Deal on Workers’ Comp Outlined

California legislators have the outlines of a deal that proponents believe could put a stop to the raging workers’ compensation crisis that threatens to drive businesses out of state or into bankruptcy.

Some business leaders, however, doubt that legislators will ultimately cut costs deeply enough.

A six-member conference committee of the Legislature is weighing measures that would pare $5 billion to $6.2 billion from a system in which every employer in the state must participate and in which overall costs have jumped from $9 billion in 1995 to an estimated $29 billion this year.

Employers from pizza parlors to city police departments have seen premiums double, triple and quadruple for the insurance that covers the medical costs of workers injured on the job.

Unable to reach an agreement yet on draft language, committee members spent four hours Friday struggling to pin actual dollar figures on cost-cutting moves they hope will roll back insurance premiums to 2002 levels and prevent a 12% increase expected in January. There is no guarantee that the Legislature’s actions will lead to reduced insurance premiums.

At the hearing, business leaders expressed disappointment at the lack of actual legislation and what they saw as the paucity of the proposed cuts.

“My headline would be, ‘the employers are going to get hosed,’ ” Willie Washington, a lobbyist for the California Manufacturers and Technology Assn., told the committee.

Session Ends Soon

With seven days remaining before the Legislature adjourns until next year, he said that his understanding of what legislators envision leads him to believe that costs will not be cut enough to reduce insurance premiums.

“It seems to me that we’re going to see something next week hurriedly,” Washington said. “My experience has been nothing that we’ve ever done that I’ve been associated with here in the Capitol has ever turned out the way we thought it would. It has usually gone bad. I’m fearful that if we put something through that is not fleshed out ... it just means the employers are going to get some paper and we’re going to be advertising that we’ve got reform but it’s going to turn into more costs.”

Some core cutbacks under consideration by the committee include:

* Limiting visits to chiropractors to 24 per claim. The typical injured California worker sees a chiropractor 34 times, compared with an average of 16 times in 12 other states studied by the Workers’ Compensation Research Institute. Of the $1.2 billion expected to be spent on chiropractic treatment for 2004 injuries, $600 million could be saved by capping visits, according to the nonprofit Workers’ Compensation Insurance Rating Bureau.

* Limiting physical therapy visits. Studies show that people in California’s workers’ compensation system visit physical therapists 39% more frequently than in other states. A cap of 24 visits could save the state’s workers’ compensation system $300 million, according to the rating bureau.

* Eliminating mandatory career counseling. Insurance Commissioner John Garamendi told legislators that this aspect of workers’ compensation doesn’t work and ought to be eliminated. Legislators are discussing instead giving injured workers a block of money to use to pursue a new career. Savings are estimated at $1 billion.

* Controlling drug costs. Legislators are considering tying the prices paid for pharmaceuticals to a fee schedule in the Medi-Cal system. Pharmaceuticals are one of the fastest-growing components of the workers’ compensation system, accounting for nearly $300 million or 7.2% of the total medical costs paid out by insurers last year, according to the rating bureau. The agency estimates this reform would result in savings of about 20% on the cost of drugs.

* Making care consistent. Experts say a major problem with California’s system is the lack of consistency in treatment, with workers with similar injuries often getting vastly different amounts of care, depending on their medical practitioner. The Legislature is considering adopting American College of Occupational and Environmental Medicine standards, which would establish guidelines as to how much care is appropriate for any given injury.

Many employer groups say legislators must also reform the subjective way in which California determines when a worker is permanently disabled.

“It’s a big piece of the puzzle,” said Charles Bacchi, legislative advocate for the California Chamber of Commerce. “Without it, you’re not going to solve the problem.”

But Committee Chairman Sen. Richard Alarcon (D-Sun Valley) said the committee will probably avoid that issue.

“I don’t want to say that anything is off the table, but that would be something that I wouldn’t expect major changes on,” he said after the hearing.

Alarcon said he expects legislators to work through the weekend and present the public with actual legislation in the form of two major bills by Monday.

“It would be the largest cost-savings measure for workers’ compensation perhaps in the history of the nation,” said Alarcon, who prefers cuts of $5 billion while other committee members seek $6.2 billion in savings. “I think the employer community certainly would want to see much greater cost savings, but we have a responsibility to maintain the quality of care to injured workers.”

Legislators seemed especially worried about how to ensure that their cost-cutting measures would directly help employers and not be absorbed by insurance companies as profit.

Garamendi told the panel that the big companies in California that are self-insured -- including the state -- would see the savings immediately. He also predicted reduced premiums for the half of the state’s employers who buy workers’ compensation insurance through the State Compensation Insurance Fund. Set up by the state as an insurer of last resort, the nonprofit fund came to dominate the market as dozens of private insurers became insolvent in the price wars that followed a 1993 deregulation plan.

“They will set the pace of the market,” Garamendi said. He added, however, that the state fund’s need to build its surplus could delay rate reductions for its customers. States nationwide are grappling with high costs of workers’ compensation. But nowhere is the problem more severe than in California, where employers pay by far the highest premiums -- an average of $5.23 for each $100 of payroll, compared with less than $3 for each $100 of payroll in most states, according to research by the Oregon Department of Consumer and Business Services.

Critics say the real beneficiaries are a vast network of attorneys, medical providers, vocational counselors and other middlemen who have little incentive to reform the system.

“Those people in the middle are the ones sucking off the system, running the costs up and controlling the debate in the Legislature,” said Scott Hauge, founder of the San Francisco Small Business Advocates, a Bay Area political action committee. “It just drives you crazy.”

Hauge said he believes relief is unlikely given the current figures being discussed by the committee. Garamendi estimates that a $6.2-billion reduction in system costs, which many feel is optimistic, could lead to a 32% reduction in the premiums employers could otherwise expect to pay beginning in January.

Employees Laid Off

Janet Wells, president of Insta Graphic Systems, a Cerritos-based firm that does silk screening and makes heat transfers for the garment industry, said her firm has seen its premiums soar to $400,000, four times what it paid three years ago.

To offset the rising cost, the firm has laid off 40 employees and cut benefits for the remaining 120. Wells said she is considering moving some production out of the state if relief doesn’t come soon.

“They are forcing businesses out of California,” Wells said. “It’s unfortunate that legislators are more concerned with special interests than in keeping jobs in this state.”

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Vogel reported from Sacramento and Dickerson reported from Los Angeles.