Friction in the Workers’ Compensation System

At the 2017 WCIRB Annual Conference a session discussed friction issues in the worker’s compensation system. The speakers were:

• Saul Allweiss, Attorney, Law Offices of Allweiss and McMurtry
• Tony Milano, WCIRB Vice President, Actuary

Frictional costs in workers’ compensation are significantly higher than other systems. For example, to deliver $1 in benefits it cost:

• $0.04 for the Red Cross
• $0.02 for Medicare
• $0.18 for private health insurance
• $0.53 for California workers’ compensation

Session highlights:

• Defense and medical-legal costs are over three times higher in California than in median NCCI states. A big part of this is is the driven by the high litigation rates in California. The design of California’s system is a factor as you typically see a variety of conditions added on to the claim which leads to the need for specialized medical exams for each condition. These add-on conditions is just not something you see outside of California.
• In California, defense attorney expenses account for 43% of ALAE costs. The rest includes things like IMR costs, exams, depositions, records, surveillance and other issues.
• 83% of PD claims in Southern California involve attorney representation. That compares to 71% in Northern California. In 37% of cases with attorneys the first notice of the claim is the filing by the attorney. This is almost always on CT claims. The percentage of litigated claims has increased steadily since SB 863 increased PD rates making it more lucrative to file claims.
• Liens are also a big driver of frictional costs in California and that is something else that is very unique to the state. On the average lien case the frictional costs are 30% greater than the settlement amounts.
• The ALAE costs on CT claims tends to be about 50% higher than other claims.

What will it take to change behavior?

• There has been a string of arrests of medical providers for workers’ compensation fraud. Seeing more doctors go to jail and have their liens disallowed would send a strong anti-fraud message and should discourage such behavior.
• Enact legislation to ban post-termination CT claims.
• Raise the causation standard from 1% to 51% so the work has to be the main cause for any condition to be compensable. That low causation standard is the driver for all the add-on conditions that is seen on litigated claims.
• Require the use of evidence based treatment guidelines.