Workers’ Comp Claims Indicate Sudden Drop

In a rare encouraging sign for California’s beleaguered workers’ compensation system, an early batch of insurance company reports shows that the number of employee claims for lost wages plummeted late last year. In two cases, the drop surpassed 30%.

Insurance officials said the figures reflect some initial victories in their battle against workers’ compensation fraud and abuse in Southern California, although the sluggish job market was a bigger factor.

A host of other factors also may have played a role, including employers who illegally underreported their injury claims to save money and injured workers who did not file claims because they feared reprisal by their bosses.

Still, many officials cited new state anti-fraud laws that require insurers and government agencies to investigate employees, doctors, lawyers and others who bilk the system.

“All the anti-fraud stuff is finally beginning to work,” said Jose Hermocillo, a lawyer representing the California Manufacturers Assn.

Other insurance lawyers and executives declined to comment publicly on recent successes in curbing abuses, saying they didn’t want to undermine lobbying in Sacramento for a cost-slashing overhaul of California’s system.

“If they read a story and see me saying things are getting better, I doubt they’ll be motivated to follow through,” said a senior insurance firm executive whose company is prodding legislators and prosecutors to attack abuses vigorously.

“Some of the more blatant cases of fraud aren’t as frequent as they once were, but obviously it still goes on,” the executive added. “If people decide the problem is over, the numbers will go back to where they were.”

The workers’ compensation system is designed to provide medical care, vocational rehabilitation and money for employees hurt on the job. Injured employees are eligible for cash to replace lost wages if they miss more than three days from work. Claims for these benefits are considered a key barometer of how heavily the system is used.

No industrywide claim statistics are available for 1992. But figures released by three of the state’s five biggest workers’ compensation insurers suggest that a relatively moderate decline in wage loss claims that began around 1991 accelerated dramatically in the final three months of 1992.

California’s top workers’ compensation insurer, the nonprofit State Compensation Insurance Fund, said its claims fell 30.2%, to 15,005 cases, in the fourth quarter of 1992. The company--which covers about one-quarter of California’s employees--reported an 18.5% decline for the year, with a total of 70,985 claims.

“It’s a good news story for everyone involved,” said Renee Koren, a spokeswoman for the company.

Koren attributed part of the decline to slower business at State Compensation, which collected 7% less in insurance premiums last year. She said reduced fraud and abuse because of new state laws probably account for much of the rest of the improvement, “but we can’t statistically validate that.”

Another of the state’s biggest workers’ compensation insurers, Fremont Compensation Insurance, said its fourth-quarter claims in Southern California dropped 33.5%, to 1,660, even though its overall business volume was stable. The third big insurer, Liberty Mutual Insurance, did not disclose fourth-quarter figures but said its statewide claims for the full year dropped 18.2% to 19,221.

The insurance company reports do not cover self-insured employers, who account for another quarter of California workers. Still, there were indications that the claims burden at many of these big employers leveled off.

“We don’t see any huge increases in claims anymore, which is good. And I anticipate in the next quarter we’ll see a dip,” said Mary Johnson, vice president with Associated Claims Management, which handles claims for self-insured employers.

Among the factors contributing to the claims slowdown, insurance executives said, were improved safety measures by employers. On the other hand, worker advocates say some recession-wary employees with legitimate injuries are secretly working despite being hurt.

Even though retaliating against workers’ compensation claimants is illegal, some of these employees “are afraid they’re going to end up losing their jobs,” Johnson said.

The maximum workers’ compensation cash benefit of $336 a week, she added, “isn’t much when you’re making $1,000 a week.”

Still, insurance executives attributed the drop in claims mostly to job market conditions and crackdowns on abuses.

They said the reduced statewide employment last year translated into fewer on-the-job injuries and, consequently, fewer claims. The number of workers drawing wages or salaries was down 1.7%, to 12.3 million, in California last year.

More importantly, big layoffs slowed. In turn, that meant fewer bogus claims by angry or desperate layoff victims. Worker advocates say layoffs also prompt legitimate claims by many injured employees who feel they no longer have anything to lose by seeking workers’ compensation benefits.

In addition, state anti-fraud laws that took effect starting in January, 1992, elevated workers’ compensation fraud from a misdemeanor to a felony and required insurers to set up special investigation units. Among other things, the laws also provided funding for district attorneys and the state Insurance Department to investigate abuses.

The result, insurers say, is that several big medical “mills” have closed or curtailed their operations. The so-called mills are medical practices that bilk the workers’ compensation system by overcharging and by performing unneeded treatment and false evaluations on droves of patients.

Insurance carriers “were not experienced at playing hardball” against the mills, said Eugene P. Taylor, a Woodland Hills attorney who handles fraud cases for insurers. But now, Taylor said, insurers “have found out that you can tell them ‘no,’ and you can fight them” by denying payments.

None of the top insurers released detailed figures about suspicious claims they received last year. However, officials at Fremont said that in the Los Angeles area its volume of suspicious claims dropped about 50% in the fourth quarter.

For instance, Fremont cited the category of cases it considers mostly likely to be bogus: psychological stress injury claims filed by dismissed workers. Late in 1991 and through the first three quarters of 1992, such cases poured into Fremont’s Los Angeles-area office at the rate of 50 to 60 a month. Since the fourth quarter, the flow has slowed to about 20 to 25 a month.

Fremont has combatted abuse with a high-profile campaign. Along with hiring a team of five fraud investigators, the company has posted more than 600 “Workers’ Comp Fraud Stops Here” billboards in California featuring a picture of three men in a jail cell.

“Southern California is profitable (for insurers) if you get the fraud out of the system. That’s why we’re fighting it,” said Henry Krizl Jr., a Fremont senior vice president.

Representatives of employer groups and insurance companies warned, however, that scam artists who have retreated from the workers’ compensation business could reappear with new schemes.

The trend in suspicious cases and injury claims in general is certain to influence debate in Sacramento among lawmakers trying to overhaul California’s system.

Lloyd Rowe, president of the California Applicants’ Attorneys Assn., said the decline in claims shows that fraud stems from the activities of “certain entrepreneurs who don’t represent a large part of the system.” As a result, there is no need for such drastic changes as “a wholesale elimination of psychiatric injuries under the workers’ compensation system,” said Rowe, whose group represents lawyers for injured workers.

But business groups continue to push for tight limits on what is compensated. The system’s problems--reflected in high costs to employers and low benefits for many workers--emerged as one of the top concerns during the two-day California economic summit in Los Angeles last week.

Comprehensive reform bills are expected to be submitted to the full Assembly and Senate in coming weeks.

Meanwhile, the vast majority of California employers who buy workers’ compensation coverage from insurance companies will see little or no immediate impact from the recent decline in claims. Insurers rate employers for their claims experience over three years and take many other factors into account before setting premiums.

A drop in claims does have an immediate impact on self-insured companies, however, because they pay for the claims as they come in.

Still, the chief state regulator of self-insured workers’ compensation plans, Mark Ashcraft, was skeptical, noting that claims can be filed as long as five years after an injury occurs.

“If they don’t file a claim today, it doesn’t mean they won’t file one tomorrow,” Ashcraft said. “We have a lot of claims that are filed late.”