Title: Executive Director and Chief Executive Officer, California Self Insurers’ Security Fund
Resume: Pettegrew previously served 12 years as vice president of risk management and insurance for Westaff. He also served as the first risk manager for the cities of Walnut Creek and Sunnyvale. Prior to that, he was chief administrative officer for 10 years for the Contra Costa Municipal Risk Management Insurance Authority.
Schools: Master’s in public administration from California State University, Hayward; bachelor of arts in communication from Denison University, Granville, Ohio designation.
Awards: "Risk Manager of the Year" in 1989 by Business Insurance magazine (the only public entity risk manager designee in its 32-year history); standing chairman of the Business Insurance National Workers Compensation Conference for nine years
Designations: associate in risk management (ARM)
Inspiration: Bill Zachry, Safeway, VP Risk Management
Favorite quote: “A man’s reach should exceed his grasp.” (Robert Browning)
If a self-insured employer fails, it’s the Security Fund that takes over the claims, and Pettegrew holds the reins. Fortunately, for Pettegrew he has managed to weather some of the bankruptcies that have come down the pike in the last few years, having enough to cover the claims. But with the economy in the shape it is, he has to be ever vigilant. He’s played an active role in the rulemaking process for self-insured regulations, in particular those provisions regarding self-insured groups. He has also advocated getting more access to SIG financials from the Office of Self-Insured Plans and being able to conduct audits, so the Security Fund can be more proactive.
Are we headed for a hard market, and if so, when will it come? How long should we expect it to last? What are the repercussions?
The market is already hardening with 2009 WCIRB recommended pure premium increases of over 24%. SCIF imposed its first increases since 2003 of 8.9%. The lowest increase was Zenith with 4% [in May]. Medical prescription costs are still out of control and are impacting insureds and self-insureds. Premium rates will probably continue to climb in 2010, and then level off as higher premiums lower loss ratios. The federal health care reform package, if passed, will obviously have some impact as well.
It looks like the State Fund sale isn't going to happen, but it looks like we may be heading for a hard market. What does that mean for State Fund? Will its market share increase to the same levels it did previously? Is State Fund in need of any additional reforms in governance that may make a difference in how it handles its business?
They hopefully won't make the same mistakes they've made in the past, with regards to their ambition of the market share. They did it in the last hard market; they expanded their market share, but since then the proportion (of the market share) has gone down significantly...it's less than 20% now, a relatively small percentage. The main thing will be to make sure their underwriting is accurate, and, if business comes to them, it's important that they don't put on the competitive hat, so they can expand their market share but can't cut their rates later. I don't think the Senate confirmation is as important as the nature and background of the board members themselves. We're talking about qualified individuals from various disciplines...I'm less concerned about the political nature of political appointees to that board. That doesn't serve the efficacy of the State Fund. The expertise is more important than simple political [leanings.]
Are medical provider networks a help or a hindrance? How should they be improved?
An MPN is a good model to streamline the access and delivery of medical care to injured workers and serve to increase the efficiency, efficacy, and continuity of qualified medical providers. MPNs can also increase leverage on the medical industry and improve two-way communication as well as return-to-work programs. These improvements alone outweigh any pure cost reductions that may or may not be achieved by using an MPN. The biggest challenge is for small employers or those which have diverse populations of employees scattered about the state. Perhaps shared or joint MPNs (if allowed) could provide a potential solution to leverage the advantage an MPN has to offer.
How should utilization review be improved?
One of the weaknesses of UR is the unspoken practice of a medical provider second-guessing the so-called "objective" UR standards, sometimes referred to as practice profiling, there becomes an underground standard of tolerance with respect to "appropriateness." Medical care and UR in the 21st century must strive, like the fabric of DNA, to use best practice treatment options and evidence-based medicine like AMA and American College of Occupational and Environmental Medicine Guidelines. Therapies and treatment options--including medications--need to be individualized to address the unique medical needs of each person. Furthermore, updated and quantified patient outcomes must be a basis to support clinical decisions.
