Another Sham ‘Reform’ for Insurance : Workers’ Compensation, Already in Ill Health, Is About to Be Bled

Reform used to mean making things better.

However, judging by its use recently in discussing California’s workers’ compensation system, reform seems to have a new meaning: Engaging in flimflam for the sake of political expediency or good old-fashioned avarice.

Under this mutated umbrella of reform, a cadre of employers and insurers, joined by a few labor officials, have concocted a proposal that is laughable in its pretensions and tragic in its implications.

The proposal would “reform” the workers’ compensation system by reeling in employees with glittering but empty promises, while once again letting the real culprits--insurance companies--off the hook.

There’s no disagreement that the system is a mess. Employers pay nearly $8 billion per year into the system, and yet California’s maximum benefit of $224 a week has been frozen since 1984 and ranks 45th among the 50 states. While the number of claims has been decreasing, the cost of insurance premiums has been increasing.

There can also be little disagreement as to why true reform has been stalled for so long. It is a hard, cold fact of the political system that when several interests are involved in an issue, consensus is hard to reach.

The proposal, which has the backing of the governor, would require the approval of the Legislature.

And there’s no arguing that some people could benefit from this proposal, among them:

-- Employers. Representatives of this group have jumped at the chance to trade some apparent extra costs for the greatly increased ability to block legitimate workers’ compensation claims and to make it easier to get away with unsafe working conditions.

-- Insurers. This group must privately be laughing at how they snookered the others. Without giving up anything except a vague pledge to maybe try to trim their rates a bit, insurers won even more authority to squirm out of paying benefits to injured workers.

Observant readers will note that one group is conspicuous by its absence from the preceding category of beneficiaries--workers.

That is because the 13 million Californians covered by the system get very, very little from this deal.

In return for an increase in benefits for some workers, they are asked to give up an array of rights.

Currently, a worker must earn $8.40 an hour to receive the maximum $224 payment. Next year, under this plan, the same worker would have to make $12.25 an hour to get the maximum payment of $322. By 1992, the worker would have to earn $19.16 per hour to get the maximum payment of $511. Of course, those still earning $8 an hour or less would get no increase.

Meanwhile, the lowest-paid workers would actually be eligible for less. Currently, part-time workers who are disabled on the job get a minimum payment of $112 per week. The minimum payment is designed to help keep the disabled person off government assistance programs such as welfare.

Under the new scheme, part-time workers would receive no more than their part-time salaries, even though they are foreclosed by their disabilities from accepting full-time work if they so desire.

Workers with permanent disabilities would receive less, since the new scheme would deduct the part of the employer’s cost of rehabilitation programs from their settlements. Workers whose permanent disabilities are serious enough to prevent them from returning to their job would also receive less. The new scheme would require them to pay for their own vocation-al rehabilitation with up to $10,000 of their permanent disability awards.

The plan would create a huge, new bureaucracy that would serve little useful purpose other than to force workers to jump through even more hoops before they get their benefits. The increased costs of the bureaucracy would be financed by a new tax on employers.

This plan is not only bad medicine, it’s treating the wrong symptoms. It is based on the assumption that too much litigation and too many stress claims are to blame for the system’s problems.

Wrong. A recent study by the independent and nonpartisan auditor general’s office found that 87% of all contested workers’ comp cases are settled out of court. Attorney’s fees are already capped, and average only 11% of the settlement amount. And stress claims, the study found, were not a significant cause of the system’s increasing costs.

This shouldn’t surprise anyone, but the real tumor in the worker’s compensation system is bloated insurance profits.

The auditor general’s report found that while insurers hiked rates 85% between 1983 and 1987, they paid out only 60% more in benefits and costs. In 1983, their profit was $243 million. In 1987, it was $1.4 billion.

Incredibly, the new “reform” plan appears blissfully ignorant of these facts. It likewise ignores medical treatment costs, another factor the auditor general said should be examined.

True reform of the workers’ compensation system is desperately needed. It can come only when the true problems of the system are addressed.