Capitol Alert

California workers’ comp overhaul cut medical costs

A construction worker coats steel beams at the Golden 1 Arena construction site on August 18. Construction is one of the state’s most dangerous occupations and carries high workers’ compensation insurance premiums.
A construction worker coats steel beams at the Golden 1 Arena construction site on August 18. Construction is one of the state’s most dangerous occupations and carries high workers’ compensation insurance premiums. jvillegas@sacbee.com

A 2012 legislative overhaul of compensation for work-related injuries and illnesses appears to have had the desired effect of reducing medical costs, two new independent studies say.

A recent spike in medical costs, however, may indicate that the effects of the legislation, Senate Bill 863, are beginning to wear off, according to one of the studies, conducted by the California Workers’ Compensation Rating Bureau.

If so, it would follow a fairly predictable pattern.

Roughly once a decade, the Legislature makes major changes in the workers’ compensation system, usually reflecting a deal by major stakeholders in the $20-plus billion system.

It takes a few years for those in the system to adjust to the changes, a few more for pressure to build for additional changes, and a few more after that for negotiations that lead to another deal.

The WCIRB looked at medical costs for three years – a half-year before SB 863 took effect in January 2013 through the first half of 2015 – and found that the average cost of medical services per claim dropped by 8 percent, adding that the “decrease contrasts with an average 6.5 percent per year increase…from 2005 to 2012.”

The 2005-2012 period covers the previous decade’s overhaul, which was passed by the Legislature in 2004, until the 2012 measure took effect. The medical cost increases during that period led to the 2012 action to keep them in check.

The WCIRB’s findings were in line with those from a new study by the Workers’ Compensation Research Institute, which tracks nationwide patterns. It found that average costs per California claim dropped 5 percent in 2013, the first year SB 863 was in effect.

SB 863 reflected a deal between employers and labor unions to raise cash benefits to disabled workers and pay for them by tightening up controls on medical costs, such as limiting fees paid to medical providers and requiring more outside reviews of treatment.

However, some medical providers have found ways to skirt the cost controls, which may explain the recent spike in their payments.

The various aspects of the system – medical and cash benefit costs, particularly – are a source of perpetual political jousting among employers, unions, workers’ comp attorneys and medical providers.

Since medical providers felt the greatest impact of SB 863, they have been trying to build pressure for relief, and appear to have some support from unions and lawyers who represent disabled workers. Critics of the 2012 overhaul contend that it is depriving disabled workers of adequate care for their injuries and illnesses.

However, it’s unlikely the Legislature will revisit the issue during the remainder of Gov. Jerry Brown’s term, which ends in 2019.

Employers continue to believe the system’s costs are still too high, noting that they pay – by far – the nation’s highest insurance premiums, averaging about $3.50 per $100 of payroll. Some states are well under $1.

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