In an unusual move, the Workers’ Compensation Insurance Rating Bureau of California has filed with the Department of Insurance a recommendation that benchmark workers’ comp rates in the state be increased by an average of 2.7%, effective Sept. 1 of this year.
Typically, the Rating Bureau will only file for Jan. 1 or mid-year rate increases that take effect July 1. The recommendation for the Sept. 1 rate hike is not so much based on recent claims cost inflation but a few other factors, including changes to the state Medical-Legal Fee Schedule and a section of the state Official Medical Fee Schedule.
The recommendation has been sent to Insurance Commissioner Ricardo Lara, who will hold a hearing in July on the filing, after which he can approve the filing or reject it and either order a different rate hike or a benchmark rate decrease.
His decision will affect California employers who are just beginning recovery from the financial effects of the COVID-19 pandemic. If approved, the filing would be the first rate hike since 2015.
The benchmark rate – also known as the pure premium rate – is a base rate that insurers can use as a guidepost for pricing their policies. It only includes the cost of claims and claims-adjusting costs, and does not take into account overhead and other expenses insurance companies face. The rate is advisory only and insurers can price their policies as they see fit.
The recommended rate increase of 2.7% is an average across all class codes and some employers may still see rate decreases when their policies next come up for renewal.
The recommendation comes as the number of workers’ compensation claims plummeted during the pandemic in 2020. Total workers’ comp claims tumbled 23% from 2019, according to WCIRB statistics.
On top of that, the Rating Bureau is not using any data from COVID-19 workers’ comp claims, as it considers the event a distortion to industrial accident and illness claims and costs.
WCIRB chief actuary Dave Bellusci said that to reflect the unique impact of the COVID-19 pandemic on exposure and losses, the Rating Bureau excluded all claims arising from a COVID-19 diagnosis from the analysis and largely relied upon pre-pandemic experience to project future costs.
Here are the main drivers of the rate hike request:
- The new Medical-Legal Fee Schedule, which took effect April 2021, is intended to increase the reimbursement rate for medical-legal reports, which will raise the cost of those reports by an average of 22%, the Rating Bureau estimates. That will result in a 1.4% increase in the cost of the average claim.
- The rate filing also takes into account changes to California’s official workers’ compensation Medical Fee Schedule, which lists the prices that hospitals can charge for various services. The changes are expected to increase average medical costs per claim by 2.4%, according to the WCIRB’s rate filing.
- The average claims cost is expected to increase 1%.
- The rate filing also takes into consideration expectations that workplace injury rates will once again start climbing.
The COVID-19 claims story
The Rating Bureau made a decision early in the pandemic that COVID-19 workers’ comp claims would be excluded when calculating employers’ X-Mods.
After the pandemic hit, Gov. Gavin Newsom announced that it would be presumed that workers who were working on-site during the pandemic and contracted coronavirus, had become infected during the course of their work.
That means they were automatically eligible for workers’ compensation benefits, including any treatment and medicine costs, as well as indemnity pay for time they missed from work due to the positive diagnosis.
Despite the surge in COVID-19 claims among injured workers, overall workers’ comp claims still plummeted in 2020.
According to the California Workers’ Compensation Institute, there were 142,513 COVID-19 workers’ compensation claims filed in the state between January 2020 and March 2021. It projects that the number will grow to 148,153 as more claims surface from that period.
Those illness claims include 883 workers in California who died from COVID-19 complications.
Sectors with the most COVID-19 workers’ compensation cases are as follows:
- Health care: 42,535 (32%)
- Public sector: 23,196 (17%)
- Retail: 13,816 (10%)
- Manufacturing: 10,200 (7.6%)
- Transportation: 8,658 (6.4%)
- Food services: 6,239 (4.6%)
- Administration and waste: 5,246 (4%)
- Construction: 3,387 (2.5%)