State of California

M E M O R A N D U M


TO:       PERSONNEL MANAGEMENT LIAISONS           DATE:  April 4, 1994
                                        Reference Code:  94-19

          THIS MEMORANDUM SHOULD BE DISTRIBUTED TO:

               DEPARTMENT ACCOUNTING, PERSONNEL OFFICERS, 
          RETURN-TO-WORK COORDINATORS, AND HEALTH/SAFETY OFFICERS


FROM:     Department of Personnel Administration


SUBJECT:  State Compensation Insurance Fund Service Fee

   Effective January 1, 1992, the Department of Personnel Administration (DPA) entered
   into a Master Agreement with the State Compensation Insurance Fund (SCIF).  Under
   the terms of the contract, SCIF agreed to provide workers' compensation processing and
   legal representation services to those State agencies that were included in the Master
   Agreement.  
   
   As part of the Master Agreement, it was agreed that a fee to pay for SCIF's services
   would be added to each medical payment.  At the time it was determined that the fee
   would be 26% in calendar year 1992, 27% in 1993, and 28% in 1994.  It was also
   agreed that the overall cost would be subject to minimum and maximum payments based
   on the amounts generated by the fee.  If  less than the minimum amount is collected, the
   departments will be billed for an additional amount.  Conversely, if too much is
   collected, refunds will be made (this occurred in 1992).  
   
   For 1993, the minimum payment is $30,500,000.   In accordance with the agreement,
   SCIF collected 27% of  the medical costs paid for 1993.  As of  December 1993, SCIF
   had only collected $27,582,757.56.  This resulted in a potential short fall of $2,750,000
   below the minimum service fee.  Since the minimum and maximum caps are part of the 
   agreement, the State is obligated to pay the amount specified.  
   
   During the month of April, SCIF will send out supplemental invoices to recover the
   difference between the amount already collected and the minimum established in the
   contract.  These bills will be calculated by dividing the total medical costs paid on the
   State contract into the amount paid in medical costs for each state agency.
   
   While neither SCIF nor DPA has been fully satisfied with the rate structure in the
   agreement, the contract terms and conditions are binding on both parties.  Furthermore,
   DPA believes that the actual cost incurred by SCIF to administer the program in 1993
   exceeded the floor in the contract.  We have engaged the services of the State
   Controller's Office to verify the actual costs for 1993 and develop a more effective
   formula for calculating costs in the future.  The report and recommendations should be
   available by June 30, 1994.  
   
   DPA and SCIF will review the agreement after the Controller's staff has completed their
   review.  Departments will be notified of the Controller's findings and any actions
   anticipated to amend the current agreement by August 1, 1994.  If you have any
   questions please call Jamie Meyers, Manager of the Workers' Compensation and Safety
   Program, at (916) 327-4024 CALNET (467).
   
   
   
   
   Patricia Pavone, Chief
   Benefits and Training Division