You can’t always get what you want…

But if you try sometimes… you can get what you need.

California Workers’ Compensation Reform: SB 863

Bill ZachryVP Risk Management

Safeway

863 Celebration in the Horseshoe

CA WC: Pre-SB 863

*PPD Based on NCCI 2012 Statistical Bulletin: Nationwide ex California excludes monopolistic states, weighted by employment PPD benefits adjusted to California Avg. Weekly Wage**Filed rates based on OR DCBS study 2012, wtd by CA payroll

-40.0%-30.0%-20.0%-10.0%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%

Filed Rates

PPD Benefits per PPD Claim

CA WC: Backgroundpre-SB 863

What is driving the rates?• Medical Costso High % of Total Costso Very Slow to Pay Out

• Loss Adjustment Expense: Very High

Workers Compensation Medical Cost Drivers

• Severe burns / quadroplegia• Settlement philosophy (C&R vs. Stip.)• Treatments paid for that are not evidence based

medicine• Treatment not authorized by UR• Compounding and Repackaging of Pharmacy• Hospitalizations• Multiple body parts• Delayed reporting of claims /

Delayed provision of benefits

Workers Compensation Cost Drivers• Coping skills – Adverse Childhood Experience – 20% to 70%

increase per claim• Poor Medical Practice – Inconsistency in providing service• Addiction – 20% to 50% increase per claim• Litigation – 40% to 50% increase per claim• Obesity – 20% increase per claim• Diabetes – 10% to 20% increase per claim• Fatigue/Sleep issues• Employee age– Inherent increase in cost of claim– Medicare Set Aside

Workers Compensation Cost Drivers• Coping skills – Adverse Childhood Experience – 20% to 70%

increase per claim• Addiction – 20% to 50% increase per claim• Litigation – 40% to 50% increase per claim• Obesity – 20% increase per claim• Diabetes – 10% to 20% increase per claim• Fatigue/Sleep issues• Employee age– Inherent increase in cost of claim– Medicare Set Aside

Workers Compensation Cost Drivers• Coping skills – Adverse Childhood Experience – 20% to 70%

increase per claim• Addiction – 20% to 50% increase per claim• Litigation – 40% to 50% increase per claim• Obesity – 20% increase per claim• Diabetes – 10% to 20% increase per claim• Fatigue/Sleep issues• Employee age– Inherent increase in cost of claim– Medicare Set Aside

CA WC: BackgroundCalifornia WCRI MPI-WC Index as of 2011

(2002 = Base Year of 100)

Yang & Fomenko, WCRI Medical Price Index for Workers’ Compensation, 4th Edition, March 2012, p. 99.

Emergency

Evaluation and Management

Major Radiology

Minor Radiology

Neurological testing

Physical medicine

Major surgery

Pain management injections

Overall

- 20 40 60 80 100 120 140

101

116

94

91

108

110

96

102

105

CA WC: BackgroundPercentage of Medical Paid by Year After Injury

California vs. Other States

NCCI Annual Statistical Bulletin, 2011, Exhibit IX.

Year of Injury Year Following Injury Subsequent Years-5%

5%

15%

25%

35%

45%

55%

65%

75%Percentile

80%

60%

40%

20%

Lowest

California

Highest

CA WC: BackgroundPaid Medical Management and Cost Containment

per Indemnity Claim

CWCI: “Analysis of Medical and Indemnity Benefit Payments”, Exhibit 2B, Page 14

2005 2006 2007 2008 2009 -

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

632

871

1,042

1,237

1,440

980

1,299

1,564

1,883

Accident Year

24 Months from Date of Injury:Average Annual Increase = 24%

12 Months from Date of Injury:Average Annual Increase = 23%

CA WC: BackgroundUltimate ALAE per Indemnity Claim

WCIRB July 1, 2012, Rate Filing page A:B-40Private Insurers Only

2005 2006 2007 2008 2009 2010 2011 -

2,000

4,000

6,000

8,000

10,000

12,000

14,000

7,093 7,433 8,027

8,891

10,184 10,866

11,302

Accident Year

4.8%

4.0%

14.5%10.8%8.0%

CA WC: Background% of Major PD Claims with Attorney Representation

At First Survey Level

WCIRB March 20, 2012, Actuarial Committee III-A134

2005 2006 2007 2008 20090.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

75.3% 77.0% 76.6% 79.5%85.7%

87.3% 87.2% 88.3%92.6% 91.0%

Accident Year

Southern California

Northern California

California Background]Claim Frequency

*WC frequency Based on NCCI 2012 Statistical Bulletin: Nationwide ex California excludes monopolistic states, only states with 3-day waiting period, weighted by employment (2008/09) **OSHA 2011 data from BLS (private & public sectors)

Cases Recorded

Lost Time TTD PPD PTD

-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

OSHA

CA WC: BackgroundFiled Loss Adjustment Expense as a Percentage of Loss

California vs. Other States

NCCI Annual Statistical Bulletin, 2011, Exhibit VI

Lowest 20% 40% 60% 80% Highest-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

13.2%15.7%

17.7%18.9% 20.1%

26.4%

State Percentile Ranking

California: WCIRB Projection 7/1/12 = 25.6%

CA WC: BackgroundUltimate Indemnity Benefits per PPD Claim

60%

40%

20%

Lowest

California

NCCI Annual Statistical Bulletin, 2011, Exhibit XI (adjusted for AWW, Exhibit VIII).

