Copyright © 2003 School Services of California, Inc.

Volume 23                    For Publication Date: September 19, 2003                  No. 19

Workers' Comp Reform Bill Goes to the Governor

We at SSC and others across the state have attempted to shine a bright light on the cost of Workers' Compensation insurance, the burden it places upon employers, and the damage it does to California businesses' competitive position in the national and world economies. With an average employer burden of approximately 5.85% for Workers' Comp, California is about double the national average. But averages can be deceiving-while school agency costs tend to be less than half the statewide rate, many industries are far above that rate.  

Elements of the Reform Bills

 Two complementary bills, AB 227 (Vargas, D-San Diego) and SB 228 (Alarcon, D-Sun Valley ), address controlling the heretofore out-of-control cost of Workers' Comp insurance. This latest attempt at reform takes a multi-faceted approach and includes the following elements:

·                    Establishes a fee schedule for out-patient surgery at 120% of Medi-Cal rates

·                    Reduces medical provider fees by 5%

·                    Limits pharmacy costs to Medi-Cal rates

·                    Establishes a limit of 24 chiropractic or physical therapy visits per claim

·                    Lowers the cost limitations for vocational rehabilitation

·                    Imposes stricter review and second-opinion standards to resolve disputes efficiently

·                    Requires employers, who currently fund 20% of the cost of administering the system, to fund 100% of the administration cost

·                    Allows labor and management to agree to use alternative dispute resolution procedures to reduce litigation

·                    Forces insurers to reduce payment time from 60 days to 45 days or face stiffer penalties

 Savings Questioned

 So how much does the reform measure save? Insurance Commissioner John Garamendi has estimated the savings at $5 billion to $6 billion per year. This would represent about 20% of the current statewide cost, and, in fact, the Insurance Commissioner has said that he believes this bill would eliminate the need for next year's projected 12% premium increase as well as allowing a 7% roll back in current rates.

 Republicans have questioned the savings and argue that only about half of the claimed savings are supported by the analysis. Further, this reform falls far short of providing the $11 billion savings sought by Republican leaders.

Winners and Losers

The big winners appear to be organized labor and the attorneys. The reform bills do not roll back the higher benefit levels provided by AB 749, which was signed into law last year (Chapter 6/2002) at a cost estimated to be $2.5 billion to $3.5 billion. And the lawyers kept the loopholes open that have been used to keep litigation an active part of their practices.

Employers could also benefit if the changes do, in fact, materialize as projected and produce the trumpeted savings. But we expect most employers to be disappointed that California Workers' Comp rates will still remain at nearly double the national average and may continue to increase at a faster rate. Employers got half a loaf at best.

The big losers include surgery centers that have been charging much higher rates than would now be allowed and chiropractors, who now have additional hoops to jump through in order to avoid a cap of 24 visits. But the hoops are not overly onerous and we can expect that many employees will still have more than 24 chiropractic visits.

Vocational rehabilitation centers will also feel the pinch of lower reimbursement and fewer eligible cases. There is also a cap of 10% on counseling costs.

 What is Missing from the Proposed Reform

Major reform could-some would say “should”-have included the following elements:

 ·                    Use of objective findings for permanent disability determinations

·                    Increasing the right of employers to choose medical providers

·                    “Evidence-based” determinations of injury

·                    Limitations on the cost of temporary disability claims

·                    Stricter standards for “stress” claims

·                    Stronger language to exclude non-work-related claims and pre-existing injuries from the system

·                    Closing of loopholes that allow employees to recover on Workers' Comp claims and then have a “second bite of the apple” through litigation

These missing elements were among those mentioned by Senator Chuck Poochigian (R-Fresno) and others when they argued that this year's reform falls far short of the mark.

 What's Next?

The package is on its way to the Governor, who has indicated he will sign it. But that may not be the end of the story. If these changes do not in fact provide lower Workers' Comp insurance rates, we expect the Legislature to reenter the game. Even if the rates are lower next year, we expect that pro-business legislators will continue to push for a more level playing field for California business.

 Remember, while all California businesses suffer under an equally heavy Workers' Comp burden, competitors in other states and countries have a definite competitive advantage. While the rates school districts pay is a direct concern to us, the effect excessive Workers' Comp costs have on California 's economy is much more important to the long-term health of our educational system.

 -Ron Bennett