Job Freeze Adds to Workers’ Comp Ills
By HOWARD FINE
As if there weren’t enough problems with the state’s workers’ compensation system, a hiring freeze imposed last year by Gov. Gray Davis at the state’s largest workers’ compensation insurer has resulted in costly delays for both employers and injured workers.
The freeze, which Davis only partially lifted late last month after pressure from lawmakers, business and labor groups, insurers and state regulators, has slowed operations at the State Compensation Insurance Fund, the workers’ compensation insurer of last resort.
In some cases, employers have had to wait up to two months to receive confirmation of insurance after signing up with State Fund, causing them to lose bids on contracts because they can’t prove they have insurance.
Routine claims submitted by injured workers are taking up to three months to be processed, as opposed to the usual four weeks. For workers whose claims State Fund is contesting, the delays could last a year or more.
Even before the hiring freeze, it often took a year for a contested claim to wend its way through the system. Now there is concern it could take up to two years, depending on how quickly State Fund is able to staff up if the freeze is fully lifted.
The ongoing shakeout in the workers’ compensation insurance market has seen many carriers shut down, so the State Fund has been a repository for new policyholders in the last two years, overwhelming its 7,500 member staff.
State Fund, which currently has 262,000 policyholders, had planned to hire 1,700 more workers to handle the new business. But they were prevented from doing so by Davis’ 2001 hiring freeze on all state agencies. (Although entirely funded by employer premiums, SCIF was created by the state and most of its workers are subject to civil-service rules.)
“This is not just about State Fund,” said state Sen. Richard Alarcon, D-Van Nuys, whose labor and industrial relations committee had scheduled hearings on the hiring freeze just before it was partially lifted. “Because State Fund controls half the workers’ compensation insurance market, whatever happens there impacts the entire workers’ compensation system.”
Citing the impact on businesses caused by the freeze, the California Chamber and the California Manufacturers & Technology Association have joined with the California AFL-CIO to lobby the governor to allow rehiring all 1,700 workers.
Davis’ decision to partially lift the hiring freeze last month allowing the agency to fill 350 of the 1,700 positions it says it needs has done little to alleviate the workload. Under the decision, SCIF must submit requests for any additional hires to the state Department of Finance for review.
Victims of delays
It also provides little relief to employers and workers who are currently dealing with the delays.
“I know of some contractors who were dropped by their carriers and forced to go to the State Fund who have not received their certificates of insurance, even though they are paying their premiums,” said Fritz Mutter, an insurance broker and president of Golden Pacific Insurance in Monrovia. “These guys have had to pass up on bidding opportunities because they couldn’t show proof of insurance.”
Also affected are temporary employment agencies, which have to show proof of insurance, according to Charles Bacchi, a lobbyist with the California Chamber of Commerce.
Some injured workers who have seen their claims delayed have opted to file claims with the state disability fund in the hopes of receiving funds more quickly. But the disability fund is not supposed to handle claims from workers injured on the job and for every such claim it receives, it has to seek a refund from the injured employee’s workers’ compensation carrier.
The hiring freeze has also taken its toll on workers at the State Compensation Insurance Fund itself, with many employees being forced to work six days a week or take other overtime just to avoid falling further behind in handling claims and policyholder accounts.
“No question, it has been quite a challenge for us, especially at some of our higher volume offices like Los Angeles,” said State Fund spokesman Jim Zelinksi.
Zelinski said State Fund has received “scattered complaints” of delays from both employers and attorneys for injured workers. “To those people and companies that have been impacted, we apologize,” Zelinski said. “We are trying to work through this as fast as possible.”
Through overtime and other recently instituted efficiencies, State Fund has avoided systemic delays in handling of claims and policyholder accounts, he said.
Lobbying the governor
The main focus of State Fund officials is getting authority from the state Department of Finance to hire the remaining 1,350 positions the agency is seeking.
For most of last year, the Davis administration refused to budge on the issue, even though the State Fund is entirely financed by employer premiums. Department of Finance spokeswoman Anita Gore said that the freeze was imposed because employees at State Fund are state workers.
“The hiring freeze applied to all state workers, in whatever agency they may be in, except for public safety, 24-hour care workers and those in revenue generating programs,” Gore said.
As to why the governor only partially lifted the hiring freeze, Gore said it made more sense to allow hiring of small numbers of workers. “We want to make sure we know what State Fund’s future needs will be and not just give a blanket hiring exemption,” she said.
Workers’ compensation insurance industry officials, however, say the real reason Davis didn’t lift the freeze and only did so partially after being pressured was political. In an election year, exempting one agency for whatever reason was bound to attract attention, just as the Department of Corrections has attracted scrutiny in recent weeks for being the only major department to have its budget increased.
But with the election over, the Senate Labor and Industrial Relations Committee, chaired by Alarcon, had scheduled a hearing last month on the hiring freeze, in which it was promised there would be testimony from injured workers who hadn’t received their claim checks.
With less than a week before the hearing date, the Davis administration reversed course and began to lift the freeze. State Fund could hire 350 more people, but would have to justify the need for any additional hires to the state Department of Finance.
Workers’ Comp Reforms
Various proposals are being offered by insurance, labor and legal groups for reform of the state’s workers’ compensation system. Here is a sampling.
