California Eyes Workers' Compensation Reforms

Proposed reforms to California's workers' compensation system have both employers and workers fighting mad.

Both groups took to the steps of California's Capitol building in Sacramento this week with employers demanding even greater changes to a workers' compensation system they claim is bankrupting them and workers claiming the loss of certain programs will decrease the chances of injured employees ever returning to work.

One small business owner told legislators that his workers' compensation premium costs jumped from $5,500 two years ago to $35,000 this year. The cost of workers' compensation premiums are "going to wipe out small restaurants" like the one he operates, said Tom Lovering. Lovering, like many other small employers, claim the proposed reforms are not enough.

Workers, on the other hand, took issue with some of the proposed changes to the workers' compensation system, saying the cuts are too harsh.

Tuesday night, just in time for a midnight deadline, two joint legislative committees agreed on a package of reforms that:

  • Call for the development of a fee schedule for unregulated outpatient surgery centers, one of the major cost drivers in the workers' compensation system. Fee schedules already exist for doctor and hospital costs; a fee schedule is under development for prescription drugs;
  • Eliminate a popular vocation rehabilitation program that costs approximately $7,000 per employee to operate; and
  • Limit chiropractic and therapy treatments

State legislators have eight bills designed to reform the workers' compensation system in front of them. Supporters of the reform bills, which include Gov. Gray Davis and Insurance Commissioner John Garamendi, say that harnessing rising medical costs is critical to getting a handle on rapidly rising workers' compensation premiums.

Sen. Richard Alarcon, (D, San Fernando), who sponsored some of the legislation, said he's "absolutely confident that, as a result of legislation, the worker compensation premiums will go down."

The legislation must receive approval from the State Assembly, State Senate and Davis. Insiders say a vote on the reform measures could come as early as today in the state legislature.

"All parties…are anxious to do something," said Jack Hannan, spokesman for the Workers' Compensation Insurance Research Bureau.

"The workers' compensation system faces rising costs and a shrinking pool of insurers. If left unchecked, our ability to compensate injured workers and protect employers from costly litigation will be put in jeopardy," said Davis. "We can't afford to fine tune the system. It needs an overhaul."

Davis told reporters at a press conference on Wednesday he will sign the bill when it arrives on his desk.

Garamendi estimated the reforms will generate between $5 billion and $6 billion annually and about $4 billion in one-time savings for employers.

"We have two goals: Injured workers must have the quality medical care that will return them to good health and employers must have premiums they can afford," said Davis.

Other proposed reforms supported by Davis and Garamendi include:

  • Allowing collaboration between the administration and the Department of Insurance regarding workers' compensation fraud and authorizing the Employment Development Department to share information with insurers in an effort to weed out fraud. (AB 1099 and AB 1215);
  • Increasing penalties for worst offenders who fail to pay employee claims and reducing penalties for minor claims;
  • Encouraging the use of generic drugs;
  • Certifying medical bill review companies and claims adjusters;
  • Expanding programs for employers and unions that agree to alternative dispute resolutions;
  • Involving physicians earlier in the workers' compensation claims process; and
  • Promoting small business participation in workers' compensation policy-making. (AB 606).

The State Compensation Insurance Fund, California's largest workers' compensation insurance carrier, hailed cost saving measures contained in the reform package as a significant step toward decreasing system costs.

"No one gets everything they want in any piece of legislation, but we anticipate that these measures will result in system savings and a return to rate stabilization," said State Fund President Dianne C. Oki. "Although the legislation isn't a panacea, it addresses a number of the system's cost drivers and brings the first true systemic reform of the system in a decade. We will continue to work with the legislature to enact further reforms to bring rate relief to employers and make the delivery of workers' compensation as effective and efficient as possible."

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