It doesn’t appear that much of a stir was created by the recent announcement that the Workers’ Compensation Insurance Rating Bureau is seeking a 16% increase in California workers’ comp pure premium, or that there could be an amended filing adding as much as another 4% to the rate recommendation. Maybe that is because most employers have been lulled into a sense of supply-side stupor because of the dramatic decrease in workers’ comp costs since 2004. Or maybe it’s because everyone already knew premiums are too low to last much longer.
Maybe those who are more aware feel that there are still sufficient numbers of insurers willing to write anything for any price. And these same ones may feel that there is still enough capacity in the insurance industry to keep premiums falling. Or maybe those who are swayed by alternative markets—risk retention groups, captives, or shrouded-in-mystery self-insurance groups—can go to bed at night secure in the knowledge that at least in this one area of the economy, cost and price are still very distant cousins.
Drill down into the numbers from WCIRB and the self-insureds—to the extent that data are available from the Department of Industrial Relations (and if you ask for anything more, they would have to kill you)—and you will note a troubling trend of medical inflation.
No entity tracking the progress of the landmark 2003-2004 workers’ comp reforms notes anything different. Medical costs are climbing at a rate that should leave the architects of SB 899 deeply disturbed. But to suggest that life after April 19, 2004, is anything but perfect would amount to heresy and thus is not likely to be publicized anytime before, say, January 2011.
But what do carriers’ reserves show?
Consequently, 2008 looks eerily like 1998. DWC’s administrative director publicly decries abuses of utilization review while failing to comment on audits that show insurers and claims administrators pretty much do what the law requires. No one comments on the enormous costs of implementing medical provider networks (MPNs) or utilization review, that odious process the Supreme Court has said is the only way an employer can challenge inappropriate requests for medical treatment. Workers’ comp administrative law judges still, more often than not, try to force employers to pay for medical services that weren’t authorized and are outside the permissible scope of treatment according to the Medical Treatment Utilization Schedule (MTUS) because it is so-o-o beneath them to have to, well, you know, deal with those yucky lien things.
But if the Bureau’s numbers are correct, then the industry underprices, therefore could the industry be underreserved by as much as 13%? If the industry raises its reserves for last quarter, reflecting the accuracy of the Bureau’s numbers, there is no reason why the Department should provide needed rate relief to maintain solvency and a healthy market.
Labor advocates will continue to harp on the greed of insurance companies and the meager permanent disability benefits, as though these two issues were linked. Business advocates will continue to argue that the reforms are perfect because premiums are low, even if they are below costs. In other words, no one has an interest in raising the specter that perhaps all is not well in the workers’ comp system. Carriers that wish to show profitability will make the case for the others by keeping reserves deflated.
The common industry wisdom is that the Department will not give the industry the full requested rate increase or even a reasonable one. There will be various actuarial points of contention, a few data elements that supposedly shouldn’t have been considered, and the tossing out of State Fund’s over-average cost data, to bring the request down to a level that is neither going to draw too much media attention nor be passed on in a still highly competitive insurance market. This action will only postpone a day of reckoning. Better to own up to it now than two years hence, when the consequences of this pervasive denial will be far more severe to employers and workers alike.
But owning up is a two-way street, and if reserves are increased to adequate levels, the Department’s responsibility is to provide premium relief to ensure solvency.