Assembly OKs Workers’ Comp Reform Bill

Seeking a compromise to end the state’s prolonged budget battle, Assembly Democrats on Friday night overcame nearly united Republican opposition and passed legislation that would limit the right of workers to collect disability payments for stress suffered on the job.

Gov. Pete Wilson immediately announced that he would veto the bill if it came to his desk because he said it does not do enough to change the workers’ compensation system.

The bill was passed by the Assembly on a vote of 43 to 27 and sent to the Senate, where it is expected to be amended under fierce pressure from the insurance industry. The insurers oppose a provision that would repeal a decades-old law preventing price competition in the market for workers’ compensation insurance.

As a result, the Democratic action may not move California much closer to a resolution of the budget crisis.

After taking the vote, the Assembly adjourned until Monday.

The industry’s opposition complicates the governor’s attempt to obtain agreement on a budget for the fiscal year that began July 1. Wilson has said he will not sign the $56-billion spending plan on his desk unless he also receives legislation to make it harder for employees to collect disability payments for on-the-job stress.

Thomas Conneely, president of the Assn. of California Insurance Cos., said repealing the so-called “minimum-rate law” would prompt turmoil in the industry and force many California-based workers’ compensation insurance companies out of business.

“We will do whatever we can to keep that out of there,” Conneely said of the proposed repeal.

Conneely’s comments are evidence that Assembly Democrats may be beginning to succeed in their effort to drive a wedge between California employers and the insurance companies. The two powerful lobbies have been united in their attempts to reduce workers’ compensation premiums by limiting benefits for some injured workers.

So far, the employer groups have opposed repealing the minimum-rate law. But employers, unlike their allies in the insurance industry, are considered unlikely to give up the entire workers’ compensation issue over the minimum-rate proposal.

Republicans in the Assembly, acting in concert with Wilson, have refused to vote for a $2-billion income tax increase that is seen as the last piece of a budget-balancing package unless Democrats agree to the governor’s workers’ compensation proposal.

Although the governor’s position has changed frequently in recent days, his latest proposal would require workers seeking compensation for stress to prove that at least one-third of their stress came from the workplace. He also would prohibit disability payments for stress caused by a layoff, firing or other personnel actions, including demotions and transfers.

The Democratic bill passed by the Assembly would require workers to prove that 30% of their stress came from the job. The current threshold is 10%. The bill also would prohibit payment of disability for stress arising from a layoff or firing but would allow stress claims for all other personnel actions.

Democrats contend that repealing the minimum-rate law would spark a premium war, which would reduce rates for employers. A 5% reduction would amount to a $400-million savings--more than double the amount that the governor’s latest proposal is projected to save.

But the insurance industry warned that the new competition could leave small business out in the cold. They say that small companies get a break under the current law because their premiums are the same as big firms even though it costs more per employee for insurance companies to serve smaller firms.

“If you change that basic economic system, there would be a tremendous amount of turmoil in the system, and it would take years to settle down,” Conneely said. “Maybe when it did settle down it might be, in some people’s view, better. But to get there would cause employers a lot of pain.”

Conneely warned that small businesses might find themselves in the same situation with workers’ compensation as they are with health insurance--unable to find coverage at a reasonable price.

“No one would be competing for the small risk,” he said. “They would essentially be left adrift.”

Assemblyman Burt Margolin, a Los Angeles Democrat who chairs the Insurance Committee, said insurance companies in opposing the measure are only fighting to save their own profits.

“There are so many carriers in California, it is such a lucrative market, it is absurd to suggest that there would not be carriers out there willing to compete, particularly for the small employer share of the market,” Margolin said.

Oddly enough, the advocates and opponents of the effort to repeal the minimum-rate law have cited the experience of Oregon in an attempt to prove their cases.

Margolin said Oregon’s rates declined dramatically after it went to more open competition in 1982. William Campbell, president of the California Manufacturers Assn., said rates increased and competition dwindled.

According to Oregon state officials, the state never has had a minimum-rate law such as California’s. But premiums declined nearly 50% over a two-year period after a major change in the law in 1982 encouraged more competition. In the following years, premiums have climbed back to their original level and beyond, partly because benefits have increased.

Two companies, including the government-run workers’ compensation carrier, write almost all of the insurance in Oregon. But employers are still able to obtain coverage, and the state fund this week cut its rates by 10%.

“We had a blood bath,” Richard McGavock, an official with the Oregon Department of Insurance and Finance, said of that state’s rate war in the early 1980s. “But the proof of the pudding is that many other states are now following our lead. We have been vindicated.”