Sacramento, CA – After a thorough actuarial analysis, a public hearing on the issue, and careful consideration of the facts presented, Insurance Commissioner Jones recently recommended a pure premium advisory rate of $2.56 per $100 of payroll—a modest 2.8 percent increase over the current filed rate of $2.49 per $100 of payroll.
“This is a case where the math matters and actuarial science is the critical component in determining a rate that will maintain insurers’ ability to pay claims,” said Commissioner Jones. “We cannot afford to set the pure premium rate based on over estimates of the potential reform savings that SB 863 will bring when insurers are already paying out more in claims than they are collecting in premiums.”
Today, companies are paying out 116 percent more in claims than they are collecting in premium. It’s a recipe for history to repeat itself with a significant number of insurers becoming insolvent just a few years ago. “The actuarial science is clear on this matter, and while I don’t have the authority to set the rates, I will advise insurers to use pure premium rates that are sufficient.”
The WCIRB Governing Committee recommended a pure premium rate of $2.38 per $100 of employer payroll based upon filings made by insurers as of July 1, 2012. Unfortunately, the WCIRB Governing Committee relied on significantly outdated information in reaching its recommendation, which included disregarding the analysis of its own actuarial committee. The WCIRB Governing Committee should have based its recommendation on actuarially supported numbers, but at the very least should have updated its recommendation to the current average filed pure premium rate level of $2.49 per $100 of employer payroll.
SB 863 Reforms
The Commissioner commended stakeholders and the Legislature and Governor for enacting SB 863, which delivers needed reforms to increase permanent disability payments for workers while reducing system costs. But he noted that it is important not to overestimate the potential net savings and to make sure the savings estimates are supportable and actuarially sound. The math matters and must be considered carefully when recommending the pure premium rate.
The first major component of SB 863 provides for an increase in permanent disability benefits to injured workers, benefits that previously were inadequate. Using objective criteria to determine impairment and providing limits on what can be compensated, the permanent disability reforms will also help to address areas of potential abuse.
The second major component of SB 863 provides for system reforms, particularly associated with the delivery of and payment for medical treatment, resulting in projected cost savings to cover the permanent disability increases and bring additional savings and stability to the system. These reforms include independent review of medical treatment requests and billing disputes.
The Commissioner determined that SB 863 will deliver savings of $1.5 billion to the system but found that there is not sufficient actuarial support for including an additional $1.6 billion of savings.
The proposed decision and order (PDF) are also available to the public for viewing.
Source: CA DOI