INTENDED EFFECT

What politician doesn’t want to preside over either an expanding economy or decreasing operational costs for business?

That’s the position that Jerry Brown and Dave Jones find themselves in.

Jones gets to make the call as to what the “pure premium” rate for California workers’ comp insurance should be in 2017.

Should it be $2.22 per $100 of payroll, as requested by the WCIRB? Or should it be $2.12 as suggested by actuary Mark Priven? (see links to the Priven and WCIRB analyses below)

And since it is an advisory determination anyway, what difference does it make? After all, the average charged rate may be around $2.54 per $100 of payroll (according to the WCIRB 2016 State of the System the average charged rate was $2.84 during the first quarter of 2016).Workers’ comp pricing is an arcane matter, with the type of industry, X-mods, discounts and other various factors affecting the ultimate tab that an employer pays.

Jones and his staff may well end up splitting the baby.

Whether some employers pay more or less isn’t the message that gets traction in the media, however. The meta-message that will probably play in the business press is that workers’ comp costs are under control. Indeed, medical costs have been muted.

The recent 2017 legislation, and particularly AB 1244 (Gray) and AB 1160 (Mendoza), have the potential to further mitigate workers’ comp costs insofar as they help reduce and contain the spread of abusive practices by providers. How much is unclear.

What continues to be troublesome, however, is the volume of resources spent in California’s system to administer claims. According to the WCIRB 2016 State of the System pie chart for 2015, loss adjustment expenses were 18% of total insured system costs (at $3.1 billion). That’s around half of the percentage spent on medical (37% or $6.2 billion), and around three-quarters of what was spent on indemnity (which clocked in at $4.5 billion or 27% of total insured system costs).

Whether you call them cost containment expenses, loss adjustment expenses or whatever, the trend has been upwards as a time when indemnity and medical have muted.

That may not be keeping policymakers awake at night now, but if that trend continues something will have to change. One need look no further than the recent position paper from the U.S. Department of Labor to know that state systems, including ours, may increasingly come under the microscope.

But more on the U.S. Department of Labor paper in another post soon…….

Here is the Priven analysis of rates:

workerscomp2016markprivenletter

Here is the WCIRB’s October 2016 rate filing:

workerscomp2016wcirb10-3-16ratefiling

And here is the 2015 State of the System report form the WCIRB:

workerscomp2016stateofthesystem

Stay tuned.

Julius Young