Report 2019-106 Recommendation 1 Responses

Report 2019-106: Workers' Compensation Insurance: Some State Agencies Are Paying Millions of Dollars More Than Necessary to Provide Benefits to Their Employees (Release Date: November 2019)

Recommendation #1 To: Human Resources, California Department of

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. It should begin providing these analyses to state agencies no later than six months after the Legislature gives it authority to request the necessary information from these agencies.

1-Year Agency Response

In response to the audit recommendation, State Compensation Insurance Fund provided premium costs and incurred loss information for the insured state departments. We proposed providing the estimated costs to those departments with estimated premium costs that exceeded $100,000. There were four departments:

California Military Department

Department of Food and Agriculture

Secretary of State

Department of Pesticide Regulation

Letters went out to these four departments by postal mail and by email on May 28, 2020. The letters included the cost comparison and invited the departments to participate in a phone conference on June 10, 2020 for more information.

In addition, we were contacted by two departments that had premium that was less than $100,000:

Department of Veterans Affairs - Farm/Home Purchases Division

Governor's Office of Business and Economic Development

We were unable to provide a cost comparison because the small sample size results in a large degree of uncertainty, but each was invited to attend the phone conference on June 10, 2020.

Three departments joined the conference call on June 10, 2020:

Governor's Office of Business and Economic Development

Department of Pesticide Regulation

Department of Food and Agriculture

A subsequent report indicated two additional departments paid premium that exceeded $100,000 during the period from July 1, 2018, through July 1, 2019:

Agricultural Labor Relations Board

Emergency Medical Services

Letters were sent to these two departments by postal mail and by email on August 13, 2020. The letters included a cost comparison and invited the departments to contact us if they needed additional information.

To date, none of the departments have requested additional information or decided to become uninsured and join the master agreement.

We will repeat this process in 2025.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

CalHR provided us with six letters to state departments that described their premium costs and incurred loss information. In those letters CalHR stated that it will begin providing insured state entities with a cost-benefit analysis comparing coverage through insurance versus the master agreement every five years.

6-Month Agency Response

CalHR is in the process of implementing this recommendation.

State Fund has provided a report comparing the estimated annual premium amounts to the estimated total costs under the master agreement. CalHR is in the process of providing this information in writing to each department with an estimated annual premium amount that exceeds $100,000. These departments will be invited to participate in a teleconference to discuss the results and answer any questions they might have.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

CalHR is in the process of implementing this recommendation.

State Fund has agreed to provide actuarial expertise and will work with CalHR to produce a report comparing the estimated annual premium amounts to the estimated total costs under the master agreement. CalHR will provide this information in writing along with an invitation to meet to discuss the results to each department with an estimated annual premium amount that exceeds $100,000.

These departments represented 82 percent of the total premium paid by the state in 2018-19. Reliable estimated costs are not possible for smaller entities due to the small sample size and smaller entities are more likely to be significantly negatively impacted by a large loss.

In addition, CalHR and State Fund will work with any of the insured departments who express interest, regardless of their size. To date, two departments have reached out to CalHR for additional information.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2019-106

Agency responses received are posted verbatim.