Anti-Fraud Measures, Reform Lowered Rates
Your article on the reduction in workers’ compensation premiums article (“State to Slash Base Rate for Workers’ Comp by a Record 16%,” Sept. 21) gives readers the impression that the Department of Insurance, by ordering a reduction, is the force behind workers’ comp reform. Actually, the insurance commissioner simply was reacting to market pressures triggered by reform and anti-fraud initiatives enacted by Gov. Wilson and the Legislature.
In 1991, the governor signed anti-fraud legislation that provided tougher penalties and dedicated funding for the insurance commissioner and local prosecutors to investigate workers’ comp fraud. Partly as a result, the loss ratio, or percentage of premium paid out in benefits, plummeted from 83% in 1991 to 51% in 1993. A low loss ratio indicates that rates are too high and compels the insurance commissioner to adjust the minimum rate downward.
Last year, the governor and the Legislature enacted systematic reforms to further reduce costs. For instance, the impossible-to-enforce “10% stress” standard was scrapped and post-termination claims were severely restricted. Since reform, stress claims filed in Los Angeles have dropped 47%. The reforms also capped vocational rehabilitation expenses and dramatically reduced medical-legal costs. As a result of the medical-legal changes, Rockwell International experienced a 65% reduction in year-to-year quarterly medical-legal costs.
Combined, these anti-fraud activities and reforms created the market forces lowering rates. In January, the system of open competition will lower rates further for most employers.
While the insurance commissioner says he reduced rates to set the stage for competition, The Times should have noted that the insurance commissioner vehemently opposed repealing the minimum-rate law which he now denounces. He preferred the current system of minimum rates and guaranteed profits for insurers.
LLOYD W. AUBRY Jr.
Director
State Department
of Industrial Relations
Sacramento