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Friday, Mar 29, 2024

Firms Get Workers’ Comp Relief But Want More

With all the vitriol that has been spewed from the mouths of local businesspeople, one would think the phrase “workers’ comp” was a four-letter word. Approximately two years after sweeping workers’ comp reforms were supposed to have curbed California’s escalating insurance costs, many employers still feel that the changes have not gone far enough. However, most agree that while the system is far from perfect, progress has been made as costs begin to drift back toward manageable levels. Marcelo “Mike” Quiroga, owner of Van Nuys-based Mike’s Roofing Service Inc., has had the misfortune of being one of the most high-risk employers in the state that has some of the highest workers’ comps rates in the nation. Consequently, his workers’ comp premiums have been higher than many other businesses. Quiroga’s main concern with the reforms are that they fail take the businessman’s perspective into account. “I have 15 employees who have worked with me for between 10 and 15 years on average. Due to their seniority, they aren’t going to make any fraudulent claims, yet I’m paying for them as though they were a brand new employee,” Quiroga said. “The state refuses to give any breaks for long-term employees who would never sue. They need to change the reforms to give us a discount or a break in the workers’ comp rates, so that we can survive.” Thus far, Quiroga hasn’t seen any of the reforms’ dividends and doesn’t expect to see any in the near future. “The reforms only focused on the lawyers and the doctors. They didn’t go to the employers and ask us what would work. Many companies have stopped paying health insurance because workers’ comp costs have skyrocketed,” Quiroga said. “I don’t expect to see the reforms having a significant impact in my lifetime. It’s difficult because the legislature is up in Sacramento and we’re down here. It’s impossible for them to see our needs.” More expected While Quiroga is cynical about the reforms’ ability, Norman Williams, an assistant deputy commissioner for the California Department of Insurance, maintains that the reforms have already begun to be felt, with more help on the way. “Significant progress has been made with the workers’ comp reforms. The initial reforms of 2003 have led to about five billion in savings already,” Williams said. “Part of the reason why more savings aren’t being passed along is that the State Compensation Insurance Fund controls about 50 percent of the market, making it the leader. For the market to gain the competition needed, State Fund needs to lead the way and implement the reforms that will cause other insurers to take note and follow its lead.” At Palmdale-based, Lusk Quality Machine Products, workers’ comp rates have declined thanks to the company’s ability to avoid having any claims in the past two years. “We’ve felt some of the reforms in a few ways. We’ve already seen benefits from the control planned system that restricts the ‘doctor-shopping’ that had occurred during the old system. Also the legislation has succeeded in helping to keep the attorney out of the process,” Lusk co-owner and general manager Randy Lusk said. “We’ve managed to cut our losses down to next to nothing in terms of incidents, so we’re now just starting to see the decline of the basic rates.” Complicated formula Due to the intricate formula that calculates rates for each firm, Lusk is still being plagued for bogus workers’ comp claims that were filed in 2000 and 2001, when an economic downturn forced the company to lay offer many of its workers. With a depressed economic climate in general, many of the workers were unable to get new jobs, leading to the sudden influx in filed claims. “Previously, workers’ comp was an accident waiting to happen. All someone had to do was be frustrated with the company and they could file a claim and they’d win,” Lusk said. “In the span of a year and a half, we had about 15 workers’ comp claims and maybe two of them were legitimate. We’re still paying for several of those claims. If I had to guess, I’d say that it will take two more years to really see the improvements from the reforms. For this coming year, my premium will be $230,000. But eventually if I can survive two more years, it will likely drop back down into the $50,000 range that it used to be at.” According to James E. Little, the chairman, CEO and president of the Agoura Hills-based Employers Direct Insurance Company, workers’ comp rates peaked on July 1, 2003; since then, EDIC’s rates have declined 40 percent on average. “The reforms are working exactly the way the legislature and the governor intended them to. Prior to their being enacted, claims and costs were escalating rapidly,” Little said. “The reforms have taken a lot of the money that went to attorneys and the medical providers associated with the legal aspects of the claim and redirected it to the bona fide injured workers. Additionally, we are seeing a lot more competition returning to the marketplace, which is a sign that the reforms are working.” Little also added that another sign of the reforms was the recent confirmation of Andrea Hoch as the administrative director of the California Division of Workers Compensation. Little believes that Hoch will be able to help the implementation of the laws and get knowledge of the reforms widely promulgated. However, while Little feels that the reforms have helped the situation, rates will never go low enough to satisfy many businesspeople. “I don’t think that the rates will ever drop to a level where businesspeople will find them satisfactory. They’ve dropped pretty dramatically and they will continue to drop,” Little said. “Our company has been aggressive in adjusting our rate to reflect the savings. However, many companies remain conservative because they still have big losses from prior years that they still need to cover. They are still a little more cautious to whether or not these reforms will work and not be thrown out in court cases.” After playing a major role in the workers’ comp reform, Gov. Arnold Schwarzenegger’s office maintains that the governor is happy but still not satisfied with the reforms that have passed. “We’ve come a long way and we still have ways to go,” Vince Sollitto, a spokesman for the governor’s office said. “We’ve seen that after years of double-digit increases, workers’ comp premiums have already fallen nearly 20 percent and an additional 10 percent rate reduction is expected this summer, meaning that we could have rate reductions of nearly 30 percent by the end of this year. We continue to expect cost decreases and resultant rate declines going forward.”

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