Pratt Williams, A Professional Law Corporation
Actuaries at It
It has been six years since the passage of the 2012 workers’ comp reform package, SB 863. And it’s been two years since the WCIRB published a November 2016 dedicated research paper monitoring the costs of SB 863 (see link below).
Data isn’t everything,. It is obvious but alway needs repeating. The workers’ comp system deals with people, each of whom has a story about how they were medically treated, what outcomes were achieved, and how their claims were handled along the way. Those stories matter.
But policymakers will ask for data, so lets do a dive.
Some of the data on cost trends since 2016 can be gleaned from various WCIRB reports, including the yearly State of the System reports (see link to the 2018 State of the System report below).
More data appears to be forthcoming, however.
Materials attached to the agenda of a December 5, 2018 meeting of the WCIRB Actuarial Committee (see link below) outline numbers and trends on some of the key aspects of the 2012 reforms. The relevant portions are listed under “Item AC 17-12-02” “Legislative Cost Monitoring” and focus on SB 863 and two other later reform measures, SB 1160 and AB 1244 as well as the recently implemented prescription drug formulary.
The 2016 report on SB 863 noted that originally the projected the cost of changes to PD minimums and maximums and replacement of the FEC factor would add $1.2 billion in additional costs. However, the SJDB benefit, elimination of PD add-ons for psyche and other factors, and several other changes were projected to reduce system costs by $490 million. As of the 2016 WCIRB report, added indemnity costs from the 2016 reform were pegged at $1.22 billion but offset by $400 million in reductions for a net system increase of around of $820 million (before calculations of further offsetting reductions established by the reforms).
Those other savings generated by the the various reforms turned out to be very substantial. They include the lien reforms, surgical hardware cost reform, surgery center fee changes, MPN changes, and reform of the way treating doctors are paid (the RBRVS).
Chart 41 of the WCIRB 2018 State of the System report provides a visual summary of the SB 863 results based on comparison of original 2012 projections with 2016 WCIRB figures. As of 2016, overall savings were $1.3 billion, not the estimated $200 million.
That’s a big imbalance, one that leads many worker advocates to believe that workers should share some of the savings by further benefit increases or lightening a bit on some of the system’s roadblocks.
But even if it appears there was a big imbalance between the ratio of actual savings to projected increased benefits, the many advisory rate reductions approved by the California Insurance Commissioner since 2015 attest to the savings achieved by the reforms. Workers may not be happy with the balance, but corporate and small business California is happy.
And they have been the audience to whom Governor Brown played.
What can we glean from the 2018 legislative cost monitoring documents (to be discussed at the WCIRB Actuarial Committee meeting), incomplete though they may be?
On indemnity cost savings, the Actuarial Committee materials note that:
“Although SB 863 increased the weekly PD minimums and maximums and the DEU data suggests that the changes to the PD rating formula implemented in 2013 resulted in an increase in promulgated PD ratings, other information such as the speed-up in PD claim settlement rates and relatively flat average costs on PD claims suggest that overall indemnity costs are not increasing as significantly as prospectively estimated. As a result, staff recommends continuing to review the impact of SB 863 on indemnity benefit levels and will discuss with the Committee at the meeting.”
In actuality, average indemnity costs per claim went up slightly after 2013 ($25,101) but have been basically level for 2015, 2016 and 2017 ($27,237 according to the 2018 State of the System Report).
Regarding the cost impact of the SJDB benefit, the Actuarial Committee notes that “….staff is not recommending any adjustment to the estimated cost impact of the SJDB.”
On the cost savings from RBRVS reform, the Actuarial Committee notes that much of the savings were during 2014 and 2015, the first two years of the 4 year RBRVS phase-in. The report notes that “The changes in physician cost trends from the first two years of the phase-in are generally attributable to one-time reductions in the utilization of physician services across most categories, which deepened the reductions in categories receiving fee decreases and partially offset the growth in categories receiving fee increases”.
On the subject of aspects of the reforms that impacted medical service utilization, the Actuarial Committee materials note that “Based on data through March 31, 2018, SB 863 was estimated to have resulted in a total 17% decrease in average medical costs from 2011 through 2015. Table 1 shows how the estimated 17% decrease is distributed across the 2011 through 2015 accident years.”
Regarding the SB 1160 and AB 1244 provisions related to liens, the Actuarial Committee materials note that “The WCIRB’s most recent estimate of the impact of these provisions on costs was reviewed by the Committee at the March 19, 2018 meeting and reflected in the July 1, 2018 and January 1, 2019 Pure Premium Rate Filings. The WCIRB assumed a 40% reduction in lien filings resulting from these provisions which resulted in a 2.4% decrease in medical costs and a 6.4% decrease in ALAE costs.”
On the subject of the prescription drug formulary launched in 2018, the Actuarial Committee states that “The WCIRB’s prospective estimate of the new drug formulary was included in the July 1, 2018 Pure Premium Rate Filing. The WCIRB estimated a 0.1% reduction in total costs resulting from savings to UR costs and a 0.4% reduction in total costs resulting from changes in prescribing patterns.
A preliminary retrospective analysis of the impact of the new drug formulary based on pharmaceutical transactions through the first six months of 2018 will be presented at the meeting.”
Hopefully the WCIRB will be producing a comprehensive research report following up on the 2016 Legislative Cost Monitoring report. Til then, here are some further materials worthy of analysis.
Here’s a blog past I did earlier this year examining some cost trends:
Here is the link to the December 5, 2018 WCIRB Actuarial Committee materials:
The 2016 WCIRB report on cost monitoring the results of SB 863 is here:
And the 2018 State of the System report is found here: