November 21, 2019
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As directed by the Joint Legislative Audit Committee, my office conducted an audit of workers’ compensation insurance (insurance). Our assessment focused on insurance used by state agencies, and the following report details the audit’s findings and conclusions. In general, we determined that some agencies are paying millions more than necessary to provide benefits to employees.
State law allows 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 Fund administers, processes, and pays employee benefits for participating state agencies, and the agencies reimburse State Fund for the actual costs of services rendered. According to CalHR data, nearly 190 agencies provided benefits through the master agreement in fiscal year 2017–18, while 32 agencies—or portions of agencies—opted to purchase insurance directly from State Fund.
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. 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.
Finally, we found that 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. State Fund should provide 30 days to review settlement requests before the settlement conferences. However, for eight of the 15 claims we reviewed, State Fund did not do so. When State Fund does not make settlement requests available for agencies to adequately review before settlement conferences, it may delay the settlement authorization process and may lead to agencies’ having to pay additional expenses if the cases go to trial.
ELAINE M. HOWLE, CPA
California State Auditor