Weighing the Merits of Workers' Comp System

By RONALD D. WHITE

May 27, 2001 12 AM PT

TIMES STAFF WRITER

Steve Duncan, who survived severe burns and a 60-foot fall in an oil refinery accident, is the kind of victim the workers’ compensation program was designed to help.

But he’s also part of an ongoing debate about workers’ compensation and its costs and effectiveness in California and across the nation.

On one side are employers and insurers who say that injuries are increasingly rare because workplaces are safer. On the other side are injured workers and their attorneys who say that the relative savings in workers’ compensation costs come from hard-nosed employers and insurers who are trying to scale back benefits.

The debate is being fueled by a report released last week by the National Academy of Social Insurance that shows workers’ compensation benefits as a percentage of payroll are declining. Overall, U.S. benefits payments hit $7.9 billion in 1999, a 6.5% increase from the year before. But the number of workers covered and their wages increased enough to lower the percentage of payroll figures. In California, for example, workers’ compensation cost employers in 1999 on average 1.49% of payroll, down from 1.53% the year before.

What the report could not do, however, is explain why the relative cost of workers’ compensation are going down.

“The problem, and it’s like this in almost every state, is that the quality of the data is usually not sufficient to really break down exactly what’s going on,” said Daniel Mont, principal author of the report from NASI, a nonprofit and nonpartisan organization.

“Employers will point to increased attention on safety and managed care and better managed workplaces,” Mont said. “But the labor people will point to tightening of eligibility and compensability rules and a squeezing of benefits. They will say that the safety net has deteriorated. All of those things probably are true to an extent. All of the arguments have merit, but it’s very difficult to apportion merit to these various factors.”

The situation is even more complex in California, where deregulation of workers’ compensation in 1993 has failed as miserably as electricity deregulation.

Deregulation resulted in an industry that cut premiums so low that they were impossible to sustain, resulting in insolvencies. California regulators have seized workers’ compensation insurance companies that failed to meet the state’s minimum capital requirements. In fact, eight of 12 companies that specialized in workers’ compensation insurance have become insolvent, and California’s Insurance Guarantee Assn., which pays claims when an insurance carrier can’t, said it will run out of money in January.

The problems add particular complications for people like Duncan, who can sense when a new round of belt-tightening has begun at levels far above him in the system.

“On a scale of one to 10, I’d give [the workers’ comp system] about a six,” said Duncan, who was being prepped last week for his 41st surgery since the accident, this one to try to correct the sleep apnea he developed after his face was reconstructed. “Workers’ compensation has paid all of my medical bills and I draw $490 a week, but I made twice that much and more before with overtime. I’m getting Social Security now, but it’s hard to get by.”

Duncan’s life changed two years ago when he was removing a section of pipe at Tosco Corp.’s old Avon, Calif., refinery. Naphtha, a flammable solvent produced in the refining process, started raining down, Duncan said. He watched it vaporize off the hot metal of the petroleum refining unit. Then he yelled a warning and jumped.

The fall resulted in multiple fractures, including broken feet and blown-out knees. Duncan’s face was crushed, he said, when he hit a brick retaining wall, and he was on fire. The Livermore, Calif., resident, sustained burns on 40% of his body and soon after began a medical rehabilitation process that continues to this day. And the 50-year-old was the lucky one. Four co-workers were killed in the accident.

“I’ve gotten what I’ve needed,” Duncan said, “but it’s just awfully hard when you have to worry, when you are trying to heal and have some kind of life, to have to argue and fight to get what you need.”

Duncan’s case is extreme, but even those with minor injuries find fault with the system.

For former steam fitter Gary Loeb, the workers’ compensation formulas used to determine the value of an injury cannot begin to truly assess harm.

Loeb lost a thumb tip on his dominant hand in a crane accident near Pittsburg, Calif. But Loeb was an amateur guitarist who says he spent $70,000 on recording equipment and instruments and had been preparing to cut a first CD of his music.

“The money you get on workers’ compensation won’t even pay the bills,” Loeb said. “The money they give you for a thumb is not much, but this wasn’t just my thumb. It was my whole life. Now, I come home to vintage instruments and fine studio gear and I know I’m not going to get another shot at this.”

Benefits are inadequate, said Frank Russo, who serves on the board of governors of the California Applicants’ Attorneys Assn. and represents employees with workers’ compensation cases.

“The permanent disability benefit has not been increased for the most disabled workers since Jerry Brown was governor in 1984,” he said. “The dollar value of benefits has just gone down tremendously.”

Employer attorneys, however, say the system has improved over the years.

“The bar has been raised in terms of eligibility for claims,” said Arnold Peter, an attorney in the Los Angeles office of employment law firm Littler Mendelson.

“But employers are getting smart. The job market has been so tight that they recognize that getting employees back to work quickly is very important. They are settling cases quickly. The benefit is not only to the employee. [Employers] are also discovering that employees who are back in the workplace either in modified positions or on a full-time basis are productive people who are making money for the company. It’s working better today than it was a few years ago. The situation has improved dramatically, but there is still a lot of room for improvement.”

The recent booming economy could be one reason for improvements in the system, said Bob Reville, an economist for RAND Corp.

“From what I see in my data, there does seem to be some evidence of things having improved for workers over the ‘90s,” he said, “specifically for the less severely disabled. That’s partly due to improved economic conditions [that] could now be hurt if we head back into a recession.

“We do find some evidence, for the less disabled, that the condition of the economy makes some difference,” Reville said. “If you’re a firm that is hiring anyway, there are more opportunities for modified work. Companies can better afford to make ergonomics changes.”

For ex-workers such as Duncan, however, the tangible benefits are measured in small hopes.

“I hope this last operation helps me sleep at night,” he said. “Then maybe I can get some healing done.”

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The Cost of Workers’ Comp

Workers’ compensation was a smaller percentage of the average payroll in 1999*. Average percentage of payroll nationally paid for workers’ compensation:

1993: 1.62%

1994: 1.51%

1995: 1.39%

1996: 1.26%

1997: 1.15%

1998: 1.09%

1999: 1.05%

* Latest stats available

Source: National Academy of Social Insurance

By the Numbers

Comp stats for 1999

* Number of workers covered: 123.9 million