CA WC: BackgroundDistribution of Premium, 2011

WCIRB Quarterly Market Reports, Exhibit 5Med & Indenmity split according to 7/1/12 WCIRB rate filing

Indemnity; 22%

Medical; 41%

Loss Ad-justment;

21%

Other; 17%

CA WC Reform: SB 863WCIRB Estimate of Impact: 2013

Provision $ Impact(Millions)

% Impact

PD Benefit Changes $510 +2.7%

Eliminate PD Add-ons ($170) -0.9%

Eliminate Bump Up/Down ($100M) -0.5%

Liens ($480M) -2.5%

Surgical Implant Hardware ($110) -0.6%

ASC Fees ($80M) -0.4%

Independent Medical Review ($370M) -1.9%

Ogilvie Decision ($210M) -1.1%

MPN Strengthening ($190M) -1.0%

Total 2013 ($1,200M) -6.3%

WCIRB 1/1/13 Rate Filing, Page A:B-34

CA WC Reform: SB 863WCIRB Estimate of Impact: 2014

Provision $ Impact(Millions)

% Impact

Total Impact 2013 ($1,200M) -6.3%

2014 PD Benefit Increases $570 +3.0%

Total Impact 2014 ($630M) -3.3%

WCIRB 1/1/13 Rate Filing, Page A:B-34

CA WC Reform: SB 863Major Provisions not Quantified

• Fee Schedule (RBRVS, Photocopy Service, Home Healthcare)

• Med-Legal Changes to QME• Interpreter Regulations• Timeframes regarding payment of paper

medical bills• Self-Insurance Security Requirements

CA Permanent Disability No Losers!

Impairmen

t

• From Doctor (per AMA Guides)• Add-Ons

Adjustmen

ts

• Future Earnings Capacity• Age• Occupation

PD Awar

d

• Apportionment• Weeks of Benefits• Min/Max Benefit per Week

Final Adjustmen

ts

• Life Pension/Permanent Total• Bump Up/Bump Down

CA WC Reform: SB 863Impact of Changes to PD

• Increase Max & Min Benefitso Most of Impact due to max not min

• Add-Ons: % of Total PDo Sleep: 1.2% of Ratings, 1.4% of Costo Sex: 0.4% of Ratings, 0.3% of Costo Psych: 1.7% of Ratings, 3.8% of Cost

• Replace FEC with AMA Modifiero 13% of Cost

BRS Analysis of DEU Data

CA WC Reform: SB 863# of Weeks at Bump Up/Bump Down

Data provided by WCIRB

2006 (2nd survey)

2007 (1st survey)

2007 (2nd survey)

2008 (1st survey)

2008 (2nd survey)

2009 (1st survey)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

No BumpBump UpBump Down

CA WC Reform: SB 863Liens: Filing Fee

CHSWC Liens Report, 1/1/11, p. 4

$100 Filing Fee 1/1/04

Filing Fee Repealed 7/12/06

EAMS Goes Live

8/25/08

CA WC Reform: SB 8632012 Liens Filed

WCIRB Actuarial Committee 3/20/13, Page IV-A-25

1Q12 2Q12 3Q12 4Q12 -

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

LA CountyLA Basin (Other)Rest of State

CA WC Reform: SB 863Distribution of 2012 Liens by Type

WCIRB Actuarial Committee 3/20/13, Page IV-A-25

Copy Service; 0% Interpreter; 10%

Medical; 59%

Medical-Legal; 17%

Other; 13%

Petition for Cost

No Petition for Cost

CA WC Reform: SB 863IMR: Texas Reforms (TD & RTW)

“Setting the Standard”, TDI, December 2010, Page vi.

CA WC Reform: SB 863IMR: Texas Reforms (Medical Costs)

“Setting the Standard”, TDI, December 2010, Page vi.

CA WC Reform: SB 863IMR: Texas Reforms (Shorter Medical Tail)

“Setting the Standard”, TDI, December 2010, Page 41.

CA WC Reform: SB 863IMR: Texas Reforms (Medical Service Denials)

CA WC Reform: SB 863Other Important Features

• Increase in PD Benefitso Phased in Over 2 Yearso Prospective (applies to injuries on or after 1/1/13)o Impact on Utilization is area of dispute

• Cost Reductionso Some have retrospective components (IMR & Lien

changes apply to open claims)o Difficult to Price

CA WC Reform: SB 863

California Private Self-Insurer

Ratio

of T

otal

Lia

biliti

es /

Ca

se R

eser

ves

#1 #2 #3 #4 #5 #6 #7

Change in Security Requirements

1.35

2.00

CA WC Reform: SB 863Sometimes Even Hindsight Isn’t 20/20899 was off on savings and subsequent

development

To be addressed next…Costs

Implementation

• New policies• Training the examiners• Getting a feel for the new road• IMR (Maximus)• Bill Review• Liens (and the WCAB petition for costs)• Pharmacy and bill review programs

Other Issues• Regulations• AMICUS• New legislation• ADR / Opt out

Top WC Cost Drivers

• Litigation• (Prescription) Opiates• Multiple Body Parts• Hospitalizations• Obesity• Liens

Safeway Programs

• Hire Smartly• Functional Restoration• Pharmacy• UR connected to Bill Review• Medical Networks• Low case loads• Settlement philosophy• Medical Treatment Philosophy