WELCOME TO THE WORKERS’ COMPENSATION FORECAST 2011 Jerry Azevedo,

Workers’ Compensation Action Network APCO Worldwide

Jason Schmelzer,

California Coalition on Workers’ Compensation Shaw / Yoder / Antwih, Inc.

WHO WE ARE Workers’ Compensation Action Network    Broad-based, statewide coalition of employers and insurers dedicated to defending and advancing reform of California's workers' compensation system  Includes every major employer trade association in California  Insured, private and public self-insured employers  Nonprofit organizations Educate lawmakers, the business community and members of the media on workers’ compensation issues  Track outcomes of recent legislative reforms  Disseminate original material  Provide media commentary  Conduct annual Legislative Education Day Mobilize grassroots network to support/oppose legislative proposals

WHO WE ARE California Coalition on Workers’ Compensation    Statewide association of employers committed to maintaining a workers’ compensation system that provides quality benefits at a reasonable cost to employers  Founded in 1985 and governed exclusively by CA employers Advocacy  Intimately involved in the development and passage of 2004 reforms  Serve as the voice of California employers in legislative and regulatory venues  Unrivaled experience and knowledge of workers’ compensation policy in Sacramento Education   Annual conference on workers’ compensation trends, strategies, and public policy Coordinate annual Legislative Education Day

WHAT WE’LL COVER TODAY  Update on California’s Workers’ Compensation System  Election Outcomes and Their Impact on the Business Community and Workers’ Comp  Preparing for 2011

WHAT’S BREWING IN WORKERS’ COMP?

WHAT’S BREWING IN WORKERS’ COMP?

…Costs Per Claim Have Increased by 50%

WHAT’S BREWING IN WORKERS’ COMP?  Average insurance rate for employers up by approximately 3% since 2009  Rate filings for January 1, 2011 indicate an additional 3% increase  Rate increases far below recommended 27.7% increase (2009, 2010)  Insurers paid $1.25 per $1.00 earned in premiums in 2009

WHAT’S BREWING IN WORKERS’ COMP?

…Court Cases Increasing Disability Benefits, Driving Uncertainty

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lead to ‘(1) changes in PD ratings, (2) increased incentive for litigation, and (3) decreased uniformity in determining PD. Ultimately, these effects would likely lead to increased benefits for workers and higher costs for businesses and governments.’

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WE’VE BEEN HERE BEFORE  Medical costs for workers’ compensation claims in California more than doubled between 1995 and 2002 and grew much faster than the national rate of medical inflation  Medical costs per claim were twice as high as the national average in 2002  Permanent partial disability claims were being filed at a rate three times the national average and 20 percent higher than the next highest state

RECAPPING THE REFORMS (2002 – 2004) Legislation Estimated System Cost 2002 AB 749 “Benefit increase bill” 2003 AB 227/SB 228 “Medical cost reforms” 17.6% Increase 13.3% – 15.7% Reduction 2004 SB 899 “Comprehensive reform bill” 14.7% Reduction + 14.9% Reduction (PDRS)

RECAPPING THE REFORMS (IMPACT ON EMPLOYER COSTS)  62% reduction in premium per $100 of payroll  Billions in savings for local government, schools  Increased market competition (29 new insurers)  State Fund market share reduced dramatically

But . . .

 California still relatively high-cost state: 131% of national median  California employers pay 18% of national benefits, but employ only 12% of covered workforce

RECAPPING THE REFORMS (IMPACT ON WORKER OUTCOMES)  Return-to-work rate increased by 5%  Increase as high as 11% for certain body parts  Percentage of injured workers receiving TD benefits equal to two-thirds of wages increased from 80% to 97%  TD weekly max increased by 100% since 2003  Litigation rate is down, disputes being resolved more quickly  Satisfaction levels with access to medical care and quality of medical care consistent with pre-reform levels

PERMANENT DISABILITY BENEFITS  Decline in PD levels  Intent of shift to objective rating system – subjective cases out  Apportionment to causation  Number of weeks reduced by statute for ratings lower than 15%  Measuring the decline in ratings  Measurements vary from 29% to 42%  Comparison to pre-reform  PD benefit costs increased by 62% between 1998 and 2004  PD cases filed at three times national average  AB 749 increased PD benefits

