According to NASI, the drop in compensation payments by California employers probably were the result of recent reform bills passed in the state in 2003 and 2004 that aimed to cut several billion dollars from annual costs to employers by restricting worker choice and benefits, as well as discourage “frivolous lawsuits that were driving up costs.”
The decrease is significant because California is a large state – accounting for nearly 20 percent of national benefit payments in 2005 – so its results altered national trends. Outside California, total workers' compensation payments rose by 1.7 percent, an increase driven by a 4.1 percent increase in payments to medical providers. Cash payments to injured workers outside California showed a small decline (0.3 percent).
California's 12.2 percent drop was attributed to a 16 percent decline in medical payments and an 8.6 percent decline in cash payments.
"The reduced spending for benefits and medical care reflects the initial stages of cost containment measures that were put in place in 2003 and 2004 reforms to the California system," according to NASI member Christine Baker, who directs the California Commission on Health and Safety and Workers' Compensation, a nonpartisan labor-management group that advises state policymakers.
On a national level, workers' compensation payments for injured workers fell by 1.4 percent to $55.3 billion in 2005, which include $26.2 billion to providers of medical care and $29.1 billion in cash wage replacement benefits for injured workers.
For employers who buy insurance, their costs consist of the premiums they pay to insurance companies plus benefits they pay under deductible arrangements in their insurance policies. For employers who insure their own workers, costs are the benefits they pay plus administrative costs. In 2005, employers paid a total of $88.8 billion nationwide for workers' compensation. A sharp drop in California employers' costs (of 9.8 percent) held down the national increase in employer costs to 2.3 percent. Outside California, employer costs for workers' compensation rose by 6.5 percent.
California Savings Affects Seriously Injured Workers
The saving in workers' compensation payouts have come at a price to workers, according to Tom Rankin, former head of the California Labor Federation, who stated that he is worried that the recent reforms have cut too deeply into disability payments for seriously injured workers.
He told OccupationalHazards.com that as rates continue to go down, workers are being negatively affected as permanent disability benefits have been cut by 50 percent and temporary benefits have been limited to a 2-year period instead of the previous 5-year limit.
“This has caused a lot of grief for injured workers,” he said.
The revised compensation schedule for workers with permanent partial disability – those who can still work but whose injuries will indefinitely limit their work abilities – were intended to reduce costs and apply medical standards in deciding how serious a worker's injuries are.
The new system has a medical evaluator assess the injured worker's impairment, based on American Medical Association guides. That assessment then is refigured to adjust for the effects of any injury incurred by the worker, then adjusted again for the worker's occupation, age and diminished future earning capacity to determine disability benefits.
In April 2007, the California Labor Federation released a report concluding that insurance companies benefited hugely from the legislation. According to report findings, workers’ compensation changes that have made it harder for injured workers to access benefits has pushed the frequency of claims even lower. In addition, the report said that insurers are now making historic profits, as their loss ratio was 30 percent in 2005. That is, for every dollar collected in premiums, insurance companies are only paying out 30 cents in benefits.
According to the report, “companies have never enjoyed such large profit margins.”
The new report, Workers' Compensation: Benefits, Coverage and Costs, 2005, can be found on the NASI Web site at http://www.nasi.org/publications2763/publications_show.htm?doc_id=516615&name=Workers'%20Compensation.