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California State Auditor Logo COMMITMENT • INTEGRITY • LEADERSHIP

Workers’ Compensation Insurance
Some State Agencies Are Paying Millions of Dollars More Than Necessary to Provide Benefits to Their Employees

Report Number: 2019-106

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Appendix A

BENEFITS PAID ON STATE FUND'S OPEN CLAIMS AS OF JANUARY 1, 2019

We obtained summary-level data from State Fund for all open claims as of January 1, 2019, that involved state agencies participating in the master agreement. These data included the total incurred costs and total benefits paid for claims that were less than one year old, from one to two years old, and more than two years old. Table A shows that the average cost of benefits paid per claim increased significantly with the age of the claims.

Table A
State Fund’s Master Agreement and Insurance Claims Open as of January 1, 2019
  STATE AGENCIES USING THE MASTER AGREEMENT
  NUMBER OF CLAIMS BENEFITS ALREADY PAID AVERAGE COST PER CLAIM ESTIMATED COST NOT YET PAID TOTAL COSTS
Claims open
less than one year		 9,142 $31 million $3,400 $208 million $239 million
Claims open
from one to two years		 5,078 81 million 16,000 232 million 313 million
Claims open
more than two years		 32,043 3.3 billion 104,200 2.4 billion 5.8 billion

Source: State Fund’s summary of all open workers’ compensation claims in its database as of January 1, 2019.





Appendix B

AGENCIES IDENTIFIED IN OUR COST-EFFECTIVENESS ANALYSIS

As we describe in the Audit Results, some state agencies or units within those agencies have overpaid to provide workers’ compensation coverage through insurance with State Fund rather than through the master agreement. Table B presents the 10 agencies we selected for our analysis.

Table B
Agencies Identified in Our Cost-Effectiveness Analysis
1 California Department of Food and Agriculture
2 California Department of Pesticide Regulation
3 California Department of Transportation
4 California Department of Veterans Affairs
5 California 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

Source: Analysis of CalHR data.





Appendix C

SCOPE AND METHODOLOGY

The Joint Legislative Audit Committee (Audit Committee) directed the California State Auditor to review the management of workers’ compensation claims by State Fund and four state agencies—CAL FIRE, Caltrans, Social Services, and CHP. Table C lists the audit objectives that the Audit Committee approved and the methods we used to address them.

