Now that the new year has arrived and agricultural employers are headed bravely (or perhaps precariously) into 2004, many are waking up to the economic reality that new workers' compensation insurance reform which went into effect on the Jan. 1 was at best only a small step forward in containing costs.
Unfortunately, “reform” is a rather ambiguous term for the reality of the situation. In actuality, employers gained very little from the California Legislature which was ostensibly trying to “help” the state's businesses that have been buckling under increasingly burdensome workers' compensation insurance costs.
All employers whose policies renewed after the first of the year got slammed (or will get slammed) in the wallet with an increase that is probably at least 35 percent more than what they paid in 2003. In addition, State Fund policyholders will likely see both a 16 percent increase in their base rates and changes in their credits and potential loss surcharges that will add an additional 15 to 30 percent to their premiums.
However, it's not all doom and gloom, and there are a few avenues California employers can take to minimize increasing costs this year. The most employer-friendly reform in the new worker's comp arena is the repeal of the vocational rehabilitation provision for workers who are injured after Jan. 1, 2004. Previously, this benefit was awarded to any permanently injured employee whose employer did not offer the employee an opportunity to return to work after the injury. That provision previously cost California employers a collective $1.2 billion per year with individual claims that ranged as high as $16,000.
Vocational rehabilitation has been replaced with a “Supplemental Job Displacement Benefit.” In a nutshell, that means that injured employees who do not return to work for their employer within 60 days of the end of their temporary disability benefit can receive a voucher or $4,000-$10,000 for education, retraining, skill enhancement and counseling. However, if an employer has a return to work program and offers the injured employee a job, the employer can save this cost and maintain a cleaner claims record that could potentially lower future premiums.
Other reforms in paying for medical care and limiting payments to Medicare fee schedules are moving forward, but it remains to be seen how much these changes save in costs.
Secondly, employers should consider how they buy workers' compensation insurance, whether from the state fund or other traditional workers' compensation insurance policies. The state fund currently dominates about 5 percent of the overall workers' compensation insurance market with the next two largest insurers holding about 9 percent combined. However, if you look at small employers, the state fund market share is a whopping 85 percent of the market or more. More than two dozen private insurers have left the California workers' compensation market over the past few years for various reasons, including insolvency, the inability to adequately deal with, recognize or fight fraudulent claims and various other reasons.
One does not have to analyze the figures in much depth to realize what that means when it comes to competition among workers' compensation insurance providers and what effect that is having on employers shopping for rates — especially small employers shopping for rates.
The 2003 reforms have hurt competition rather than helped. No new insurers have entered the California market and employers have few if any alternative insurers to choose between.
One alternative to the state fund might be either a captive insurance program or group self-insurance where similar-type businesses band together for greater bargaining power. This is particularly an option for employers with annual premiums in excess of $100,000. Often, employers find that they can save as much as 35 percent to 40 percent each year by participating in these types of programs. One of the most attractive features about alternative programs is that employers can exercise much more control over how large, questionable claims are handled. Participants in the state fund are largely hog-tied when it comes to input or personal involvement in such issues.
Finally, it should be the priority of every employer in the state to closely monitor the California Legislature as it pertains to workers' compensation insurance issues.
Governor Schwarzenegger has seen business' helpful proposals and urged legislative action now. Let the legislators know what you think. Let them know how it affects you. Let them know how it affects your ability to conduct business and provide jobs and benefits to those who really need them.
Don Dressler is a risk management and benefits consultant based in Irvine, Calif. He can be contacted at [email protected].