Young: The Cost of Doing Business
Tuesday, September 21, 2021 | 0
California workers’ comp is an expensive system to operate. That has been a frequent focus of this blog over the years.
High “frictional costs” have plagued the system despite various reform efforts, many of which resulted in takeaways from workers. Frictional costs are a continued focus of the California Workers’ Compensation Insurance Rating Bureau.
I wasn’t able to attend last week's online WCIRB Actuarial Committee meeting, but it was well covered in Wednesday's piece by WorkCompCentral reporter Mark Powell.
Powell noted something I hadn’t heard, i.e., a forthcoming frictional cost study.
He notes that WCIRB Chief Actuary Dave Bellusci announced that the WCIRB is working on a “deep dive” study of frictional costs, including attorney fees, cost-containment programs, med-legal costs, loss containment programs and “almost anything else that is not a direct benefit.”
WCIRB presenters reportedly noted figures I have quoted before from the yearly WCIRB State of the System reports. The cost of delivering $1 of workers' comp benefits in California is 48 cents versus 2 cents for Medicare and 18 cents for private group health insurers.
Although there has been some moderation in certain frictional costs (for example, allocated loss adjustment expense), California has higher frictional costs than other states.
So the WCIRB is looking at various factors as to why that is so.
Tony Milano of the WCIRB is quoted by WorkCompCentral as saying the bureau’s claims working group identified late cumulative trauma claims as a big factor.
Exactly how cumulative trauma claims, and particularly “late-reported” CT claims, have a specifically adverse effect on frictional costs isn’t clear to me. There are quite a few dots that would need to be connected to make a convincing case on that.
Of course, reducing cumulative trauma claims is known to be a goal of many of the stakeholders who were part of the insurer/employer coalition that backed the 2004 and 2012 reforms. But cumulative trauma claims are often filed by public safety workers, building tradespeople, hospitality sector workers, health care employees and others who are members of powerful California labor unions. So any effort to tie high frictional costs to cumulative claims will be heavily scrutinized.
Meanwhile, the California Workers’ Compensation Institute has unveiled a study that examines costs under the new Medical-Legal Fee Schedule. According to the CWCI, the average medical-legal payment (i.e., payments to qualified medical evaluators for evaluations and reports) increased 67% under the new fee schedule.
That new fee schedule went into effect in April 2021, so it may be a bit early to make long-term predictions about its effect on “frictional costs.” The big unknown is whether the new schedule will modify the behavior of insurance carriers and attorneys. Since a large component of the increased med-legal costs is for record review of records in excess of 200 pages, will the parties screen and reduce the volume of records sent to QMEs?
The modus operandi of many adjusters and defense attorneys has been to subpoena every record under the sun and then send it off to the QME or agreed medical evaluator to review it all. It’s a strategy that is increasingly costly, adding to frictional costs.