californiaGiven the tradition of California as legislative trend-setter for the nation, it may be worth paying attention to the recent calls for reform within the state’s worker compensation system. Backed by Governor Jerry Brown, labor unions, and a number of California-based employers, the main goal of the proposed reform is to increase payouts for injured workers while avoiding an increase in premiums paid by employers. The solution, as suggested by reform supporters, is to focus on cutting waste from within the system.

On the other side of aisle, insurance companies say they are already losing more money on claims processing and other expenses than they receive in premiums. A 2010 report from the LA Times stated that insurance companies spend $1.16 for every dollar they receive from employer premiums. This level is up dramatically compared to 2005 when just 73 cents were spent for each dollar earned in premiums.

The result of these skyrocketing expenses has been deep cuts in the average disability payout. University of California at Berkeley’s Survey and Research Center reports that in 2001 permanent partial disability recipients received an average of $12,000, an amount less than half of the $25,000 received in 2004. But, for most companies, this is far too little considering the rising rates of medical care and workers’ comp premiums. The Workers’ Compensation Insurance Rating Bureau reports that since 2008 insurance rates have risen, on average, from $2.16 to $2.37 per $100 in payroll spending.

For reform proponents, waste can be eliminated in several ways in order to open up more funds for disability recipients: calculation criteria for disability compensation can be simplified; outpatient surgery fees can be tied to the state and federal Medi-Cal system; doctors’ fee schedules can be made more efficient; and hastening medical care for injured workers can help ease symptoms quicker thus lowering costs.

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