Workers Comp Becomes Key to State Budget

Workers compensation--an issue few people fully understand but one that can affect anyone who owns a business or holds a job--has become the make-or-break item on which the fate of the state’s $56.4-billion budget now depends.

Gov. Pete Wilson and his Republican allies in the Assembly are demanding changes in the workers compensation program in exchange for higher income taxes on the wealthy. If they get their way, premiums paid by employers--now among the nation’s highest--could drop. But workers would find it much more difficult to collect disability payments for on-the-job stress.

Many Democrats complain that the governor’s proposal would be unfair to injured workers. They say the issue has no place in the budget debate because the changes would have no measurable effect on state coffers.

The impasse has stalled action on about $2 billion in tax increases that the governor and the majority of legislative leaders agree are necessary to erase what remains of the state’s record $14.3-billion budget shortfall. Wilson and lawmakers are expected to resume negotiations on Monday.

Wilson has argued publicly since April that a reduction in workers compensation premiums is needed to help blunt the effect of higher taxes that California businesses would be paying under his budget proposal. A recent survey by the California Business Roundtable, whose leaders have been major supporters of the governor, found workers compensation was the top issue on the minds of executives at the state’s biggest corporations.

But the governor never pressed his demand in private meetings with legislative leaders, according to lawmakers, and agreed in concept with the Senate on a budget deal that did not include it. Only when Assembly Republicans refused to vote for all of Wilson’s tax package did he again place workers compensation on the negotiating table in an effort to attract GOP votes in the lower house.

“The workers compensation reform is necessary,” Wilson told reporters after a meeting Wednesday night with legislative leaders. “This is the best time to get it.”

Although it is an arcane issue, workers compensation can affect just about everyone in the state.

Every California employer is required by law to be insured for on-the-job injuries suffered by its workers. The insurance pays all of an injured worker’s medical costs, without deductibles or co-payments. It also provides for vocational rehabilitation and cash benefits that are paid at different rates for temporary and permanent disabilities.

On average, California employers pay premiums of about $14 per employee per week, which amounts to about 3% of each company’s payroll. The figures, the most recent available, are from 1988.

Both numbers have been rising steadily and are more than 50% above the national average.

Yet the benefits paid to injured workers in California rank 30th among the 50 states, according to the governor’s office. The maximum cash benefit for a worker with a temporary disability is $336 a week. For a partial but permanent disability, a worker receives $148 a week for up to 12 years, depending on the severity of the injury.

The dispute between Wilson and Democratic lawmakers is centered on a small part of the system. Claims for stress represent fewer than 4 cents out of every premium dollar.

But business groups see the issue as a good place to look for potential savings because the facts surrounding psychiatric injuries are usually less clear than for physical ailments. Although back injuries--which also are often difficult to prove or disprove--remain the largest single source of claims for workers compensation, stress claims rose 700% during the 1980s and have become the most criticized element of the system.

A landmark 1989 law overhauled the system and included compromise provisions to reduce stress claims. For the first time, the measure set a different and higher standard for mental injuries than for physical injuries. Among other things, the bill required workers to prove that at least 10% of their stress came from actual events in the workplace.

The number of stress claims filed in 1990 leveled off at about 7,650 after many years of increases. But the business community remains unsatisfied.

Business leaders and the governor repeatedly have complained about so-called stress mills--high-volume psychiatric clinics that recruit patients and help them file claims. The clinics advertise extensively, and it is not uncommon for their agents to approach people in unemployment lines and solicit them to come in for an examination.

Wilson’s proposal would require workers to prove that at least 50% of their stress--rather than the current 10%--was caused by the conditions at work. The governor also wants to prohibit the payment of disability benefits for stress caused by a lawful firing, demotion or other personnel action.

By itself, the proposal might not do much to hinder the stress mills Wilson has criticized. The psychiatrists who work in the clinics would still get paid simply for evaluating the workers, whether or not the claim is found to be legitimate.

But by making it more difficult for workers to collect benefits, the governor’s plan could reduce the incentive for attorneys to help workers file dubious claims. This is because the lawyers usually are paid a percentage of the worker’s award.

To take aim at the stress mills, Wilson this week endorsed a Democratic-backed plan to apply felony penalties to doctors and lawyers who engage in workers compensation fraud.

Any savings from these changes would be divided equally by business and labor. Half would go to reduce insurance premiums for employers and half would be used to raise benefits for workers who file legitimate claims and are awarded compensation.

“It’s critical that the threshold be raised,” said Assemblywoman Bev Hansen (R-Santa Rosa). “A person should have to prove that at least half of their stress came from the workplace before they are compensated.”

But many Democrats believe the bill would make it harder for even legitimate victims of stress to collect benefits.

“Now the condition for taxing the rich is screwing the workers,” Assembly Speaker Willie Brown (D-San Francisco) told reporters after a recent meeting with the governor.

Whether the proposal would merely deter fraudulent claims, as its supporters predict, or also prevent legitimate ones, the savings produced would be relatively small.

Even if stress claims were eliminated, which no one anticipates, the total savings would be about 3.7%--or $370 million out of a nearly $10-billion system, according to a study by the Workers Compensation Insurance Rating Bureau.

There are no reliable estimates of how many claims could be eliminated by the governor’s proposal. But the plan is much narrower than an earlier measure Wilson had supported, which his Administration had estimated would save employers about $220 million.

A Program Under Fire

Here is what Gov. Pete Wilson wants to change in the state workers compensation system:

Require workers seeking disability payments for stress to prove that at least 50% of their stress was caused by actual conditions at the workplace. Current law sets that standard at 10%.

Prohibit payment of benefits for stress that was caused by a legitimate firing, demotion or other personnel action.