Quarterly Report on Workers Compensation

June 1, 1999 through September 30, 1999

 

Recommendation

Receive and File the Quarterly Report on Workers’ Compensation.

Background

This is the first quarterly report on the City’s Workers’ Compensation Program for the 1999/00 fiscal year. Prior reports have detailed claims management, training, overall program status, and explanations of associated costs. This report focuses on the history of the City’s claims expenses and comparing them to a sample of nine other cities in Los Angeles County.

Analysis

Claims expense for the 98/99 fiscal year was 14% below the previous year and was 4% higher than the six-year average of $500,217. For the first quarter of the 1999/200 fiscal year expenditures were $143,234. This is 11% less than expenditures for the same period last fiscal year.

Period	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	$521,352
FY 98/99 – First Quarter	$161,743
FY 99/00 – First Quarter	$143,234

The claims can be broken down into five categories:

1. Temporary Disability – Temporary disability benefits are paid to employees who are unable to work due to their work-related injury. Benefits are paid according to a State mandated rate depending on the date of the employees’ injury. Benefits are typically two-thirds of the employees’ salary up to a maximum amount (the current maximum is $490 per week).
2. Permanent Disability – Permanent disability benefits are paid to employees who have completed medical treatment for a work-related injury, whose condition is considered "permanent and stationary", and who have some residual condition and have not returned to their pre-injury condition. Levels of permanent disability vary greatly from nominal to total permanent disability. Permanent disability benefits are paid based on a complex rating system determined by the State and include considerations for work restrictions placed on the injured worker by the doctor and the age and occupation of the injured worker.
3. Rehabilitation Benefits – Rehab benefits are paid once an injured worker’s medical condition has become permanent and stationary and it has been determined that the person is no longer able to perform the essential functions of their job. State law dictates that an injured worker who is unable to return to their job due to permanent disability restrictions is entitled to vocational rehabilitation.
4. Medical Payments – Included in this category are all expenses related to the medical treatment of the injured workers.
5. Allocated Expenses – Allocated expenses include all those associated with defense of a claim. These costs include attorney fees, investigation expenses, medical bill review fees, and any other miscellaneous costs.

As you can see in the chart below, on average, the greatest portion of the City’s claims costs are associated with medical treatment provided to injured workers. Medical payments make up 32% of the total expenses. 87% of the total costs (all except Allocated Expenses) are paid according to schedules and rates set by the State and are benefits injured workers are entitled to under statute.

The City of Hermosa Beach’s costs for workers’ compensation can be compared with other cities by looking at the claims expense per $100 of payroll. The cost per hundred dollars of payroll is comparable to rates quoted for private insurance for workers’ compensation. Each year, self-insured agencies submit an annual report of their claims to Self-Insurance Plans Division of the State Department of Industrial Relations. The City received data from the State on nine other Cities’ workers compensation claims expense for the fiscal year 1998/99. Below is a chart showing this information.

The average for the 1998/99 fiscal year for these nine cities is $5.54. The range of cost was considerable with a low of $1.38 in the City of Arcadia to a high of $10.08 in the City of Redondo Beach. The cost per $100 of payroll for the City of Hermosa Beach was $6.81. One year’s worth of data may not be truly reflective of the trends and overall efficiency of an organization’s workers’ compensation program. While we do not have five-year data on other cities at this time, below is a chart showing the five-year history of the City of Hermosa Beach. As you can see, with the exception of the 1997/98 fiscal year, the City’s five-year history of workers’ compensation claims costs per $100 of payroll has remained relatively consistent. The five-year average is $7.10.

Periodically, the California Institute for Public Risk Analysis (CIPRA) compiles data on workers’ compensation losses for cities throughout the state. It is expected that CIPRA will publish an updated report near the end of this year. If so, staff will report this statewide information.

In an effort to ensure that the City’s claims are being managed as efficiently as possible and according to the state’s regulations, the City will be conducting an audit of the third party administrator, Fleming & Associates. The City applied for and received a $4,000 grant from the Independent Cities Risk Management Authority (ICRMA) for this purpose. An auditing consultant who specializes in workers’ compensation claims administration will be selected to conduct the audit and the results will be communicated back to the City Council.

Attached is a recent newsletter published by the actuarial firm of Milliman & Robertson, Inc. regarding the impacts of some of the changes in workers’ compensation benefits on employers. As stated in the article, workers’ compensation benefits will likely increase as soon as next year. The California Governor recently vetoed a bill that would have increased benefits. However, the Governor will likely support another bill that contains provisions for a lesser increase if it is proposed during the next legislative session.

As mentioned above, benefits provided under workers’ compensation are dictated by the State. Once an injury occurs, benefits are largely provided under a system that favors the injured worker. Loss prevention programs such as training, safety committees, employee incentives, early return to work policies, etc. are said to help control or reduce costs. The City has worked towards implementing some of these and will continue to look for ways to prevent and control these significant costs.

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