Bill Aims to Regulate Workers’ Comp Rates

Maintaining that workers’ compensation insurers are gouging employers, an influential state senator introduced legislation Wednesday that would give regulators the power to set premiums on workers’ comp policies.

At a statehouse news conference, Sen. Richard Alarcon (D-Sun Valley) said many California businesses had yet to receive significant relief from workers’ comp premiums that soared by as much as 300% between 2000 and 2003, despite a sweeping overhaul of the $20-billion system signed by Gov. Arnold Schwarzenegger in April.

“We change nothing in the workers’ compensation system if the smallest businesses do not get those benefits,” said Alarcon, chairman of the Senate Labor and Industrial Relations Committee. “We did nothing to hold insurance companies accountable for reasonable prices. They’re gouging the state of California exactly as the energy companies did a few years ago.”

The move by Alarcon, coming in the first week of the new legislative session, marks the start of what promises to be another year of wrangling over the troubled system for compensating injured and disabled workers.

Insurers and the governor are counseling patience, saying that major savings from last spring’s overhaul will not be felt for another six to 12 months. Regulations that implement the changes -- some of which went into effect as recently as New Year’s Day -- need time to work, they say.

However, employees, union leaders and lawyers who represent injured workers say their disability benefits are being cut drastically, while savings created by the overhaul are not being passed along to owners of small and medium-size companies.

By tackling the touchy issue of rate regulation, Alarcon’s bill is focused on one of the most controversial aspects of the workers’ comp revamp. Efforts by Democratic lawmakers to include premium regulation in last year’s legislation failed, and Alarcon’s measure faces a similarly dicey future.

Alarcon said that profits at a leading California workers’ compensation carrier, Woodland Hills-based Zenith National Insurance Co., increased by 335% last year, while industrywide average premiums dropped by only 10%. Last spring, Schwarzenegger predicted that rates quickly would drop by about 30%.

Zenith Chairman Stanley Zax confirmed that profit at his company grew significantly in 2003 and 2004, but he noted that earnings were more than offset by $200 million in losses in the seven previous years.

“If we don’t make a profit, we don’t have capital, and we’re not willing to assume risk,” he said.

Alarcon’s bill has a good chance of making its way through the two houses of the Democrat-controlled Legislature. But it is likely to be vetoed by the governor, who killed a similar proposal by the senator last year. Although Schwarzenegger is committed to ensuring that premiums paid by business are fair, he wants to wait to evaluate the success of the changes to the state’s 92-year-old workers’ comp program.

“It’s premature to talk about regulation,” said Schwarzenegger spokesman Vince Sollitto. “All signs are pointing toward cost reduction, rate reduction and increased competition.”

Insurance industry representatives agreed that improvements brought by the overhaul are starting to materialize, and they denounced efforts by labor leaders and attorneys who represent injured workers to try to bring back the old system.

“The renewed effort to seek rate regulation is a political smokescreen, part of a bigger plot being rolled out to undermine the reforms,” said Nicole Mahrt of the American Insurance Assn. in Sacramento.

Attorneys and labor unions, together with their Democratic allies in the Legislature, “are looking for some way to pry the workers’ comp law open,” and bashing insurance companies and complaining about cuts in injured workers’ benefits is a good point of entry, said Willie Washington, a lobbyist for the California Manufacturing and Technology Assn.

The battle could wind up before voters if Schwarzenegger calls a special election this year, Washington predicted.

“This is a pocketbook issue for attorneys and doctors,” he said. “It’s in their best interest to put it on the ballot and fund it.”