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Friday, Mar 29, 2024

Workers Comp Status: Having Hope Among Continued Frustration

Until 2003, California was plagued with unparalleled increases in workers’ compensation insurance rates, which have been blamed, rightly or not, for driving businesses from the state. Over the last three years, however, new reforms have given some experts hope that the state may have finally repaired its system, even as public officials push for faster, more drastic premium cuts. David Neumark, a senior fellow at the Public Policy Institute of California said the fact that insurers are lowering their rates consistently is a sign that they believe that reforms implemented by Governor Schwarzenegger and his predecessor Gray Davis are addressing the heart of the problems. Prices have not dropped fast enough for Insurance Commissioner John Garamendi, who says that the different regulations have decreased the cost of worker’s compensation insurance costs by almost 50 percent, but premium costs have not fallen at nearly the same rate. The Department of Insurance has recommended rate reductions of about 37 percent, while carriers have cut rates by an average of about 27 percent. “(Insurers) have not passed on the savings,” said Garamendi. “Every small business owner in the state ought to be screaming to the governor saying ‘where are my savings?'” In 1994, a new law removed the “floor” rate at which worker’s compensation insurers were required to sell policies. Without a minimum rate, companies charged well below the damages they were forced to pay in order to undercut their competitors. Businesses were forced to shut their doors, or they were taken over by the Department of Insurance. As his administration was coming to a close, Davis signed two bills into law, AB 227 and SB 228, which set forth established rates for every medical care provider and set fee schedules for pharmaceuticals, limited the number of visits to chiropractors and physical therapists along with establishing other monitoring bodies. In April of 2004, Governor Schwarzenegger signed a compromise bill into law that allowed providers to establish networks of care without outside intervention. The bill did not include rate controls, which some Democratic members of the legislature had wanted, and it tightened eligibility requirements for permanent disability claims. State fund A large part of the reason for the delay in savings to customers has been because the State Compensation Insurance Fund, which insures many businesses, has not lowered its rates enough, he said. “They chose to very aggressively rebuild the State Fund’s financial strength, doing it in about 18 months when I suggested that they take five years to do it,” Garamendi said. “That strategy has kept premium costs very high.” Neumark, however, said that businesses are only behaving naturally in exercising some caution. Although there is evidence that suggests that costs will go down as a result of the state’s new regulations, everyone is still waiting to see whether that really happens. “Obviously insurance companies have an incentive to be more cautious than the commissioner because it’s not his money on the line,” said Neumark. “That doesn’t mean he’s wrong, it could be he’s right.” “There’s some uncertainty around this,” he added. “Any company that’s trying to make money is not really sure that’s going to happen, and they’re definitely trying not to take any action that’s probably going to make them lose money.” Still, concerns about premium rates have led some to believe that rates must be regulated in order to give employers enough relief. Although Republicans successfully kept rate caps out of the 2004 reforms, Senator Richard Alarcon has since introduced legislation that revisits the idea. The theory that workers’ compensation carriers are purposely inflating their rates is unlikely, Neumark says. “It could well be that they could be charging higher rates than they should, but this is a pretty competitive market. I’m always a little bit skeptical of these collusion stories,” said Neumark. “This is not an industry with two or three firms, there are a lot of them, and there’s the potential for even more to come into the state. . .if some companies rates were too high, someone would undercut them.” Premiums across the state have fallen more than 30 percent over the last couple of years, and at least one local company has cut its rates almost in half without seeming to damage the business’ financial strength. New company Agoura Hills-based Employers Directs Insurance Company is only a couple of years old, but its founder and chief executive officer Jim Little is a veteran of the California workers’ compensation market and said the government reforms prompted his decision to start a new company. When the company announced its most recent rate reduction in June, Little said Employer’s Direct had consistently put Garamendi’s rate reductions in place. “Since the Governor championed the passage of SB 899, we have seen a continuous improvement in our own experience and that of the industry,” Little said at the time. “The persuasive evidence that things are getting better compelled us again to bring more relief to our policyholders. Since mid-2003, we have cut our premium charges to business owners nearly in half.” Still, Neumark cautions that even as the reform efforts are bringing California in line with the rest of the country’s workers’ comp systems, there are other cost drivers. Improved safety policies at the workplace may go a long way to cut workers’ comp claims, Neumark said, but it’s impossible to find a government solution to all of a society’s medical problems. “Even in the ideal worker’s compensation system costs would still go up presumably at the rate of medical inflation,” Neumark said. “These (reforms) are going to lower premiums, but in some sense the underlying core is still a pretty high rate of growth, unless medical costs are cut across the board.”

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