THANKS TO the reforms enacted in 2014, California Insurance Commissioner Dave Jones has ordered a 10.3% average mid-year decrease to the state’s benchmark workers’ comp rates.
The new benchmark rate, which insurers use as a guidepost to price their policies, will take effect on July 1.
The benchmark is essentially the base rates that cover expected costs of claims and claims-adjusting expenses across all worker class codes.
Insurers can price their policies as they wish, so there is no guarantee that any particular employers will see rate cuts. When pricing your policy, your insurer will take into account your claims history, your industry and your geographic location, among other factors.
Why are rates falling?
The benchmark rate is falling due to the effects of SB 863, which took effect in 2014. The Workers’ Compensation Insurance Rating Bureau said in its rate filing that besides increasing permanent and temporary disability payments to injured workers, the law has reduced claims costs by:
- Significantly reducing the number of spinal surgeries.
- Reducing bureaucratic tie-ups, leading to increases in claim settlement rates. At the 48-month mark, 77.1% of claims had been settled in 2017, up from 71.1% in 2011.
The Rating Bureau says the law has accelerated the rate in which claims have settled as a result of quicker medical-treatment resolution through the use of independent medical review, reduction in the volume of liens and the drop in spinal surgeries.
The higher claims settlement rates have also decreased the cost of adjusting claims.
- Setting requirements for lien filings and simplifying the lien system. Before new rules on liens took effect, in 2016 the Workers’ Compensation Appeals Board was receiving 25,500 liens a month. After the rules took effect, lien filings had fallen 40% to a monthly average of 15,500 as of March 2017.
Also, a new Medical Treatment Utilization Schedule drug formulary, which took effect Jan. 1, 2018, is expected to reduce costs as well.
The black marks
The one area of concern is cumulative injury claims, which continue to grow in numbers mostly in the Los Angeles area and San Diego. The ratio of cumulative injury claims in the LA area had grown to 15.5 claims per 100 indemnity claims in 2016, up from 8.7 in 2011.
In San Diego, they accounted for 11.2 claims per 100 indemnity claims in 2016, up from 6.6 claims in 2011.
In addition, the average cost of medical treatment is also on the way up, but at a relatively low rate of 3% a year.