In his first workers’ comp advisory pure premium rate decision, Insurance Commissioner Ricardo Lara sided with both employers and organized labor. He approved a 9% rate cut for 2020 — far deeper than what insurance carriers through the Bureau sought. The Workers’ Compensation Insurance Rating Bureau’s recommendation was for a 5.4% reduction.
The Bureau is a private organization with quasi-governmental responsibility. It is financially supported exclusively by insurance carriers in whose interests it operates.
The rate cut is the ninth straight approved by the Department. Advisory pure premium rates are now down over 47% since they began to fall in 2015 as the Baker workers’ comp reforms took hold (see chart). The latest estimate is that the reforms are generating some $2.3 billion annually in savings on workers’ comp costs.
Mark Priven, a Bickmore actuary representing the public member minority on the Bureau’s governing committee, testified at the Department’s October rate hearing that the rate cut should go deeper than what the Bureau was recommending.
Priven’s best recommendation was for a 9% cut but said that a reduction of up to 16.2% was not out of the realm of reasonableness. Since rates started falling, Priven’s estimates have consistently proven more accurate than the Bureau’s.
In their review of the Bureau’s filing and Priven’s testimony, CDI’s actuaries came to the same 9% reduction that Priven recommended. But they did so via somewhat different assumptions and projections. The end result though, was a concurrence that the Baker workers’ comp reforms are continuing to drive costs out of the system. And that the subsequent reforms implementing a prescription drug formulary and removing unscrupulous providers and fraudulent medical liens from the system are continuing to keep a lid on medical inflation. To this end, the Department’s actuaries trimmed a point off the Bureau’s selected medical severity trend.
“The Department’s actuarial staff appreciates the balance that the WCIRB is trying to achieve in giving some consideration to the more recent trend indications, while recognizing the inherent volatility of severities at early evaluations, the long term medical severity growth rates, the long period over which the medical payments are made, and the high level of increase in average medical severities during the historical post-reform periods,” the Department’s actuaries noted in their report. “However, while we identify with the need to avoid missing the ‘turning point’ when past high rates of medical inflation may return, we note that there are differences between the current environment and some of the historical post-reform environments that require consideration.”
The actuaries ultimately recommended a 1.5% medical severity trend compared to the Bureau’s selection of a 2.5% trend. They also recommended a -1% indemnity severity trend instead of the Bureau’s -0.5% recommendation.
The commissioner’s final decision adopted the actuaries’ recommendations and approved the average 9% reduction in the rates. California’s pure premium rates are advisory only, and carriers are free to file and use the rates of their choice with limited exceptions.