Firms Back Insurance Reform With Skepticism

California businesses cautiously endorsed the preliminary agreement reached Friday in Sacramento to overhaul the state’s troubled workers’ compensation system. But many of them, as well as analysts and insurance company representatives, doubted that the proposed measures would bring the kind of prompt and large premium reductions employers are seeking.

The tentative deal, crafted by Gov. Arnold Schwarzenegger and key lawmakers after weeks of political wrangling and intense lobbying, addresses some critical factors that have pushed the state’s workers’ comp rates to the nation’s highest. It would set, for example, stricter guidelines for determining the extent of a worker’s disability -- a change that is widely expected to hit the pocketbooks of lawyers who represent injured workers because of reduced litigation in the system.

But the plan apparently doesn’t touch on some other elements that many say have been a source of abuse, such as ensuring that workers’ comp insurance isn’t used to cover injuries that aren’t primarily suffered on the job. The architects of the reform effort also elected not to lower the maximum weekly disability payments for workers hurt on the job.

Most people interviewed Saturday were hesitant in their assessment of the agreement, having seen only the outlines of the proposed overhaul. Labor groups in particular were circumspect.

Details of the deal haven’t been released, and officials were careful to say that there were still things that needed to be ironed out, including the contentious issue of rate regulation. A bill is expected to be drafted by Thursday.

“I don’t know what the final writing is going to be, but the way it looks right now, it sounds good,” said Mario Rueda, owner of Pacific Molding Inc. in Corona, whose 35-employee plastics manufacturing company has seen its annual workers’ comp premiums triple since 2001 to $104,000.

Like other business owners, Rueda said he was considering leaving California because of high workers’ comp and other costs. He has already priced the cost of a one-way ticket to relocate his company to Henderson, Nev. -- about $225,000. Rueda said Saturday that he would stick it out awhile longer. “I’ll be happy if something happens next year and I get a 25% rate reduction,” he said.

Other businesses are hoping for premium cuts of up to 50%. But they’re not likely to get anything like that anytime soon, at least not given these latest reforms, according to experts. At the same time, they said, the proposed changes were potentially substantial.

The savings could be hefty if, as proposed, California adopts the American Medical Assn. guidelines for calculating benefits for workers who suffer permanent disabilities, said Frank Neuhauser, a researcher at UC Berkeley who specializes in workers’ comp and other forms of social insurance.

Although the AMA standards are widely used in other states, California has employed its own complex system for rating injured workers’ disabilities on a scale of 0 to 100%, depending of the severity of the injury.

In addition, a worker in California who suffered lower back pain would be classified as permanently disabled even if the pain later went away. That is part of the reason that the state “has so many more permanent disability claims than virtually any other state,” Neuhauser said.

Use of the AMA guidelines and tightening disability classifications could cut the cost of permanent disability benefits in California by 30%, Neuhauser estimated.

Exact savings would be hard to determine, said Robert Reville, director of the the Rand Institute for Civil Justice, a Santa Monica-based think tank. However, the proposal “would certainly reduce the number of injured workers” who receive benefits for what are known as permanent partial disabilities, he said. And the use of the AMA guidelines would “likely reduce litigation costs.”

Gary Johnson, vice president of Ace Clearwater Enterprises Inc. in Torrance, said he’d be thrilled if that happened. The aerospace parts supplier has seen its workers’ comp premiums surge even though its record of injury claims has improved. It has gotten so bad, Johnson said, that one of his vendors recently started applying a 3% workers’ comp surcharge to his bill.

“The permanent disability is a really big issue,” he said, noting that some workers at his 176-employee firm had been treated and returned to work while others in the same job with similar injuries qualified for permanent disability.

Another major change in the proposed reform would require an injured worker to make three visits to a company-designated doctor before being allowed to go to a personal physician. Employers contend that greater control over choosing doctors would save money.

Although there isn’t a lot of evidence of such savings in other states, John Burton, a Rutgers University professor who is a national expert in the field, said there were indications in California that workers were receiving multiple, extended services from chiropractors despite research that questioned the long-term benefits of such treatments.

Chiropractors have contended that is not the case, with some saying that often they’re treating patients for pain over a long period because those workers are having trouble getting approval for tests and surgeries.

Ralph Miller, president of American Federation of State, County and Municipal Employees Local 685, whose group represents about 4,000 probation officers in Los Angeles County, said he had no problem with a mechanism that would give employers more say in the selection of a doctor to treat injured workers. He expressed concern, however, that ailing employees might be encouraged to get back on the job too quickly. “I think the question is flexibility,” he said.

Tom Rankin, president of the California Labor Federation, said insurance companies and brokers needed to “take a haircut” along with employers and workers.

“If we’re going to be potentially cutting back on benefits for injured workers, before we do any of that, we have to make sure that these people feeding off the system who are neither employers or workers have to take their cut.”

Richard D. Wooley of the California Applicants’ Attorneys Assn. said what’s missing is rate regulation. Despite earlier signs of an agreement on this issue, it’s still on the negotiating table.