Stricter rules for those receiving permanent disability benefits, especially for those deemed not fully disabled.
Nearly two-thirds of the lifetime benefits go to workers who are deemed less than 30 percent disabled by a workplace injury. Many are still able to perform jobs, sometimes the same job. Tightening the standards would reduce overall expenses in the system while focusing the benefits on those who are most disabled.
Tightening the standards would give insurers and employers an incentive to designate workers as temporarily disabled, cutting off benefits prematurely to some workers who suffer a permanent reduction in income as a result of a workplace injury.
Supporters: Employers and insurers who want to hold down costs and their Republican allies in the Legislature.
Opponents: Labor unions and applicants’ attorneys who represent injured workers, who stand to lose much of their fees. Also, their Democratic allies in the Legislature.
Outlook: Top priority for employer and insurer groups. Because of intense pressure to move on workers’ compensation, there may be some watered down version of this reform that gets approved.
Tightening eligibility standards for workplace conditions that may aggravate injuries. If everyday working conditions are found to aggravate or accelerate a medical condition or injury that is not work-related (such as a genetic heart defect), the worker is eligible for full workers’ compensation benefits. This could involve either eliminating workers’ compensation coverage for conditions not initially caused by the workplace or assigning some proportion of the injury cost to the workers’ compensation system.
Would crack down on injuries often hard to pin down, such as back strain. These are among the most frequent and most disputed in the workers’ compensation system and have been a major driver of cost increases.
Would let employers off the hook for injuries that the workplace may have made worse.
Supporters: Employer groups, especially the Independent Business Coalition, a San Gabriel Valley-based group of small employers.
Opponents: Applicants’ attorneys, labor.
Outlook: Slim in Democrat-controlled Legislature.
The workers’ compensation insurance market was deregulated in the mid-1990s as a result of 1993 reforms. This set up what many say was a gold rush mentality among insurers who underpriced policies to gain market share. The market collapsed in 1999-2000 as some carriers became insolvent and others left the market. This proposal would require insurers to submit all workers’ compensation rate changes to the state Insurance Commissioner for approval before any rate changes can be implemented.
Would reduce volatility in the insurance market and could bring back some insurers into the marketplace.
Could lead to significant jump in insurance premiums just before proposal takes effect. Also, takes flexibility away from insurers to respond to rapid changes in the workers’ compensation marketplace and politicizes the rate-setting process.
Supporters: State regulators, possibly labor and applicants attorneys.
Opponents: Insurers, Republican lawmakers. Employers, who were neutral on deregulation in 1993, could join the opposition if they believe proposal would lead to immediate jump in premiums.
Outlook: Depends on Insurance Commissioner John Garamendi. If he concludes partial re-regulation is necessary, he may get support from Gov. Gray Davis and some Democrats in the Legislature.
Reducing discretion of physicians in diagnosing injuries by setting up objective criteria for certain classes of injuries.
Would eliminate much of the “dueling diagnoses” between doctors representing employers and doctors representing injured workers. Also, by eliminating much of the discretion, claims process would be speeded up.
Viewed as “cookie-cutter approach” to workplace injuries that would prevent physicians from tailoring treatment to an individual’s needs.
Supporters: Insurers, employers, Republican lawmakers like Assemblyman Keith Richman, R-Northridge, who has introduced similar legislation.
Opponents: Applicants’ attorneys, physicians, labor, Democrat legislators.
Outlook: Slim in Democrat-controlled Legislature.
Rolling Back Benefit Hikes
A year ago, the Legislature passed hikes virtually doubling weekly benefits for temporarily and permanently disabled workers over the next three years. As the first phase of hikes went into effect Jan. 1, insurance premiums have increased an average of 50 percent, largely in anticipation of higher claims payouts. Legislation has been introduced to reverse the rate hikes.
Benefit increases contained cost savings that have not yet been implemented due to state funding constraints. Business groups argue that it is too burdensome in this economic environment to go ahead with the benefit hikes without offsetting savings.
Before the benefit hikes, benefits to injured workers in California were the second lowest of any state in the nation and had not risen in over seven years. This left injured workers unable to support themselves and their families. When fully implemented, benefit hikes would still leave California below national average.
Supporters: Business groups, insurers and their Republican allies in the Legislature.
Opponents: Labor, applicants attorneys and their Democratic allies in the Legislature.
Outlook: Virtually no chance that the first phase of benefit hikes, which took effect Jan. 1, will be rolled back. There is a slim chance that Davis and some Democrats could be swayed to hold off on the second and third phases of the hikes for a year or two.
Tightening Billing Procedures
The current system of reimbursements gives incentives to providers to charge high rates for treatment procedures. If a provider can perform a procedure for less, reimbursement is cut dramatically. A proposal now being considered by state Sen. Richard Alarcon would change the threshold for the maximum reimbursement.
Ensuring maximum reimbursement for lower treatment costs gives less incentive for providers to overcharge.
Raising reimbursement rates is an up-front cost. If a large percentage of providers are not currently overcharging, this could result in higher overall treatment costs.
Supporters: Insurers, possibly employers.
Opponents: Medical providers, especially those that might be overcharging for treatment procedures.
Outlook: Unknown. Depends on how big a problem the alleged overcharging is and whether Alarcon can get agreement from employers and labor on this.