent. A study by the Rand Corporation is nearing completion that will recommend a more objective method of establishing permanent disability.