IR #98-32
Thursday, August 13, 1998

Rick Rice
(415) 972-8835
Richard Stephens
(415) 975-0721

Governor Wilson Signs New Legislation to Ensure HCO Funding

SAN FRANCISCO --Gov. Pete Wilson has signed legislation that eliminates an immediate threat to the workers' compensation Health Care Organization (HCO) program, which certifies medical service provider organizations to contract with employers and insurance carriers to treat workers injured on the job.

"This action removes a stumbling block that had deterred potential applicants from participating in this innovative program," said Casey L. Young, administrative director of the Department of Industrial Relations' Division of Workers' Compensation.

The legislation, Senate Bill 2101 authored by Sen. Steve Peace of La Mesa, establishes a method for the division to repay a $1.7 million startup loan over an extended period. This loan was made from the state General Fund to pay for administration of the program until application and certification fees could be established and collected. Under the bill, a fixed surcharge will be added to these fees for the next five years, which will then be adjusted and continued for up to an additional three years if necessary to repay the loan.

"Prospective applicants have told us that they were interested in participating in this program but were reluctant to invest time, effort, and resources in the application process until it became clearer how the $1.7 million liability would impact them," Young said. "Absent this legislation, the current HCO's would have soon received a bill for the entire amount. Instead of paying it, they would have turned back their certificates and effectively killed the HCO program. This legislation removes the uncertainty over the loan and provides for repayment in an equitable manner."

This program was one of the initiatives of the 1993 reforms of the state's workers' compensation system, Young said. Under it, HMOs, licensed disability insurers and other qualified health care providers can apply for certification as an HCO, which can then offer a medical care plan to the employers or insurers. Employees decide whether to enroll in the plans offered.

The goal is to help participating employers take advantage of managed care techniques to lower their workers' compensation costs, while ensuring that injured employees who have enrolled receive quality medical care from a certified health organization.

To date, ten applicants have been certified, including several of the largest medical service providers in the state, and several other applications are currently being reviewed.

"Now that a long term funding mechanism has been established to repay the loan, a major cloud has been lifted and the HCO program will have a chance to prove itself over a realistic period of time," Young said.

"This will complement another bill, SB 1063, signed last year which removed another impediment to this program. It simplified the application process for some health care provider organizations by consolidating certification functions previously spread between the Department of Corporations and the Division of Workers' Compensation within DWC."

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