California Workers’ Comp Reforms Save State $1.3 Billion

In 2012, the state passed Senate Bill 863. The bill introduced several reforms for the workers’ compensation system. While the true value of the reforms will take years to manifest, the state is already seeing positive changes. In late 2016, the Workers’ Compensation Insurance Rating Bureau (WCIRB) released a cost-monitoring report of the reforms in SB 863. The report discovered that annual system-wide savings is around $1.3 billion or 7% of total costs – a remarkable savings rate.

Increased Savings Benefit Employees and Employers

At first glance, increased annual savings in the workers’ compensation program may make some employees worry about coverage. In practice, the reforms set forth in SB 863 offer benefits for both employees and employers. The two overarching goals of the bill are to increase permanent disability benefits and to reduce costs and benefit delivery times across the system.

The bill strives to accomplish these goals in many ways, including:

• Increasing permanent disability benefits and simplifying the disability rating method.
• Implementing independent medical reviews to streamline dispute resolution.
• Implementing independent bill reviews to streamline payment dispute resolution.
• Simplifying the voucher system for supplemental job displacement.
• Improving medical provider networks.
• Offering additional benefits for workers who demonstrate disproportionate wage loss.

Cost Saving Goals

As of the review period in late 2016, the state has realized some of its cost-saving goals. The report shows:

• The program is on par with initial projections for weekly permanent disability limits for injuries in 2013 and 2014.
• The bill’s changes to spinal surgical implant procedure payments have saved about $5,000 more per procedure than originally expected.
• The program has met expectations for a 25% reduction in facility fees associated with ambulatory surgical centers.
• Changes to physician fee schedules were originally projected to increase physician costs, but have, in fact, lowered payments per claim by 9% since 2013.
• A cumulative 10% decline in treatment costs due to changes across lien payments, independent medical reviews, independent billing reviews, medical provider networks, and other service areas.

Unexpected Outcomes

While the bill is saving the state money in many areas, the reforms have contributed to unexpected outcomes. The report also discovered:

• A higher than expected independent medical review request frequency. In fact, the volume of requests in 2016 represents an all-time high.
• An increase of 5,550 expedited hearings for treatment disputes. Lawmakers expected the independent medical review process to largely eliminate these types of hearings.
• No indication of savings in temporary disability duration from the implementation of independent medical review and medical provider network.
• Pre-reform levels or higher costs associated with medical-legal expenses, utilization review costs, litigation costs, and ALAE costs.
• A higher than expected indemnity claim frequency.

The 86-section reform bill brings many complex changes to the California workers’ compensation program. Cost-monitoring reports give the state a way to gauge progress and identify the strengths and weaknesses of the plan in action. It also gives context to the immediate changes employees and administrators notice on a daily basis.

The Future of California Workers’ Compensation

Cost savings and experiential reports over the next few years will better reveal the impact of the reforms on covered employees, employers, and insurers. Unfortunately, cost reporting does not provide insight into the everyday employee’s compensation experience.

Some of the reforms, including the independent medical review process, can prevent injured employees from receiving much needed prescription drugs and medical treatments. Cost savings may relieve some financial burdens within the system but create new service issues.

If you’re concerned about how the reforms may affect your workplace injury claim, discuss your situation with a workers’ compensation attorney. Depending on your injury, the bill could help or hinder your claim. An attorney who understands how SB 863 has changed the program can help you fight for your right to fair compensation.