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Published: Winter, 2004; Vol 6, Num 1

 

Changes Driven by Spike in Health Care Costs:

Florida, California Model Reform
Of Workers' Compensation Insurance

The soaring cost of health care services is provoking change in workers' compensation insurance systems across the nation. In 2003, Florida and California, two of the largest states with the biggest problems, led the way.

In most states, the government regulates a workers' compensation insurance market in which private insurance companies sell coverage to employers. Instead of directly providing insurance, state regulators set standards under which any private insurance provider may operate.

Or not. If the standards do not provide a margin of profit deemed sufficient to insurance providers, they may choose not to sell insurance in a particular state.

This was the problem faced by Florida in recent years as escalating health care costs squeezed profit out of the system for insurers. For various reasons, state regulators made no substantial changes in standards. As a result, fewer and fewer insurers chose to operate in the state, and, with demand for coverage exceeding supply, prices rose precipitously, especially for construction contractors.

A similar situation developed in California, the largest workers' compensation insurance market in the country, and the problem became a major issue in last October's recall election.

Florida Governor Jeb Bush and ousted California Governor Grey Davis - as they signed reform packages, respectively, last summer and this fall - made strong claims that the new legislation would provide relief to businesses and solve their state's problems.

A look at the changes in both states, however, indicates no fundamental overhaul but, rather, a redistribution of cost burdens. In Florida, the trial lawyers bore the direct brunt of the restructuring. The law eliminated hourly attorney fees for plaintiff lawyers and restored the old system in which lawyers are compensated only by a portion of whatever they win in court. Since they sometimes win little or nothing, the old system tends to depress legal action.

As in California, fraud was a target of reformers in Florida. Both states made adjustments designed to weed out fraud.

Unlike Florida, California took steps to cut benefits. It eliminated a popular but expensive vocation rehabilitation program designed to speed the return of injured workers to their jobs. The state also limited compensation for chiropractic and therapy treatments. In Florida, the legislature actually increased benefits for some workers - permanent disability benefits were raised as were benefits for employees who have temporary disabilities but are still able to work at a reduced wage.

Florida also increased the reimbursement schedule for certain specialty doctors and surgical physicians. This may encourage more experienced or better-trained doctors to handle worker injuries, thus speeding recovery. California adopted a fee schedule for previously unregulated outpatient surgery centers; already, it had established schedules for doctor and hospital costs. A fee schedule for prescription drugs, now under development, will encourage the use of generic drugs.

In the short run, fee schedules provide a means to control price increases. However, in the long run, they must be modified to reflect general market conditions, or service providers may opt out of the market.

Each state also affirmed a different workers' compensation program of importance to Laborers and LIUNA signatory contractors.

California expanded its Alternative Dispute Resolution (ADR) program. Under this program, employers and unions, through collective bargaining, can adopt a number of measures to facilitate less costly delivery of quality health care services for injured workers (see Alternative Dispute Resolution: a Better Way to Address Workers' Compensation).

Florida continued its current premium discount for employers who maintain a qualified workplace safety program.

According to the Workers' Compensation Rating Bureau, California's changes will allow a 2.9 percent average price cut in premiums for businesses in the state, effective January 1, 2004. However, many employers are paying rates set last January and have yet to absorb a 7.2 percent emergency increase imposed last June. These employers, therefore, likely saw a 4.3 percent increase this month.

Florida's changes are expected to produce a 12.5 percent cost savings for the state system, but it is unclear what the changes will mean for businesses. However, a four percent reduction in rates for construction contractors was mandated by the legislation.

[Steve Clark]