State Puts Focus on Workers’ Comp

Jan Gudgel got a jolt when she received her latest workers’ compensation insurance bill. Her rate had nearly doubled.

Gudgel heads a Sacramento roofing company, part of an industry that traditionally faces high workplace insurance costs. But businesses all over the state are complaining about big increases in workers’ comp coverage, even ones in less risky ventures.

Jim Balmain, who runs a chain of bakeries in Bakersfield, said his workers’ comp insurance also nearly doubled this year, despite an improved safety record.

“That’s why we were most surprised at the doubling of the cost,” he said.

Gudgel said she’ll have to pass on the higher costs to her customers. And Balmain said his employees may have to choose between a pay raise and maintaining their employer-paid health insurance.

Meanwhile, many workers complain about low benefits and a struggle to get the proper treatment and equipment they need to cope with their injuries.

“It’s been an absolute nightmare and disaster,” said Bruce Lockwood of Wilton, Calif., who lost part of a leg after a construction accident. “For me, it’s an uphill battle for anything I want.”

The state’s 90-year-old workers’ compensation system, the subject of frequent legislative battles, is in trouble again, with critics pointing to rising insurance rates and medical costs and low and slow payouts to workers.

“From our perspective the system is broke,” said Charles Bacchi, a lobbyist for the California Chamber of Commerce. “The reason it’s broke is it’s costing far too much to operate a system that’s paying so little.”

Insurance Commissioner John Garamendi agrees there is a serious problem, saying the rising rates are helping create “an atmosphere, a belief, that California is not a good place to do business.”

Garamendi will hear first-hand from business owners Thursday, when he is scheduled to attend a meeting of the Los Angeles Area Chamber of Commerce. The chamber has launched an aggressive letter-writing campaign to urge legislative reform and intends to present Garamendi with a pile of letters detailing members’ struggles to keep up with skyrocketing costs.

State legislators have introduced more than 50 bills dealing with workers’ comp, including measures to clamp price controls on prescriptions and outpatient surgery centers and roll back benefit increases granted to workers last year.

Gov. Gray Davis will propose his own legislation aimed at cutting workers’ comp costs, aides say.

But agreements on workers’ compensation legislation have been difficult to come by. A number of powerful groups with frequently conflicting interests -- insurers, businesses, unions, health-care providers and attorneys -- have a stake in the system, which was set up in 1913 to keep workplace injury disputes out of the courts.

Workers gave up the right to sue employers for work-related injuries in exchange for supposedly prompt compensation. Yet, Garamendi and the attorneys who represent workers’ comp claimants say there is a backlog of payments and a Rand Corp. study says the system that handles workers’ comp disputes is burdened by outmoded rules and computers and a shortage of funds and staff.

Private employers, except 200 to 300 of the biggest ones with enough assets to be classified as self-insured, are supposed to buy insurance to cover work-related injuries.

Workers’ compensation insurance rates began rising a few years ago after dropping nearly 50% in the 1990s. The removal of a minimum rate limit set off a price war that drove nearly a dozen workers’ comp insurers out of business, according to Karin Caves, a spokeswoman for the California Applicants’ Attorneys Assn., which represents injured workers.

Average rates dropped from $4.40 per $100 of payroll in 1993 to $2.27 in 1999, according to the Workers’ Compensation Insurance Rating Bureau, a nonprofit industry association.

Rates began to climb in 2000 and averaged $5.05 per $100 of payroll in September, according to the bureau’s latest figures.

Last month, State Compensation Insurance Fund officials told lawmakers that overall, workers’ compensation insurance rates are likely to increase about 18% between now and January.

Applicant attorneys and labor leaders blame a “retreat from the price war” and efforts by the remaining insurers to make up for losses suffered in investments and the Sept. 11 terrorist attacks as the main reasons for the rate increases.

Mark Sektnan of the American Insurance Assn., says insurers often subsidize lower rates when investments are good, but blaming the rate increases on investment losses is a “beautiful red herring.”

Garamendi says efforts by insurers to make up for lower investment income are partly to blame. But the system also is hurt by higher expenses, which “were masked or hidden by the price competition.”

Employer and worker fraud increases costs, Garamendi said, but the state also needs to crack down on insurers “that defraud injured workers by not ... promptly paying and appropriately paying claims,” a practice he says is fairly common.

Republicans want Davis to call a special legislative session on workers’ comp problems.