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SANTA MONICA, Calif.-California should create a fast-track disability rating system for resolving minor claims that are driving up costs and slowing the resolution of all permanent disability claims, a research group says.
Claims-handling costs as a percentage of expenses are horribly out of whack for low-injury claims, said Rachel Kaganoff Stern, associate political scientist with Santa Monica, Calif.-based RAND Institute, a public policy research organization. Workers with minor disabilities receive relatively low compensation, yet the legal cost and effort to resolve their claims remains high.
RAND has spent the past year evaluating California's widely criticized permanent partial disability system. RAND was assigned the study by the Commission on Health Safety and Workers Compensation, a non-partisan commission created as part of 1993 reforms to the state's workers compensation system. The commission, which is charged with examining California's workers comp system and efforts to prevent occupational injuries, is expected to propose legislative changes in the spring.
The PPD system has come under fire because of its complexity and a perception that its costs are high while it delivers few benefits.
A full report on RAND's conclusions and policy recommendations will be released Nov. 21. But last week Ms. Kaganoff Stern said RAND researchers were particularly struck by a logjam of low-level claims that take a disproportionate amount of time to resolve.
"So our main policy recommendation, or the premier one, is that we begin to focus on these low-rated claims differently than
we focus on high-rated major claims," she said last week at Business Insurance's Fifth Annual Workers Compensation Conference in Santa Monica. "They are clogging up the system. We are told that claims adjusters and attorneys are cutting back on caseloads because claims have gotten so complicated. Why we are treating these low-rated claims with this complex process is beyond RAND.
"We are recommending a fast track for these claims-much like the quick-checkout aisle of a grocery store-that would limit the paperwork and would focus on getting these claims resolved very quickly. They would actually use a different schedule than the main disability rating schedule."
RAND also studied wage loss among disabled workers to see if there is any correlation between lost earnings and benefits paid under the state's disability rating schedule. In that respect, the researchers found the disability rating schedule lacking, so they will recommend it be revised based on a wage-loss study.
In conducting the study, researchers were not able to collect data from self-insured employers because the state does not collect it. Therefore, another recommendation is that the state create a claims database that captures information from self-insurers.
RAND's findings were based on statistical reviews and interviews with employers, workers, insurers and regulators in California's workers compensation system. Many of those participants still find the system complicated, adversarial and litigious despite reform efforts.
"Everybody agrees that the system is complicated," Ms. Kaga-noff Stern said.
"Basically every stakeholder we talked to thinks that it is worse, not better, and would gladly go back to pre-reform in terms of structural complexity in workers comp in California. The transaction costs are very high, particularly in comparison to the benefits that are paid in the state," she said.
In discussing workers comp trends in California, Ms. Kaganoff Stern was joined by Edward C. Woodward, president of the California Workers Compensation Institute and John G. Pasqualetto, president of American Home Assurance Co.'s Specialty Workers Compensation Division in New York.
Mr. Pasqualetto noted that premiums in California have dropped 35% in recent years and that insurer premiums collected in 1996 are comparable to those collected 10 years earlier. Losses have moderated since 1991 and were relatively flat in the post-reform years between 1993 and 1996.
But the stability in claims losses came about because of efforts that focused on the "picking of low-hanging fruit," he said. "The hypothesis that I have going forward is that those losses are going to increase."
From 1992 to 1994, losses decreased steadily, but from 1994 to 1996 the trend reversed.
"That suggests a very negative trend, because what you are seeing is reserves being taken down by carriers for prior years to make their accounting periods look better," Mr. Pasqualetto said. "We are essentially taking some of the fruit from the past and showing it in today's earnings. But the message from that is there isn't a lot left in the cupboard."
Loss evidence also "suggests the industry is having some reserving issues," he added.
At the same time, severity has not been stamped out of the system despite the reforms. "Quite to the contrary, we are seeing an emergence of severity," he said. Added to that, frequency has increased during the past two quarters.
"So there is some trouble in River City, although employers still enjoy a pretty good deal," Mr. Pasqualetto said.
Many cost factors in the system are being driven by factors other than the legislative reforms that began in 1993, Mr. Woodward said. Those factors include California's economic state, the aging of the workforce and an increase in carpal tunnel claims.
"So the trend that I see is probably increasing costs for the next year or two," he said. "Although (insured) employers are happy today, I would say that there is certainly trouble ahead in the next two years.'