Group 4
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Workers’ Compensation and The
Three Parts
Workers’ Compensation is a social insurance
program that provides:
 Medical care
 Cash benefits
 Rehabilitation services
Three coverages are provided: workers’
compensation insurance, employers liability
insurance, other-states insurance
Workers' Compensation
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Objectives and Eligibility
Requirements of Workers’
Compensation



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
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Provide broad coverage
Substantial protection
Provide sufficient medical
care/rehab
Reduction of job related
accidents
Reduce litigation
Two principal eligibility
requirements must be met
Workers' Compensation
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Workers’ Compensation Benefits



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Unlimited medical care
Disability-income
benefits
Death benefits
Rehabilitation services
Workers' Compensation
Keep the
benefits coming!
4
Workers’ Compensation Mess in
California



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Rates were falling due to
set rates without state
approval
Insurers competed for
business
Carriers selling insurance
at a loss to gain market
share
Firms became insolvent
Workers' Compensation
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Workers’ Compensation Mess in
California (Cont.)
Businesses pay highest premiums, but injured
workers get the lowest benefits.
 Costs paid by employers are the highest in the
country.
 Average employer pays 5.2% of payroll.

Workers' Compensation
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Problems & Issues
30% of claimants who miss work hire a lawyer
 Doctors & patients have little incentive to
restrain costs
 Employers often hire dueling doctors
 California gives lots of discretion
 Unnecessarily complex, difficult to administer,
some cases outdated

Workers' Compensation
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Problems & Issues (Cont.)
Difficulty finding workers comp. Insurance
 California receive lowest disability benefits
 California has highest litigation and medical cost
 Last year, job based insurance premiums
increased by an average of 10%
 Nearly 1 million claims filed each year

Workers' Compensation
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Problems & Issues (Cont.)
Standards of disability awards
 Stricter guidelines for permanent- partial
disabilities
 Physician choice
 California exceeds national norm
 Workers file more claims than elsewhere
 Medical cost in California far above average

Workers' Compensation
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Problems & Issues (Cont.)
Lack of fee schedule
 Delays in updating existing fee schedules
 No fault system
 Rising medical inflations
 Indemnity
 Underwriting performance

Workers' Compensation
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Workers Compensation Fraud
What is workers’ compensation fraud?
 The two most common types of workers’
compensation fraud :

 Premium
 Benefit

fraud
Health care provider or attorney assists the
worker in fraudulent schemes, or participates in
double billing.
Workers' Compensation
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Workers Compensation Fraud (Cont.)
In 2002-03 there were 660 fraud cases
representing more than $54 million dollars in
chargeable fraud
 Humboldt man was charged with 6 Felony
counts for defrauding workers’ comp.
 $7.1 billion in 1993 to $29 billion in 2003
 Fraud estimated to be between $1 to $3 billion

Workers' Compensation
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Workers Compensation Fraud (Cont.)

Fraud committed by companies


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California passed AB227
Before legislation


50,000
Now


Falsely declaring number of workers
Falsely declaring number of hours
150,000
Investigation department
Workers' Compensation
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Video
Workers’ Comp. fraud:
It affects us all
Workers' Compensation
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Current Claims and Costs in
California
Reserves more than doubled from $9.5 billion in
1995 to $25 billion in 2002.
 Medical Expenditures skyrocketed from $2.6 $5.3 billion.
 Claims have been declining, but savings have
been offset by rising medical costs.

Workers' Compensation
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The Rise In Cost
Substantial increases in medical costs per claim
 Average medical cost per claim in 2002 was
$31,000.
 California employers pay more in Workers’
Compensation premiums than any other state.

40 states premiums average less then $4.00 per $100
of payroll
 California averages $6.50 per $100 of payroll

Workers' Compensation
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Current Claims & Cost (cont.)

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California has difficult
political environment for
business.
Between 1997 and 2000,
indemnity claims increased
230%.
62% of claim dollars go to
medical bills and not weekly
benefits.
Excessive use of prescription
pain medication.
Workers' Compensation
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Current Claims & Cost (Cont.)

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Hospital Cost totaled
$1.1 Billion in 2002.
Chiropractor visits per
claim up 70%
Pharmaceutical service
has grown 243%
$86.4 million in 1997 to
$296.6 million in 2002
Workers' Compensation
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Chart 1: California Distribution of WC Medical
Payments, 2002
Health Care Provider
(50%)
Hospital-Outpatient
(17%)
Hospital-Inpatient (11%)
Pharmacy (7%)
Medical Cost
Containment (7%)
Payments Made to
Worker (6%)
Medical-Legal (2%)
Workers' Compensation
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Table 1: Service Utilization in California vs.
Other States
CA
Average Payment Per
Claim
12-State Median Difference
$5,667
$5,786
Similar
3.6
3.2
Similar
Average Visits Per
Claim
29.7
17.4
+71%
Average Price Per Visit
$57
$101
-44%
Services Per Visit
Workers' Compensation
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California Legislation
AB 749 was passed on February 4, 2002
 Bill provides first increase in workers’
compensation benefits for injured workers since
July 1, 1996.
 Mandates return to work programs
 Also provides pharmaceutical and outpatient
surgery fee schedule
 New requirements for enforcement of illegally
uninsured employers.

Workers' Compensation
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Reform Plan
Propose to cut workers compensation rates in
half.
 Which would result in $5 Billion in savings.
 Democrats have stated that the reform package
would reduce workers’ compensation cost by
14.9%.
 Plan will also increase the burden of proof for
claims of “cumulative injuries” that builds over
time.

Workers' Compensation
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Proposed Solutions To Workers
Compensation

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
To regulate the amount
of chiropractic and
physical therapy visits
per claim.
Strict guide lines of
medical treatments.
Make fees for outpatient
surgery centers tied to
Medicare rates and
pharmaceutical prices
tied to Medi-Cal rates.
Workers' Compensation
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For more information, please visit our Web site at
www.angelfire.com/biz7/workerscomp/index.html
Workers' Compensation
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