HMOs bring efficiencies to workers' compensation.

But 24-hour coverage falls short of expectations

L.A. COUNTY - Health maintenance organizations have had only moderate success in converting workers' compensation insurance to managed care, but their success rate could improve in light of changes in California's comp system, industry executives and analysts say.

The HMOs' push into workers' compensation insurance began several years ago when a number of HMOs in California acquired insurance companies that provided workers' comp coverage. The HMOs' strategy was twofold: To apply managed care principles to workers' comp insurance and to offer a new type of combined health care plan called "24-hour care" to employers.

With 24-hour care, an employer buys both general health care insurance and workers' comp insurance from one insurance provider rather than purchasing general coverage from one provider and comp coverage from another.

According to spokesman Kurt Davis of Rancho Cordova, Calif.-based Foundation Health Corp., which owns a workers' comp subsidiary called California Compensation Insurance Co., or CalComp, HMOs are proving they can reduce workers' compensation claims and costs. However, Davis added, the much-ballyhooed concept of 24-hour care has fallen short of its promise.

"The 24-hour coverage idea generated a lot of ink, but it hasn't turned out to be a particularly big product for anybody, ourselves included," Davis said. The reasons 24-hour care hasn't taken off are unclear, he added, but many employers still prefer to buy general health insurance for their workers from one carrier and workers' comp insurance from another.

Revenues double

Davis said that, although 24-hour care hasn't taken off for Foundation, the managed care techniques that Foundation brought to CalComp have boosted the latter company's revenues from a little more than $200 million a year to more than $400 million in the 18 months since Foundation bought CalComp.

"You can achieve much of the same results of 24-hour care programs just by implementing managed care techniques into the regular workers' compensation programs. So right now, that's where the action is in the marketplace," Davis said.

In the time Foundation has owned CalComp, the number of workers' comp claims per $100 million of coverage provided by CalComp has dropped from 62 to 50, he pointed out. During that same time, the average hospital bill for a claim has dropped from $1,080 to $878, he said.

Besides using its own provider network and applying other managed care techniques to reduce costs, Foundation has reduced workers' compensation costs by requiring its customers to implement safety programs.

"We have an employer school," Davis said. "Anyone who signs up for the insurance with us is required to designate someone to come to the school. We basically teach them how they can reduce costs by preventing injuries and working with injured workers to get them back on the job sooner."

Mixed results reported

According to Gregory Kerrebrock, a marketing vice president at Great States Insurance Co., a workers' compensation carrier owned by Fountain Valley, Calif.-based FHP Corp., "The report card is a bit mixed" on how managed care has fared in the workers' compensation market. "Some companies have done very well and others have done, well ... not so well," he said.

Kerrebrock disagreed with Davis' assessment that the 24-hour concept has failed to catch on, saying some companies, including Great States, have done well with it. He said 24-hour programs represent 60 percent of Great States' business.

Kerrebrock agreed that managed care has shown it can reduce workers' comp costs, citing a study by Great States that showed a reduction of more than $2,000 per claim using managed care techniques.

Kerrebrock added, however, that this doesn't mean the picture is entirely rosy for companies providing workers' comp insurance. He said the market has changed dramatically in the past two years, becoming fiercely competitive because of new state legislation governing workers' comp coverage.

Market size declines

Kerrebrock explained that workers' compensation coverage is mandated by law, and until January 1994, the state dictated the premiums and the extent of coverage that insurance careers were required to offer. As of January 1994, however, workers' compensation insurers have been permitted to offer competitive rates under a new system known as "open rating."

The result, Kerrebrock said, is that the $11 billion workers' comp market has shrunk to $6 billion in the last two years. In other words, insurance carriers are providing the same basic amount of workers' comp coverage for the state's employers, but they are collecting $5 billion less in premiums.

Kerrebrock said that drop has resulted from intense competition among workers' comp carriers, which are looking even more closely at managed care as a way to reduce costs in such a competitive environment. Workers' comp careers that want to remain in business in this new environment "have to stay competitive and reduce costs, and managed care is one of the best ways to reduce costs," Kerrebrock said.

"The employers are absolutely driving the market right now and are asking for lower premiums," Kerrebrock said. He warned, however, that employers aren't always getting the same amount of coverage for today's lower premiums.

"In today's environment, the employer has to be much more savvy in checking out what kind of coverage they're going to get for their premiums. Some carriers are getting very aggressive in offering lower pricing, but they're also reducing the services they offer," he said.