WCIRB Updates Cost Impact Evaluation of AB 749

The California Workers’ Compensation Insurance Rating Bureau (WCIRB) recently released an updated evaluation of the cost impact due to benefit changes included in Assembly Bill 749. The bill, which was signed into law of Feb. 15, 2002, and scheduled to go into effect on Jan. 1, 2003, will increase the annual cost of benefits paid to injured workers by as much as 17.8 percent when fully implemented in 2006.

The WCIRB released the updated evaluation to take into consideration structural changes not previously reflected in the original estimate. “There were some things in the original evaluation that were not flushed out very well in terms of how the legislation may progress and so it’s really not possible for us to do any evaluations of how those changes in the system might impact the cost,” said Jack Hannan, director of Marketing & Communications for the WCIRB. “So, there was no accounting for those structural changes in the initial evaluation. The bill is constantly being amended and sent back and forth, and it’s just impossible to tell how it’s all going to shake out. What we evaluated the first time around was just the changes in benefits.”

According to the WCIRB, the structural changes now reflected in the cost evaluation include “the limitation of the presumption of correctness given to the primary treating physician to cases where the employee has predesignated a physician or chiropractor; the required use of generic drugs, if available and the physician does not specifically request a brand name pharmaceutical; and provisions facilitating the use of pharmacy networks.”

The structural changes account for a 5.2 percent decrease in the final estimate, while the increase in benefit costs will increase to 24.1 percent, totaling an estimated 17.8 percent overall increase, or $3.2 billion. The estimates do not reflect the cost of AB 749 on pre-January 1, 2003 injuries.

“While AB 749 did raise some of these indemnity benefits, it also tried to reduce some of the costs, so that this bill didn’t just raise costs,” said Hannan.

Additionally, Hannan ex-plained, “There were a couple of things that the bill authorized, but didn’t require. For instance, AB 749 directed that there could be the adoption of the official fee schedule for pharmaceuticals in July of 2003. It authorized it, but since it’s not in existence, we couldn’t put any sort of cost evaluation to it. AB 749 authorized the administrative director of the division of workers’ comp to adopt a fee schedule for outpatient surgery facilities. So again, since it authorized this future activity, we couldn’t really put a cost figure on that either.”

“We actually came up with this evaluation looking at real claims; about 170,000 claims of real, live, injured workers,” said Hannan. “We adjusted [the claims] to reflect level of wages. Then we basically took these claims and raised them up to the new benefits level and compared them to the current benefits level, and that’s where you see the change. We believe they’re accurate but when you look at some of the structural reforms that haven’t taken place or may not take place in the future, if some of those materialized, to what extent they get implemented, that will have some impact on the total cost.”

The WCIRB’s Governing Committee also recently approved the filing of a proposed 11.9 percent increase in pure premium rates effective January 1, 2003 for new and renewal policies. “9.7 percent of that 11.9 percent is due specifically to AB 749,” said Hannan. “A vast majority of the increase that we’re proposing in pure premium rates is based on the changes in the benefit level.”

Topics Workers' Compensation