Analysis: Workers' Comp a California Hot Potato

California lawmakers this week took another step toward reforming the state's much criticized workers' compensation system and, at the same time, taking a major campaign issue in the upcoming gubernatorial recall election off the table.

A conference committee of state Assembly and Senate members began hearings in Sacramento Tuesday on SB 359, the Legislature's attempt to save a system that injured workers depend upon, but one that is seen by the influential business community as an overpriced "job killer" that pays out $4 billion annually and has been a tremendous drag on the California economy.

"Our goal is to reduce the cost of worker's compensation premiums for our state's employers so that we can stimulate job growth and re-energize our economy," said State Sen. Richard Alarcon, the Democratic chairman of the committee. "But we must do this without negatively impacting injured workers."

Left unsaid are the political implications that passage of reform legislation in the near future would have on Gov. Gray Davis' chances of holding on to office in the impending Oct. 7 recall vote.

If passed, effective workers' comp legislation would defuse one of the primary economic criticisms of Davis, who is chided by some Republican candidates as being no friend of business.

A window-dressing measure half accomplished through compromises and deals, however, would no doubt raise the ire of Republican candidates and lawmakers who would accuse Davis of rearranging the proverbial deck chairs on the Titanic. Those same Republicans, however, can't fall back to the position of allowing the free market to determine rates since workers' comp was deregulated in 1990.

The fact that a workers' comp bill is in play allows the candidates challenging Davis to publicly gloss over the issue for now and take their time in offering detailed plans of their own.

Workers' compensation exists as a means of taking care of people injured on the job quickly and with a minimum of involvement by the legal system. While no one wants to scrap the 90-year-old program, owners of businesses both large and small have been pleading for relief from soaring premium costs that has some companies looking to relocate to other states with lower premiums.

"California's workers' comp system is a sinking ship in need of a complete overhaul," declared Charles Bacchi, legislative advocate for the California Chamber of Commerce. "Just patching a few holes will do nothing to help employers, who are drowning under a constant wave of rate increases."

State Insurance Commissioner John Garamendi recently ticked off some alarming statistics. He said the cost of workers' comp claims this year was running 125 percent higher than they were just five years ago, and Californians seek out medical treatment twice as often as the average number of people who seek medical care in other states.

The upward trend will continue, according to Garamendi, whose Department of Insurance is recommending an average 15 percent to 20 percent rate hike for insurers next year; companies where employees do more heavy lifting and perform other types of physically demanding labor would pay a higher increase premiums.

Thus far, Davis' efforts in the workers' comp area have largely been limited to boosting the level of employee benefits.
Meanwhile, the legislation being debated this week in Sacramento deals almost entirely with choking off insurance fraud, which would seem to be a side issue in a problem of such monumental size.

Cracking down on fraud could be seen by some cynics as a way for politicians to grab some easy "tough-on-crime" headlines that do little to address the stickier matter of making structural changes that might gore someone's ox.

But tackling fraud may go further when it comes to worker's comp due to the fact that the entire system is so rife with fraud that just tightening up enforcement would make a difference.

"Our system encourages fraud and invites litigation," Garamendi said in a recent op-ed in the Ventura County Star. "Employers are paying an enormous amount of money to people who are abusing workers' comp insurance."

There are other issues contributing to the crisis. For example, the economy has contributed to higher premiums because insurers can no longer rely on the stock market to bolster their profits.

"Given the low-interest rate environment and unfavorable equity market performance for the past three years, property and casualty insurers cannot rely on strong investment results to offset poor underwriting," observed James Auden of the ratings agency Fitch. "To earn an adequate return on capital, underwriting profits is required, even in long-tail lines such as workers' compensation."

In addition, workers' comp payouts in California have been inflated by an increase in chiropractic visits for work-related ailments such as carpal tunnel and stress-related disorders.

The Los Angeles Times found that injured California workers visit chiropractors an average of 40 times after an injury, twice the rate of visits in the neighboring states of Oregon and Arizona.

Chiropractors, in their defense, counter that despite the frequency of visits, they treat relatively minor injuries in a way that keeps workers on the job and avoids the more expensive alternative of surgery and hospitalization.

The current legislation pending in Sacramento doesn't make any moves to limit treatment or directly cap the premiums that companies must pay, however its passage may be enough for Davis to declare victory and for his challengers to avoid the issue altogether.

Source: UPI
8/26/2003

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