Ten California state agencies paid $20 million more for workers’ compensation insurance than they could have had selected a different insurer, according to a California State Auditor’s report published Thursday.
State law allows state agencies to decide how to provide workers’ compensation benefits to their employees. Almost 90 percent of them choose to do so using a master agreement that the California Department of Human Resources (CalHR) negotiated on their behalf with the State Compensation Insurance Fund (State Fund).
Under the master agreement, state agencies reimburse State Fund for the actual cost of workers’ compensation claims, rather than paying for insurance or maintaining a workers’ compensation reserve.
According to CalHR data, nearly 190 agencies provided benefits through the master agreement in fiscal year 2017-18, while 32 agencies opted to purchase insurance from State Fund.
The State Auditor then reviewed the costs of 10 of the 32 agencies that purchased insurance from State Fund in fiscal year 2017-18. It found that each of these agencies consistently paid more in insurance premiums than it would have paid had it provided benefits under the master agreement.
It estimated 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 would have paid an average of less than $1.6 million per year under the master agreement.
In fact, had the 10 agencies used the master agreement, they could have saved the State more than $20 million during the period the Auditor reviewed.
However, CalHR is not required to assist agencies in deciding whether purchasing workers’ compensation insurance or using the master agreement is likely to be more cost-effective for them.
State Fund does not always provide state agencies with enough time to review settlement authorization requests before the mandatory settlement conferences. State Fund must obtain approval from agencies before entering into settlements, unless the agencies have authorized State Fund to settle cases without such preapproval.
State Fund and several of the agencies reviewed indicated that State Fund should provide agencies with 30 days to review settlement requests before the settlement conferences. However, State Fund did not provide agencies with 30 days to respond to the settlement requests for eight of the 15 claims reviewed..
To ensure that all state agencies provide workers’ compensation in the most cost-effective manner, CalHR should 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. State Fund. CalHR agreed to implement this recommendation.
State Fund should create and follow a policy to provide settlement authorization requests to agencies at least 30 days before settlement conferences. State Fund did not agree with the Auditor’s recommendation, asserting that it will strive to meet a guideline that State Fund will complete settlement requests at the earliest opportunity.