Workers’ Comp Reform Unveiled by Garamendi

Insurance Commissioner John Garamendi, continuing his assault on spiraling workers’ compensation insurance costs, on Friday announced a three-pronged reform program designed to curb fraudulent and unwarranted claims.

As part of the plan. Garamendi endorsed legislation introduced by Assemblyman Burt Margolin (D-Los Angeles) that would eliminate a “guaranteed cap” on insurers’ expenses. The bill would give Garamendi greater discretion to reduce workers’ compensation rates for employers.

Garamendi also announced the creation of a new workers’ compensation fraud investigation team and an outreach program to employers to educate them on new insurance fraud laws.

“California businesses are being strangled by exorbitant workers’ compensation insurance premiums,” Garamendi said. “Workers’ compensation costs have gotten out of control, especially in the areas of insurer expenses and fraud.”

Margolin’s bill, introduced in the Legislature on Friday, aims to eliminate the “guaranteed expense cap,” an arbitrary measure of workers’ compensation carrier costs. This cap was one of the primary reasons that Garamendi late last year turned down an 11.9% rate increase request from the Workers’ Compensation Insurance Rating Bureau, which determines what minimum rates should be for the industry. Garamendi only allowed a 1.2% increase.

The cap allows workers’ compensation carriers to claim that their expenses amount to 32.8% of premiums, no matter what their true expenses are, when they request rate increases. Actual expenses are far lower--about 20% to 25% of premiums, Garamendi said.

“This bill is a way to guarantee that California employers are not charged excessive premiums by workers’ compensation carriers,” Margolin said. “This bill would allow Garamendi to address what an appropriate expense load would be.”

Insurance representatives Friday criticized the proposed expense cap limitations.

“A panel that Garamendi helped form has been studying workers’ compensation rating practices for over a year, and they are set to give their recommendations in March,” said Richard Wiebe, spokesman for the American Insurance Assn. in Sacramento. “Garamendi has apparently decided their recommendations are irrelevant.”

Insurers are more supportive of Garamendi’s efforts to combat fraud. Robert Gore, vice president of the Assn. of California Insurance Cos., noted that the new fraud unit is made possible by a law partially written and supported by the insurance industry.

Garamendi said he was creating a new workers’ compensation fraud investigation unit, funded by legislation that took effect Jan. 1. The law is designed to target doctors, attorneys and medical care workers who encourage the filing of fraudulent workers’ compensation claims.

Under the tough new law, making false statements to support fraudulent workers’ compensation claims is a felony. Convictions can be punished by up to five years in prison and fines equaling twice the fraud.

“The people who are committing workers’ compensation fraud now think they can do it with impunity, but that has changed,” Margolin said. “If you commit workers’ compensation fraud, you go to jail.”

Garamendi also said he plans to step up a public information campaign about the new workers’ compensation fraud law. The campaign will be conducted through partnerships with other state agencies, such as the Employment Development Department and local chambers of commerce.