Workers’ Comp “Sticker Shock” Continues in Spite of Reforms

Published on Tue, 09/03/2013 - 16:53

When the California Legislature and Governor Jerry Brown enacted a major overhaul of the state's workers’ compensation insurance system last year, it was touted by business groups as a major victory in the ongoing battle to rein in workers’ compensation costs.

But according to a recent article in the Los Angeles Business Journal, many business owners have faced an unexpected surprise this year: significant hikes in their workers’ compensation insurance premiums. That’s not the result they were expecting from “cost-saving” reforms.

What’s going on?

Many believe a rise in both frequency and average claim cost is the driving force behind the steep rise in premiums. California’s Workers’ Compensation Insurance Rating Bureau data shows that the total average cost of a claim surpassed $81,000 last year. There’s also been a severity increase in medical costs. While claims over $100,000 used to be uncommon, lately it’s not unusual to see claim costs in excess of $500,000.

Employers won’t see anticipated reform savings right away partly because some aspects of California’s new law don’t take effect immediately. In the meantime, the legislation also increased benefits to many injured workers as of January 1, 2013, so more money is going out. Add in the hardening insurance market, higher cost per claim and rising medical costs, and it’s easy to see how short term savings are wiped out.

And California isn’t alone …

The National Academy of Social Insurance (NASI) recently released its latest study, Workers’ Compensation: Benefits, Coverage, and Costs, 2011, reporting that both workers’ compensation benefits paid to insureds and costs for employers increased across the nation in 2011, causing many states to take action, including:

  • New York. In his 2013 State of the State address, Gov. Cuomo announced plans to streamline the workers’ compensation system, reduce administrative costs, and close redundant trust funds.
  • Oklahoma. In April, the legislature passed SB 1062, a bill that completely revamps the state’s workers’ compensation system, changing it from a system run by the courts to one administered by three appointed commissioners.
  • Missouri. A new law signed in July makes workers’ compensation the sole remedy for workers with occupational diseases and ends disputes over such payments by the Second Injury Fund.

What can employers do?

Employers need to keep identifying opportunities to improve performance and continue to stay on top of claims. As always, employers should aggressively pursue return-to-work options, tirelessly promote safety, and avoid costly and unnecessary delays that interfere with decisions about compensability. Employers also need an insurance partner who knows the ropes and can help them navigate change.

At Heffernan, we believe in crafting customized solutions for each client’s needs, and we can help you and your bottom line survive these changing times with smart workers’ compensation insurance.

Also, be sure to check out our webinar calendar for upcoming webinars on the topic, or visit our webinar archive for past webinar recordings.