What needs to be done to improve return-to-work?
Successful return-to-work programs require a 100% collaborative team effort in an organization. Key ingredients involve: good communication, accurate functional analysis following industry protocols for modified duty--including work hardening ramp up incentives and durations, and medical evaluations and restrictions that are tied in with the employees supervisor validation of alternate work. Describe what an employee can realistically do, so a transitional job, including any training, can be identified. Avoid pre-morbid stay-at-home workers. Allow them to demonstrate their self-esteem at work. Motivate the injured worker and employ positive reinforcement, social contact and incentives.
What do you see other than medical as the next big cost driver?
Besides medical inflation, overprescribing medications, use of multiple drugs, and drug dependence are [the big cost drivers]. Drug dependency is becoming an epidemic in and of itself.
Is it realistic to deal for more cost-cutting reforms in exchange for higher PD benefits?
In some circumstances it's clear that some permanent disability reforms are needed for certain professions. There are some circumstances where the PD rating process is probably unfair. But it's reasonable to expect that some compromise, cost-cutting reform should accompany any expansion of PD benefits.
Where do you see applicant attorneys focusing litigation in the future?
Applicant attorneys, in general, make a living out of their continual rebuttal against medical science, including the American College of Occupational and Environmental Medicine Guidelines and the AMA objective guidelines. If the workers' comp system worked as it was designed--as a referee system--we wouldn't need any attorneys.
What role, if any, do you see workers' comp playing in the Obama Administration's health care debate? (Now that Obama’s health care bill is law, is there any correlation with workers’ comp? The language changed a bit. Is there a greater connection? Is there anything that has emerged in the law that would change their answer from last time?)
There is no doubt that there will be an impact on the compensation market. None of us are in a position to assess the fiscal impact. The primary impact will be the hourly wage earners, those that have minimal employee benefits who frankly, rely on workers' comp for their health protection. The impact of universal health on those workers, who in the past had not access to employee health programs, will be enticed by the workers' comp to use that as often as possible for getting health care. It will primarily be impacting those types of organizations, who have minimum of employee benefits.
If you're self-insured, are you seeing more or fewer claims during the recession?
The frequency of workers' comp claims for California private (15.7%) and public self-insured entities (13.9%) have been steadily declining for years. Workplace safety has improved and with layoffs, workers in a tough economy tend to submit fewer claims as well. Unless an employee thinks they'll be laid off, most employees probably avoid submitting questionable (i.e., non-occupational) claims. On the other hand, despite reform measures, companies headed to insolvency are often targeted by employees who risk losing medical and worker comp coverage. As a result, there is typically a surge of claims in the months prior to closure. The Self Insurers' Security Fund, which inherits the workers' comp claim liabilities of former private self-insured entities, investigates and scrutinizes all recently filed workers' comp claims, such as those associated with Circuit City and Fairchild Industries.
Is a recession more or less likely to drive an employer toward self-insurance?
NCCI studies over the past 50 years have shown a decline in workers' comp claims during recessionary periods. During a recession, the slow growth of wages tends to impact the severity of indemnity claims, and correspondingly, insurance premium revenues that are derived from payroll. But due to the recent rise in California's pure premium rates in 2009 by nearly all carriers, many insured entities are re-evaluating the option of self-insurance versus their current insured and high-deductible plans. When insurance companies need to "make up" for losses in their underwriting loss/ratios by raising rates by double-digits, self-insurance tends to become a more popular option for all sizes of entities. In California, all it takes is a steady balance sheet with assets of $5 million and sustained profits of $500,000 or more. The Self-Insurers' Security Fund Alternative Security Program (ASP) is a boon to businesses that qualify since it frees up collateral (a deposit covering future claim liabilities) that would otherwise be tied up with the state. Over $5.5 billion is "freed up" annually due to the ASP.