More Workers’ Comp Woes

California employers dragged down by the spiraling cost of workers’ compensation insurance were expecting some relief by now. Tough negotiations between the governor and Legislature last spring produced reforms aimed at pushing down costs without harming legitimate care for injured workers. The only debate afterward was how fast and how far rates would tumble.

Last week, an insurance industry group that gathers statistical data for insurers proposed a rate increase for policies going into effect Jan. 1. The eye-popping recommendation surfaced the same week that Gov. Arnold Schwarzenegger was promoting the new workers’ comp accord as proof that Sacramento could set aside differences and pass a state budget.

So what happened? As with much of the state-mandated insurance program, it’s not simple. The effect of the dramatic reforms won’t be evident until actual regulations are completed next year. Insurers maintain that it’s impossible to set accurate rates until the rules are in place. As for the poorly timed rate-hike proposal, it was driven by a promised benefits hike for injured workers – an increase that was in the pipeline long before the reform legislation was passed.

Another thing keeping rates high is uncertainty about the fate of the State Compensation Insurance Fund, a public agency that has long provided workers’ comp coverage to employers who are unable to buy insurance from private companies. For most of its 80-year lifetime, the fund wrote about one-fifth of policies statewide. That percentage rocketed to more than 50% in recent years as dozens of private insurers went bankrupt or opted out of California’s troubled market. The figure needs to shrink back to about 20% because the fund doesn’t have the staff, expertise or financial strength to stay so large. Private insurers also complain that the state agency unfairly undercuts them.

Yet taxpayers and businesses can’t even determine the fund’s financial state; that’s unsettling because taxpayers could be on the hook if the fund can’t meet its obligations. The fund’s board of directors and the Department of Insurance are in a court battle over the fund’s financial condition.

The state fund aside, the quickest way to get rates down is to get tough regulations written and approved. These specific rules would control employers seeking to cut corners, attorneys who use injured workers to generate windfall fees, shady healthcare providers and private insurers looking to fatten their profits. Employers deserve the relief that legislators and the governor promised; injured workers need confidence that the system will help them return to their jobs and paychecks.

It’s unrealistic for the governor or anyone else to describe the system as “fixed.” A lot can happen as broad legislation is turned into specific regulations. Too many loopholes or not enough enforcement muscle and workers’ comp risks another meltdown – as happened following a deregulation plan in the mid-1990s. And gaming the system can be a full-time job, just as it is with tax law. The only constant is that rule makers always must struggle to keep pace with the gamers.