State Auditor Says Agencies Unnecessarily Spending $Millions in WC

Nancy Grover

Sacramento, CA ( – California could have saved at least $20 million in workers’ compensation premiums that some state agencies paid over a four-year time span, a new report says. A state auditor says state agencies that purchased workers’ compensation insurance directly through the State Compensation Insurance Fund rather than using a master agreement negotiated by the California Department of Human Resources have paid millions more than is necessary.

The master agreement allows State Fund to administer, process and pay employee benefits. The participating agencies then reimburse the State Fund for the actual costs of services delivered. While nearly 90 percent of state agencies obtain workers’ compensation through this method, 32 agencies or portions of agencies do not.

“When we reviewed the costs of 10 of the 32 agencies that purchased insurance directly from State Fund in fiscal year 2017–18, we found that each of these agencies consistently paid more in insurance premiums than it would have if it had provided benefits by using the master agreement,” the report says. “We estimate that from fiscal years 2013–14 through 2017–18, these 10 agencies collectively paid an average of $5.7 million per year in premiums but they could have saved the State more than $20 million during the period we reviewed if they had used the negotiated master agreement.”

The 10 state agencies included in the review were:

  1. Department of Food and Agriculture
  2. Department of Pesticide Regulation
  3. Department of Transportation
  4. Department of Veterans Affairs
  5. Military Department
  6. Commission on Peace Officer Standards and Training
  7. Governor’s Office of Business and Economic Development
  8. Secretary of State’s Office
  9. State Council on Developmental Disabilities
  10. State Treasurer’s Office

CalHR agreed to the auditor’s recommendation to “provide each agency that purchases workers’ compensation insurance with a cost-benefit analysis every five years that compares the cost of purchasing this insurance through State Fund with the cost of obtaining coverage through the master agreement.”

The report from State Auditor Elaine M. Howle comes two days after a separate analysis of the state’s process for qualified medical evaluations. Among its criticisms, that report said the state’s Division of Workers’ Compensation had not insured it has enough QMEs to meet the demand, resulting in potential delays for injured workers to access their benefits.

This latest report cites the shortage of QMEs as a “likely” contributor to delays in claims resolutions. “A lack of qualified medical evaluators has delayed appointments for medical evaluations, resulting in State Fund automatically denying some claims and employees having to wait longer to receive benefits or return to work,” Howle wrote. “Specifically, State Fund automatically denied four of 32 claims we reviewed because the employees could not obtain timely appointments for medical evaluations within 90 days, the legal deadline to deny claims before they are presumed to be accepted. Although State Fund may subsequently accept a claim if a medical evaluator determines that the injury was work-related, until it is accepted the injured employee does not receive the appropriate type of workers’ compensation benefit. State Fund did not accept these four claims until an average of four months later, after the employees finally obtained appointments with the medical evaluators.”

The latest audit also says State Fund does “not always provide state agencies with enough time to review settlement authorization requests (settlement requests) before the mandatory settlement conferences (settlement conferences) in which State Fund and injured employees attempt to come to agreement to avoid seeking a trial.” This, it says, may lead to agencies’ having to pay additional expenses if the cases go to trial.”

Howle recommended State Fund “create and follow a policy by May 2020 to provide settlement authorization requests to agencies at least 30 days before settlement conferences.”

She noted, however, that State Fund “did not agree with our recommendation, asserting that it will strive to meet a guideline that State Fund will complete settlement requests at the earliest opportunity.”

News brought to you by