PERMANENT DISABILITY BENEFITS

RECAP OF SCHWARZENEGGER YEARS

2 0 0 3 – 2 0 1 0

REFORM ROLLBACK CAMPAIGN

LEGISLATION TO UNWIND REFORM         Average 15-20 bills every year Permanent disability increases Temporary disability cap changes Fee schedule changes New penalties on employers Insurance rate regulation Public sector presumptions and special benefits Administrative hurdles for UR and Medical Provider Networks

GOVERNOR’S RESPONSE TO LEGISLATIVE ATTACKS Pragmatic Problem Solving  TD cap fix   Medical treatment guidelines PD increase through regulations Reform has been preserved through the veto  PD Increase vetoed three times  Apportionment limitations vetoed twice  Administrative burdens vetoed many more Costs have been increased due to signing public safety bills  Cancer presumption expansion  Death benefit expansion  Pre-designation bill

ELECTION RESULTS

CALIFORNIA’S NEW GOVERNOR Jerry Brown – 53.4% Meg Whitman – 41.5%

DEMOCRATS DECISIVE IN RACES FOR STATEWIDE OFFICE Lt. Governor  Newsom v. Maldonado Treasurer  Lockyear v. Walters Insurance Commissioner  Jones v. Villines Controller  Chiang v. Strickland Superintendent of Public Instruction  Torlakson v. Aceves Attorney General (undecided)  Harris v. Cooley

LEGISLATURE GETS MORE DEMOCRATIC D - 24 R - 15 State Assembly  52 Democrats  28 Republicans  Democrats picked up two seats in 2010 election cycle State Senate    24 Democrats 15 Republicans  1 vacancy Moderate caucus grew in 2010 election cycle D - 52 R - 28

CALIFORNIA VOTER SENTIMENT          Low approval of legislature Low trust of state government Serious concerns over economy and state budget Reform-minded electorate (Props 22, 25, 26) Popularity of President Obama Unpopularity of GOP Growth of independent voters Participation of Latino voters Green values

ELECTION ANALYSIS

LEGISLATURE     Legislative composition not substantially altered Senate remains more moderate house Legislature assumes new responsibility due to lack of opposition party Governor Budget problems will continue to be paramount and may serve as limiting factor

EVALUATING GOVERNOR-ELECT BROWN  Campaign statements  Policy agenda and priorities  Past Actions  Appointments

POLICY AGENDA AND PRIORITIES  Budget – $25 billion+ deficit 2011-2012  Jobs – Unemployment rate stagnant at 12%  Infrastructure Investment  Renewable energy  Other priorities likely set by legislature

PAST ACTIONS – TEMPORARY DISABILITY History    Increased the minimum TD rate in 1976 and 1977 Increased the maximum TD rate in 1980 and 1982 Eliminated the 240 week TD cap in 1978 Current Issues   Benefit levels indexed so no increase needed Current 104 week cap is controversial, even with expanded timeframe

PAST ACTIONS – PERMANENT DISABILITY History  Increased PD benefits in both 1976 and 1982   Current Issues Post-reform PD benefits levels Could be raised by regulation or legislation

PAST ACTIONS – PRESUMPTION BILLS History  Brown signed CA’s first cancer presumption bill in 1982 Current Issues   Public sector presumptions have proliferated Threat of presumptions entering the private sector

PAST ACTIONS – MEDICAL CONTROL History   Signed bills allowing injured worker physician choice in 1975 Expanded injured worker physician choice to first day in 1977 Current Issues  Employers have medical control through MPNs

APPOINTMENTS  Secretary of the Labor and Workforce Development Agency  Director of the Department of Industrial Relations  Administrative Director for the Division of Workers’ Compensation  Workers’ Compensation Appeals Board judges  Appointees in these areas will have substantial impact on policy

PREPARING FOR 2011

REFORM-ERA ACTIVISM NEEDED  “Workers’ comp is not some sleepy little issue”  Employer engagement was critical to passing and protecting the reforms  Near-complete turnover of reform-era lawmakers  Reform results partially defined by 7-year, well-funded rollback campaign

REFORM-ERA ACTIVISM NEEDED  Policymaker education must occur at all levels  Importance of stable workers’ compensation system for employers, injured workers  Impact of recession, higher WC costs on jobs and public services  Data-based, balanced approach to system improvements

WHAT CAN EMPLOYERS DO?

 Get involved  WCAN www.fixworkerscompnow.org

 CCWC www.ccwcworkcomp.com

 Engage locally  Take action  Connect with your legislator  2011 Legislative Day  Letters and calls matter  Join us online  Twitter  Facebook

Questions?

Thank You