Table C
Audit Objectives and the Methods Used to Address Them
AUDIT OBJECTIVE METHOD
1 Review and evaluate the laws, rules, and regulations significant to the audit objectives.
  • Identified and reviewed the laws, rules, and regulations for State Fund, CAL FIRE, Caltrans, CHP, and Social Services related to processing claims.
  • Identified CalHR’s role in managing the State’s master agreement with State Fund.
2 For each of the four agencies and State Fund, evaluate the intake process for employees filing claims to identify areas of strength or weakness.
  • Reviewed the four agencies’ policies and procedures related to claim intake and tracking and determined that they processed claims in a similar manner. We did not observe any best practices that resulted in more accurate or timely claim submission. In addition, although CAL FIRE submitted claims electronically to State Fund, that process did not improve the accuracy or timeliness of its claims.
  • Reviewed training programs and determined that CalHR and the four agencies provide training on the claims process for return-to-work coordinators and supervisors.
3 Review each agency’s policies and practices for handling claims in order to do the following:  
a. Determine whether the agencies are complying with key requirements in the law for reviewing and processing claims. To the extent that the agencies outsource these duties, assess their oversight of contractors’ performance. Evaluated eight claims from each of the four agencies and determined that the agencies generally complied with key elements for reviewing and processing claims. Based on our compliance testing at the four agencies, we determined that none of the agencies we reviewed used a contractor to oversee claims that State Fund processed.
b. Compare and contrast the agencies’ policies and practices to identify the most effective ways to handle claims. Reviewed the four agencies’ policies and procedures related to claim intake and tracking. We determined that the monitoring mechanisms ensured that State Fund administered claims efficiently and effectively. All four agencies adequately tracked claims from the time they submitted them to State Fund until their resolution.
4 Identify any best practices the agencies have implemented for setting their reserve amounts for claims.
  • Interviewed staff at the four agencies to determine how they budget staff benefits, including workers’ compensation benefits, and fund their claim-related costs. We determined that state agencies do not maintain reserves but develop reasonable workers’ compensation budgets annually.
  • Reviewed industry best practices and determined if they are applicable to these agencies.
  • Interviewed State Fund, CalHR, and University of California Office of the President staff to determine whether they have implemented any best practices that might be applicable.
  • Analyzed the four agencies’ injury reports and found that the agencies generally track and use injury data to identify trends and inform changes to policies and procedures.
  • Interviewed staff and analyzed documentation from the Orange County Risk Management Office concerning its efforts to limit claim costs. We found that although Orange County realized some cost savings, state agencies cannot adopt some of its strategies because of structural differences in how it processed and paid claims. We found that other cost-saving strategies Orange County implemented are already a part of the process at the state level.
5 To the extent possible, evaluate whether State Fund and the agencies efficiently and effectively care for employees receiving workers’ compensation by doing the following:  
a. For a selection of claims, assess whether workers’ compensation claims are processed in a timely and appropriate manner.
  • Reviewed a total of 32 claims that the four agencies submitted to State Fund and found that State Fund generally processed them in a timely and appropriate manner.
  • Determined whether CAL FIRE, Social Services, and Caltrans were able to settle claims in a timely and efficient manner by reviewing 15 settlement requests that State Fund created and gave to the agencies before settlement conferences. We also analyzed CAL FIRE’s and Social Services’ settlement tracking logs.
b. Calculate the average rate of completion for each agency’s claims and compare those rates to industry standards. Analyzed State Fund claims data from fiscal years 2013–14 through 2017–18 and determined the claim closure rates for all of State Fund’s state agencies using the master agreement, including administrative closures, stipulations, compromise and release agreements, and findings and awards. In addition, we determined the closure rates for each of the four agencies selected for review. We attempted to compare these data to information State Fund maintains about its insured employers, but State Fund asserted that information was confidential.
6 Evaluate loss run reports focusing on total incurred costs, total benefits paid, and outstanding reserves for all open claims, including reports on those claims that have been open for more than a year and those that have been open for more than two years.
  • Obtained summary-level data from State Fund for claims open as of January 2019 and determined the total incurred costs and total benefits paid for all state agencies using the master agreement, including claims less than one year old, from one to two years old, and more than two years old. We attempted to compare these data to information State Fund maintains about its insured employers, but State Fund asserted that information was confidential.
  • Compared the costs for 10 agencies of using insurance policies from State Fund to estimated master agreement costs for fiscal years 2013–14 through 2017–18.
7 Review and assess any other issues that are significant to the audit.
  • Reviewed external and internal claim compliance audits of State Fund and determined that it had followed up on findings and implemented recommendations.
  • Interviewed CalHR staff to determine the steps CalHR takes to oversee its master agreement with State Fund.

Sources: Analysis of Audit Committee’s audit request number 2019-106, planning documents, and analysis of information and documentation identified in the table column titled Method.

Assessment of Data Reliability

The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of the computer-processed information that we use to support our findings, conclusions, and recommendations. In performing this audit, we relied on State Fund’s claims data. To evaluate these data, we performed dataset verification procedures and electronic testing of the key data elements and found the data used are sufficiently reliable for the purposes of selecting a sample for our claims testing. We verified accuracy of the data by randomly selecting claims from State Fund’s database and tracing key data elements from each claim to supporting evidence maintained by three of the four agencies we reviewed. We also verified completeness of the data by haphazardly selecting claims from independent claims databases maintained by three of the four agencies we reviewed and ensuring that each claim existed in State Fund’s data. According to CHP’s injury and illness program manager, its independent claims database is primarily populated with data from State Fund, so we were therefore unable to use CHP’s data to verify the accuracy or completeness of State Fund’s database.

In addition, to assess State Fund’s administration of claims during the settlement process, we reviewed a selection of claims from settlement logs maintained by three of the four agencies we reviewed. For a selection of records in these logs, we confirmed key dates by reviewing supporting documentation. In addition, we analyzed the data in the settlement logs for two of the agencies we reviewed. Because the agencies update these logs as settlements progress, we were unable to verify their completeness. However, we assessed the information we obtained to be sufficiently reliable in total for the purpose of supporting our findings and conclusions.




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