Reforms Cut Worker Comp Cost, Audit Finds

Changes made last year to California’s workers’ compensation system could put a significant dent in some bills for on-the-job injuries, according to a state audit that is fueling hopes for lower insurance premiums.

The reforms passed by the Legislature could slash the average cost of treating workplace injuries at outpatient surgical centers 58%, the Bureau of State Audits said Tuesday in the first independent evaluation since the workers’ comp law went on the books Jan. 1.

Prescription drug costs could drop about one-quarter, the bureau said.

The audit doesn’t include projections on the total savings the law might squeeze out of the $29-billion system.

Frank Neuhauser, who worked on an earlier UC Berkeley study of the effect of the law, said the bureau’s findings were in line with his estimates of savings of $1.2 billion in outpatient surgery costs for injured workers and of $300 million for prescription drugs

It’s unclear whether that will translate into the significant cuts in workers’ comp insurance premiums that California businesses want. Premiums in California are more than twice the national average.

Business owners, local governments and nonprofit groups have seen their bills soar 136% over the last four years.

A spokesman for Gov. Arnold Schwarzenegger called the audit’s projections “welcome” but said that “this in no way relieves the need for the Legislature to act quickly.”

Insurance companies, business groups and lawmakers aligned with Schwarzenegger said they would continue to push the Legislature to make more changes and, failing that, would work to put an initiative on the November ballot.

“I’m an employer who’s working on the front lines, and I honestly believe last year’s reforms were on the right track,” said William M. Zachry, vice president for workers’ compensation for Safeway Inc. “It was a great start, but it only addressed medical issues.”

The workers’ comp law limits the use of medical services. It pegs outpatient surgical center payments to no more than 120% of fees allowed by the federal Medicare program and drug reimbursements to what is paid by the state Medi-Cal system.

“The audit confirms what we hope will happen, while at the same time pointing out that there are numerous barriers to getting the savings realized,” said Nicole Mahrt, a spokeswoman for the American Insurance Assn. in Sacramento.

After the law passed in September, state Insurance Commissioner John Garamendi recommended that workers’ comp carriers reduce average rates 14.9% this year.

They ended up cutting their California rates by an average 3.6%.

The State Compensation Insurance Fund, the public entity that provides coverage to more than half of California’s businesses, lowered its rates 2.9%.

So many private carriers have closed their doors or stopped offering coverage in the state in recent years that businesses have flocked to the entity.

Labor union officials and attorneys who represent injured workers said the law was being hijacked by insurers.

“What we see is not being reflected in the rates being charged employers this year,” said Thomas Rankin, president of the California Labor Federation.

He said that if premiums didn’t soon fall sharply, labor leaders and allies in the Democratic Party might introduce legislation to have the state regulate workers’ comp insurance rates.

The audit bureau, which based its study on data collected by the State Compensation Insurance Fund, said that the insurer of last resort was slow in implementing the reforms.

The fund is beset by troubles, suffering from shaky finances and depleted loss reserves.