Posted on 09 Jul 2009
Insurance Commissioner Steve Poizner yesterday rejected an insurer-backed plea for a massive boost in workers' compensation rates, arguing that the industry isn't doing enough to control its costs.
The Workers' Compensation Ratings Bureau, an advisory board backed by the insurance industry, had pushed for a 23.7 percent increase in the benchmark "pure premium" rate for workers' compensation, which pays for medical care and other expenses of employees injured on the job.
But Poizner said there would be no increase because the insurers have not yet implemented all of the cost-cutting measures that the Legislature passed five years ago to tame skyrocketing workers' compensation fees.
"There are lots of opportunities for cost containment and more efficiencies," Poizner said in a conference call with reporters. "I'll continue to focus on ways to squeeze out all unnecessary costs before I raise the pure premium by one dime."
Poizner issued 27 recommendations for how insurers could lower their costs, ranging from buying cheaper pharmaceuticals to devoting less time and money fighting claims.
Poizner's decision was welcomed by California employers.
"Now is not the time to add additional burdens to businesses in the state, especially small businesses," said John Kabateck, executive director of the National Federation of Independent Business in California.
Insurance analysts question how much effect Poizner's decision will have, since he does not have the power to force workers'compensation insurers to lower rates. So far this year, the Insurance Department has fielded 60 requests for workers' comp increases that started going into effect July 1.
"I don't think this will make a difference in what companies pay for their workers' comp insurance," said Craig Cornell, founder of Net Cost Advisors, an insurance consulting firm in Rancho Bernardo. "I'm sympathetic to what Poizner is saying, but what I'm seeing with my clients is that prices are already going up, and I'm skeptical about whether his position will have any impact on what businesses pay."
Poizner says the pure premium rate -- a calculation of what an ideal rate should look like -- can pressure insurers.
"This should send a signal to every employer that buys workers' compensation insurance that they should shop around, which will stimulate competition in the marketplace," he said.
He hopes that insurers who have applied for increases will reconsider their requests and that other insurers "will get my message loud and clear."
Nicole Mahrt, regional spokeswoman for the American Insurance Association, said each insurer "will have to do what they have to do in order to keep enough money in reserve to pay their claims."
Workers' compensation rates in California have been a volatile source of contention since they were deregulated 15 years ago. After rates tripled between 2000 and 2003, the Legislature imposed a series of reforms to reduce them.
Since the reforms were enacted, rates declined by an average of 65 percent. But over the past year, rates have risen even though claims have fallen.
Yesterday, Poizner said one reason for the recent rises is that insurers have not fully implemented reforms. He said self-insured entities such as the Safeway supermarket chain and the University of California system have done a better job of lowering costs.
San Diego attorney Linda Atcherley, who represents injured workers, said self-insured companies have different motivations than insurers.
"If you have a well-run, self-insured company like Safeway, Boeing or Disney, they tend to have better control over costs because it's their bottom line and every penny they pay out of their pockets," she said. "They're very cognizant of combating fraud and identifying bills that are not correct."
Poizner said self-insured companies have cut costs by spending less money on legal disputes over how to treat injured workers, partly by developing their own networks of trusted doctors to handle cases.
"If you have doctors that you trust, working according to fixed fee schedules and medical guidelines, that has an impact on cost" because there's less need to challenge their diagnoses, he said.
Some of the biggest workers' compensation price increases over the past two years came in the bureaucratic costs associated with reviewing claims, including a 23 percent jump in the cost of filing legal reports on claims and a 20 percent jump in the cost of evaluating and managing cases.
n his list of methods for reducing costs, Poizner said insurers should develop networks that can supply pharmaceuticals more cheaply, rely on more generic pharmaceuticals and shift to electronic billing procedures. Some of those steps, he added, will require legislation from Sacramento.
Insurers say they have implemented the biggest of the reforms that were passed between 2002 and 2004 and it's not enough to combat the rising costs of pharmaceuticals and other medical care.
Many observers say that by taking a tough stance against insurers, Poizner is trying to add more visibility to his gubernatorial campaign -- much as his predecessor, John Garamendi, built his successful campaign for lieutenant governor as he squared off against insurers.
"You've got to look at this from his status of running for governor," said Andy Barile, an insurance consultant in Rancho Santa Fe. "Since there are more votes among insurance buyers than sellers, you've got to make sure they're satisfied."
Poizner said he's been concerned about workers' compensation insurance since his days running a high-tech business in Silicon Valley.
"One reason I ran for this post is that I was so concerned about insurance costs in general," he said. "I'll continue to try to be that way no matter what office I'm running for."