California Workers Compensation

Reducing CostApril 14, 2004

Women in HR

Janice Berthold, CLU, ChFC, CPCUJberthold@allwestinsurance.com

(408) 626-6000

Claims Compensability

• AOE – Arising out of Employment

• COE – In the Course of Employment

Causes of Inappropriate Claims

• Medical• Indemnity• Mistakes• Lack of Understanding• Resentment• Unscrupulous Service

Providers

Some of the Solutions

• The Investigation

• A Joe Friday

• A Barbara Walters

• The Protocol

Training

• Employees

• Management Team

• Benchmarking

Indirect Costs – The Rest of the Iceberg

• Work disruption• Residual slowdowns• Temporary help or overtime• Hiring and training costs• Ruined products

Pre-Loss Initiatives

• Post-hire/pre-placement

• Safety and Health

Post-Loss Initiatives

• Investigation

• Early Return-to-Work Programs

Benefits of Early Return-to-Work

• Prevention of wage loss• Faster recuperation• Positive social

reintegration• Avoidance of “disability

syndrome”• Improved self-worth

Climbing Costs• The average medical cost per claim in California was

23% higher than the median state’s average medical cost per claim.

• Workers compensation claims payments to chiropractors in California averaged $2,066, 148% higher than the median states studied ($833) and 70% higher than Illinois, the next highest state ($1,215).

• More than 28% of the claims in California involved therapists, compared with 20% in the median state.

• Six out of eight workers comp back surgeries are unnecessary.

Reasons for the Increase

• Cost shifting from non-occupational health care to workers compensation

• More sophisticated and expensive medical technologies

• Added costs associated with medical case management

• Over-utilization of medical services

Combined Loss & Expense Ratios As of 12/31/02

20%18%

89%

20%20%

101%

21%

21%

111%

22%

24%

125%

22%

21%

134%

14%26%

121%

18%17%

105%

18%17%

88%

0.180.17

81%

0%20%40%60%80%

100%120%140%160%180%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Other Expenses LAE Losses

127%

141%153%

171%177%

161%

140%116%

Marketplace Chaos Ensues

• 26 Carrier insolvencies

• Seven Carriers withdraw from the marketplace

• No new carriers coming into California

• Marketplace contraction, capacity crisis

You Can Reduce Loss Costs

• Develop standards for accident and incident investigation.

• Offer modified duty and return to work.

• Monitor all indemnity claims.

• Consider surveillance.

What Else Reduces Cost?

Complete incident reports showing as much detail as possible with eyewitness accounts if available.

Monitor all treatment and medication to determine if they are appropriate.

Keep continuous communication open between yourself and your Insurer to make sure case reserves are proper.

What Else Reduces Cost? (Cont.)

Assure claims are closed out as quickly as possible.

Question anything that looks like Fraud.

Make sure claims coded to you are in fact yours.

Indicators of Workers Compensation Fraud

• Conflicting history of accident by claimant, hospital, doctor.

• Accident not witnessed OR an overly enthusiastic witness.

• Monday morning/Friday evening accident.• Claimant is difficult to contact by

mail/phone.• Claim filed just prior to job completion.• Claimant not at home during the day.• Minor accident incurs major medical

expenses.

Claims Review

• Look for frequency - will usually require loss control.

• Watch open claims - are they still open?

• Track large reserves - can there be a reduction before Unit Stat Filing?

Who Should Report the Accident?

NOT THE FILE CLERK!

A fully trained employee should have responsibility for reporting

the claims.

Additional Cost Saving Ideas• The Medical Triage System

• The Time Card Release Plan

• The 1-3-5 Plan

• Classification Pro-Action

• The 90-Day Delay Program

Highlights of Work Comp Reform

• Repeals requirement that laws primarily favor the employee

• Requires ER sponsored physician only

• Requires that employment is predominant cause of injury

• Promotes objective medical findings

• Provides independent review of medical treatment disputes

Conclusion

• Loss Control and Claims Management will reduce costs

• Make your Insurance Agent/Broker earn his money by assisting you in all claims matters

• Understand that what is measured is improved, and so continuously measure your results.