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Insurers unconvinced that Calif. law reforms will reduce workers comp costs

Doubts expressed, despite projections of $300M savings

Insurers unconvinced that Calif. law reforms will reduce workers comp costs

DANA POINT, Calif. — While recent workers compensation reforms in California aim to reduce costs for employers, insurers and claims handlers say they're concerned the new law won't do much to ease rising expenses.

The expected effect of S.B. 863 was discussed during an “open mic” panel at the California Workers Compensation & Risk Conference in Dana Point, Calif.

California Gov. Edmund G. Brown Jr. signed the legislation into law last week. The measure aims to reduce comp costs for employers and insurers while boosting permanent disability benefits by 30% during the next two years for injured workers.

Mark Wilhelm, CEO of St. Louis-based Safety National Casualty Corp., told conference attendees that the insurer expects the law to be “cost-neutral at best” for workers comp payers.

He said that increased benefit costs can be quantified by workers comp insurers and claims handlers. However, Mr. Wilhelm said, savings from reforms are “theoretical” for now.

“There's definitely a cost associated with the benefits provided in this bill, and we're going to approach it as a cost and not necessarily a savings,” Mr. Wilhelm said.

Todd DeStefano, president of risk management practices for Parsippany, N.J.-based York Risk Services Group Inc., agreed that it's difficult to determine for now whether S.B. 863 will lead to lower costs for California's comp system.

“Our position is costs are going to go up, at least initially,” Mr. DeStefano said during the panel.


Although insurers and claims handlers were wary of S.B. 863's effect, some estimates show that the legislation could reduce California's workers comp costs. On Friday, Fitch Ratings Ltd. said it expects the California reforms to reduce costs by $300 million, or 1.4%, annually.

At the conference last week, state officials said they are preparing to implement the workers comp reforms effective Jan. 1, 2013. The changes include an independent review process for medical treatment and billing disputes, fee schedules for home health care, language interpretation and other comp-related services, and fees for current and future lien filings.

Katherine Zalewski, chief counsel with California's Department of Industrial Relations, and Ronnie Caplane, chairwoman of California's Workers' Compensation Appeals Board, said both agencies plan to hire staff to help implement the changes and help handle an expected uptick in contested claims.

“There's always a big surge in appeals whenever we have a reform,” Ms. Caplane said.

In a session on Medicare secondary payer compliance, experts said Medicare set-aside accounts have been receiving faster approvals in recent months since the Centers for Medicare and Medicaid Services switched contractors for the review process.

Panelists discussed government approvals for Medicare set-asides, which are funds used in workers comp settlements to pay future medical costs for Medicare-eligible workers. The optional approval process is conducted by a contractor, and Medicare experts have said it can take several months to receive approvals for set-asides.


However, Michelle Allan, an attorney with law firm Burns White L.L.C. in Pittsburgh, said her firm has seen faster results with Provider Resources Inc., the Erie, Pa.-based contractor that began reviewing Medicare set-aside agreements in July. Approvals previously were handled by Annapolis Junction, Md.-based contractor Lifecare Management Partners.

“We've been seeing turnaround times in under three months, two months in some cases,” Ms. Allan said. “So it seems as though they're doing a pretty good job in trying to be timely and keeping things moving.”

Jennifer Jordan, general counsel of Medicare compliance company Medval L.L.C., estimated that there is a backlog of about 8,000 of Medicare secondary payer cases that accumulated before Provider Resources took over this summer. She said it appears that the new contractor is working to reduce the accumulation of cases.

Despite seeing a quicker approval process, Provider Resources appears to be going through a “learning curve” as a new Medicare contractor, said Daniel Anders, compliance director for MedAllocators Inc., a Medicare compliance firm in Lawrenceville, Ga. He said that some Medicare set-aside reviews received by MedAllocators have had errors.

“I assume after a while, after they get though the bugs and the mistakes, that it will level off in terms of the errors we're seeing in the MSA approval letters we're getting back,” Mr. Anders said.

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