For more than a decade, California businesses were stung by the high costs of workers’ compensation. However, several recent reforms have lightened the costs of workers’ comp premiums.
It is crucial, says Kimaili Davis, senior workers’ compensation claims analyst for Sander A. Kessler & Associates Inc., for companies to be current on changes to workers’ compensation. “Informed employers will gain the full benefit of the reform and the end result will be that they will save money on their claims costs,” he says.
Smart Business spoke with Davis about new workers’ compensation legislation, how the reform has affected business operating in California and how a business can minimize claims.
What are some of the recent legislative changes in regard to workers’ compensation?
The biggest change that we’ve seen recently is SB899 that was signed into law on April 19, 2004. The major points that it allowed for were greater employer medical control, a cap of temporary disability payments and treatment to be authorized only within the ACOEM guidelines, which is the American College of Occupational and Environmental Medicine.
There is also a new permanent disability rating system that became effective on Jan 1, 2005.
Why were these changes enacted?
The environment in California has been unfriendly to employers for at least the last 13 to 14 years. There have been some minor reforms that did help, but ultimately the employer was paying a lot of costs.
Before the recent reforms, there was a lot of fraud and abuse by injured workers, and employers had very little ammunition to fight with. One big example that I like to bring up is that a doctor can provide a prophylactic work restriction for an injured worker, which means that the work may hurt the employee, but it’s not an actual work restriction. The doctor would give a rating based on this and ultimately the carrier and employer would pay based on this work restriction.
When the carrier would try to dispute the claim, the doctor would say “Well, it was only prophylactic work restriction, I never said they couldn’t do it.” The average cost of a lost-time claim went from approximately $20,000 in 1991 to $55,000 in 2003 because of benefit increases, larger permanent disability awards and escalating medical costs.
How have workers’ compensation reforms affected California businesses?
[They’ve] made it a more friendly environment for employers. Some businesses that were thinking about going out of state are now staying here. They’ve continued to experience a reduction in workers’ compensation premiums.
For example, the insurance commissioner has recently approved a 15.3 percent decrease in pure premium rates. Since 2003, when the first reforms took place, there has been a 46.2 percent reduction in rates.
How important is it for a business to be up-to-date in regard to workers’ compensation reform?
It’s extremely important. The new legislation encourages return-to-work programs. For example, if you have a return-to-work program and if you can offer regular, modified or alternate work that lasts 12 months within 60 days of the permanent stationary date, then each subsequent disability payment will be decreased by 15 percent.
If the employer is not able to provide this type of work then the payment to the employee will be increased by 15 percent. So it’s a 30 percent swing if an employer knows that it exists and does something to ensure that there is a return-to-work program.
What are some steps that a business can take to minimize workers’ compensation claims?
The best claim is the claim that never happens. The best thing they can do is, No. 1, make sure that they have established hiring practices and that they investigate the potential employee, making sure that the applicants have a good, solid work history.
The other one is loss control, which will prevent accidents and perhaps prevent the accident from being so severe. Of course, things are going to happen. People are going to have claims. But if they do have a claim, then they need to do a thorough and prompt investigation, promptly report to the insurance carrier and provide a full disclosure of facts including witness statements.
Also, they need to keep the line of communication open. There is a three-pronged level of communication that they need to keep going between the employer, the medical clinic and the carrier.
What is your forecast for workers’ compensation rates over the next several years?
I think there is going to be a continued decrease because the rates were so high for so many years, and also there are going to be more players in the business. However, I do expect that the rate decreases will slow as the reforms are implemented and the premiums have been adjusted.
Kimaili Davis is a senior workers’ compensation claims analyst for Sander A. Kessler & Associates Inc. For more information, visit www.sanderkessler.com.
