There has always been a disparity between how large and medium sized employers handle their workers’ compensation program as compared to a small employer. The large or medium sized employers usually have both the sophistication and the economic resources to directly hire, or demand from their broker, someone with the skills to help oversee/manage both their loss control program, as well as their claims. The small employer does not have the luxury of such a support system and this disparity puts the small employer at a much greater risk of being abused by the system. One claim badly handled can effectively put the small employer out of business.

The Health Care Organization (HCO) program created by the 1993 Reform Act offers all employers, large or small, the ability to help themselves control their costs in this adverse environment. However, the interest in and therefore the participation in an HCO up until recently has been limited. Two very different but equally important factors contributed to the lack of participation.

The first was the availability of cheap insurance. This came about when the state went to an open-rating system in January of 1995. For 80 years, the state operated under a minimum rate law which guaranteed almost any workers’ compensation insurance company an excellent return on investment. On 1 January 1995 we went to a free market, open rated system very similar to any other type of liability insurance. This legislative change meant that the Insurance Commissioner could no longer tell the various carriers what the minimum rate for any specific class code would be for the coming year and therefore, the minimum that they could charge.

What happened over the next couple of years was a competitive rate feeding frenzy by the carriers trying to capture market share. This in turn created an atmosphere of “I don’t care about claims as much as I used to”. Employers simply said “Who needs to worry about claims now that I have low cost insurance?”

The second problem was the complexity of the HCO program itself. Only the most sophisticated employers and their carriers chose to participate. The rest felt that it was just too much trouble for the expected return or simply did not wish to take the time to really learn what the potential benefits of the program could be for them.

We all now know that this apathy about costs has again shifted. Insurance companies got into trouble and were taken over by the Insurance Department due to financial inadequacies. Other carriers saw the handwriting on the wall and simply withdrew from the California market. This caused the State Fund to have to take on much more business then they ever wanted since they are the carrier of last resort. And the rest as they say is history. Very limited markets, rates rising at astronomical rates and claims costs out of control. All of this finally created a renewed interest in the HCO program. However, for the most part it is still considered too complicated to run effectively.


Enter SB 899 Signed by the Governor on 19 April 2004


To help convince those businesses who are thinking of leaving the state and to convince and encourage others thinking of coming here, the legislature passed and the Governor signed SB 899 which has made significant changes to the law. Many of the changes are technical in nature and deal with the way claims are handled by the various carriers.

However, of most import to the business community, is a new program created under Labor Code Section 4616 which on 1 January 2005 will have a significant impact on claims. Those major complexities that make HCOs so difficult to operate have been eliminated in this new program. The two major changes are the removal of the need to enroll employees and the establishment of “cradle to grave” control over medical treatment.

Labor Code Section 4616

Gone is the need to enroll employees. This has been probably the biggest stumbling block to any HCO program. Under the new “Medical Provider Network” (MPN) program, employers will no longer have to go through the arduous procedure of making sure that every employee receives material about their HCO program and then be able to prove in court that their injured worker did in fact receive the materials. The attorneys that represent injured workers learned quickly to challenge the employers’ right to direct treatment beyond the normal 30 days provided for under Labor Code § 4600. Those attorneys who were successful with their challenges took over medical control thereby allowing them to direct treatment through their doctors or to put it simply, bring the claim back to business as usual.

Also gone is the 30 day waiting period for the employee to decide what they want to do. All that needs to happen once the law goes into effect is for the employer to say they wish to participate. If their carrier agrees, then the program can start that day.

Next, the 90/180 days of medical control are gone. Employers and their carriers now have cradle to grave control but only if they pay attention to the rules that govern claims handling. I can tell you without reservation that the applicant attorneys are already crafting ways to seize control from you, thereby putting all of us back into the old system of dueling doctors. Which brings us to our solution under this new law....

This new Labor Code section offers all employers, in concert with his/her workers’ compensation carrier, the ability to control the amount of time available for the carrier/TPA to direct the medical treatment of their injured employee. The program extends the time within which the carrier can direct treatment from the current 30 days (Labor Code § 4600) to cradle to grave control (Labor Code § 4616). The extended period within which to both treat and develop a defendable medical record offers the carrier the opportunity to reduce its overall costs for any given claim by as much as 50%. The additional time within which to direct treatment also allows the carrier to aggressively defend questionable claims.

Regulations

It is said that the devil is in the detail and so that is the case with the new MPN regulations. They have been drafted and should be in place by 2 November which is what the statute requires. We have reviewed and commented on the initial draft from the Administrative Director and are waiting to see what requirements the final regulations will impose. I will be reporting more specifically on how this new tool will best serve all of you in the November issue. However, be sure to call if you have any questions before hand.....