California WC System: A Regulator’s Perspective

At the 2015 WCIRB Annual Conference, California Insurance Commissioner Dave Jones discussed the state of California’s workers’ compensation system from his position as the regulator of all insurance issues in the state. California is the nation’s largest insurance market and would be the sixth largest insurance market in the world if it was an independent nation.

There are two main focuses for the regulators. The first is consumer protection. The second is making sure appropriate insurance products are available in the marketplace that are properly licensed and administered.

From the workers’ compensation perspective, California compromises approximately 25% of the entire nations’ workers’ compensation premiums. While the regulators do not establish rates, they do issue advisory rates based on statistical information about the marketplace that is developed by the WCIRB.

Commissioner Jones discussed the impact of the Affordable Care Act (ACA) on workers’ compensation in California. California is “all in” state with regard to the ACA. The pending Supreme Court decision on the validity of subsidies will not impact California because they have a state exchange and will continue to provide subsidies regardless of what the U.S. Supreme Court rules. There is conflicting information about whether the ACA is having a positive or negative impact on the workers’ compensation system and it is too early to tell exactly what the ultimate impact will be. One big concern is a shortage of primary care physicians, which is already a concern in certain areas of California.

SB 863 reduced reimbursement rates for ambulatory surgical centers significantly. These facilities can provide services at significantly lower rates than traditional hospitals so there is concern about driving these facilities out of workers’ compensation because of the lower reimbursement rates.  Some of these ambulatory surgical centers are being purchased by hospitals who can then bill the services at the higher hospital rates.

The recent mid-year filing focused on improved medical loss ratios, loss trends showing a reduction in severity, a slight increase in loss adjustment expenses, plus the continued positive impact of SB 863. Frictional costs remain high and the cost savings associated with reduced litigation have not materialized.

Prescription drug costs remain high in California workers’ compensation. California is considering a prescription drug formulary, similar to what has been adopted in Texas and other states. This will benefit both injured workers and employers. Securing funding of the CURES database and requiring physicians to utilize the database before prescribing is another way to reduce excessive opioid prescriptions.

Insurance fraud is also a focus of the Department of Insurance and they have an extensive anti-fraud division. One of the biggest concerns is fraud by medical providers against health insurance companies. They feel this is by far the largest area of insurance fraud in the state. The average case of medical provider fraud being pursued by the Department is over $13 million. On the workers’ compensation side, medical provider fraud and premium fraud are the two biggest areas of fraud seen. Fraud by injured workers is significantly lower than these other areas.