Democrats Turn Tables on GOP in Budget Fight

Upping the ante in the high-stakes contest over the future of the state’s workers’ compensation system, Democrats were pressing Wednesday to repeal a decades-old law that all but guarantees insurance companies a profit.

The gambit has produced this odd bit of politics: Republicans and their allies in the business community--traditional defenders of the free market system--were resisting the proposal, although it would unleash free enterprise into the market for workers’ compensation insurance.

The reversal of traditional political roles is the latest twist in the legislative battle over the state’s $56-billion budget.

The budget bill is on the governor’s desk. But it remains more than $2 billion out of balance. To square it, Wilson has provisionally agreed to a variety of taxes, including a personal income tax increase on the wealthiest Californians.

But along with the new taxes, Wilson and Republicans in the Assembly want to limit the ability of workers to collect disability benefits for on-the-job stress. They contend that such limits would save money for businesses and partially offset the impact of the tax increase on the economy.

Democrats drafted legislation that met part of the governor’s demands, then threw in a wild card. They proposed repealing the so-called “minimum-rate law” that bars insurance companies from selling workers’ compensation coverage at a price below that established by the state insurance commissioner.

Democrats contend that the resulting competition among insurers would lower premiums and save employers hundreds of millions of dollars--far more than would be saved by the governor’s proposal. The minimum-rate provision was created in the early 1900s as a way to protect fledgling California workers’ compensation companies from competition from big Eastern firms. The minimum rate is based on the expected cost of paying claims plus a uniform level of overhead, which includes profits, for all companies selling similar lines of insurance.

Past efforts to repeal or change the law have been resisted by the insurance industry.

“The most dramatic reform of workers’ comp ever in this state would be to get us into the free market system on the business of selling workers’ comp insurance,” Assembly Speaker Willie Brown (D-San Francisco) told reporters Wednesday night. “Right now you can be an idiot and run a workers’ comp insurance carrier company and make money because the state says you are guaranteed that you won’t go broke.”

But representatives of the state’s biggest employers, at a news conference Wednesday in which they pressed for approval of the governor’s workers’ compensation system, refused to endorse the repeal of the minimum-rate law.

Kirk West, president of the California Chamber of Commerce, said the current law helps smaller businesses by charging them the same rate that larger businesses pay even though it costs insurers less to administer policies for the bigger firms. He said the business community is willing to study the issue but does not now support repealing the law.

In the Assembly on Wednesday night, Republicans were using parliamentary procedures to block consideration of the workers’ compensation bill. They said they wanted to amend the legislation and return it to the form supported by Wilson, which does not include repealing the minimum-rate law.

Democrats said the employer groups and the Republicans are resisting the proposal because of the influence of the insurance industry, which wants to keep the minimum-rate law in place.

“One of the problems with the employers on this issue is that they are in coalition with the insurers, and sometimes in confusion believe their interests are the same as the insurers,” said Assemblyman Burt Margolin (D-Los Angeles). “In fact, that’s frequently not the case. My best guess is they’re getting bum advice from the insurers, who are economically self-interested, to put it mildly.”

Bob Gore, vice president of the Assn. of California Insurance Cos., said repealing the minimum-rate law would not result in a lasting reduction in workers’ compensation insurance premiums.