Quarterly Report on Workers' Compensation

Recommendation

Receive and file the Quarterly Report on Workers' Compensation

Background

During the 1998-99 budget study session, the City Council requested a quarterly report on activities aimed at reducing the City's costs for workers' compensation claims. This was in response to the increase in workers' compensation claims expense that occurred during the 1997-98 fiscal year. Last Quarter, the report focused on two areas, claims management and training. This report provides an overall status of the workers' compensation program and explains the associated costs.

Analysis

At mid-year for the 98/99 fiscal year a total of $292,449 has been expended in workers' compensation claims costs. Based on the current level of expenditure it is estimated that the total for the year should be approximately $503,000. The average claims expense over the previous five years is $495,990. Estimated expenditure for the 98/99 fiscal year should be close to the five-year average.

Date	Claims Expense
FY 93/94	$308,400
FY 94/95	$535,708
FY 95/96	$535,736
FY 96/97	$492,079
FY 97/98	$608,025
FY 98/99	Est. $503,000

In the last quarterly report it was shown that claims expenses increased in the 97/98 fiscal year due to closing of large older claims. The claim reserves, or estimated future liability, has been reduced significantly with the reduction in number of open claims. As you can see by the table below, the level of claim reserves reduced thirty-four percent (34%) from June of 1997 to June of 1998. During the first six months of the 98/99 fiscal year the reserves have remained relatively constant. Assuming that there are no significant increases in the number and type of claims, the claims expense should be reduced.

Date	Total Workers' Comp. Reserve
June 1996	$1,130,925
June 1997	$1,266,861
June 1998	$833,161
July 1998	$777,662
August 1998	$772,890
September 1998	$755,331
October 1998	$741,413
November 1998	$764,353
December 1998	$762,758

The increases in claims expenses over the years have also been impacted by mandated legislative changes in the workers' compensation system. Minimum benefit levels for both temporary and permanent disability have increased significantly. Since 1990 permanent disability benefit levels have increased sixty-four percent (64%) while temporary disability benefits have increased eighty-four percent (84%). Permanent disability benefits make up approximately thirty-eight percent (38%) of the City's claims expense. Temporary disability benefits make up approximately twenty percent (20%) of the claims expense. As you can see, significant increases in benefit levels have affected half of the City's claims costs.

As reported above, the number of open claims has been reduced over the last three years and has leveled off during the first six months of the 98/99 fiscal year.

	12/98	11/98	10/98	9/98	8/98	7/98	6/98	6/97	6/96
New Claims Opened	5	0	0	6	7	1
Total Open	46	46	47	47	44	38	40	91	80

On average there are approximately forty-five (45) total open claims every month and an average of three new claims are filed each month.

City staff has taken a number of measures in an effort to control the City's workers' compensation claim costs. Staff is meeting with the City's third party administrator to review the status on the current open claims. The first meeting was held six months after Fleming & Associates took over the administration of the City's workers' compensation claims program. This first meeting took place in May of 1997 and was a review of the most significant claims. In December 1998, a file review meeting was held to review the status on all open claims. Staff will now be meeting with Fleming & Associates on a quarterly basis to review claims. Claims review meetings help to ensure that the claims are being properly managed.

Medical management has also been found to help control costs associated with workers' compensation. City staff is in regular contact with Fleming & Associates in an effort to ensure that there are no unnecessary delays in getting treatment for employees with admitted injuries. Getting an employee back to his or her full work capacity is beneficial to the employee and helps keep costs down. A formal return to work program is planned for development and implementation. Another component of medical management is done through bill review. As part of their administrative services, Fleming & Associates submits all medical bills received for services provided to Hermosa Beach employees to a bill review service. This ensures that the doctors and other providers are charging rates that are in accordance with predetermined allowable workers' compensation rates. On average, an agency can expect to see a twenty to thirty percent reduction in the billed amounts. Currently, the City is saving twenty-three percent (23%) through bill review.

As previously reported employee training will continue as a cost containment measure. Last quarter, all employees attended an Anti-harassment Training program and were provided with an updated City policy. A "Virtual Reality" workshop was completed in December. This program, funded through a grant from ICRMA, taught employees how to handle difficult situations at work and in everyday life. This program used actors who, along with employee participants, demonstrated techniques for dealing with difficult people and situations. This program was very well received by those in attendance. Prior to the end of this fiscal year follow-up training to the "Back-Safe" and "Sitting-Safe" training provided in June and July of 1998 will be conducted.

Staff is currently collecting information in order to conduct an independent audit of the City's overall workers' compensation program. In particular, staff is interested in having an evaluation of the services and practices of the third party administrator. Audits can result in improving practices and procedures that may result in cost savings. Funds may be available through ICRMA to conduct this type of review.

Other cost saving measures will also be explored. Some self-insured public agencies have, in recent years, purchased workers' compensation insurance. With changes in laws over the years insurance companies are now sometimes able to provide competitive insurance for workers' compensation liability.

Staff will continue efforts to aggressively control the costs associated with workers composition. However, it is important to keep in mind that many costs are set by legislation that dictates the benefits to be provided.

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