Workers’ Comp Bill Fails to Satisfy Business or Labor

Business and labor organizations expressed dissatisfaction Wednesday with a massive workers’ compensation insurance reform bill designed to save California employers billions of dollars in premiums.

Business groups complained that the bill -- which was still being drafted and slated for a legislative conference hearing late Wednesday night -- might not produce enough relief for California companies hit with insurance bills that have doubled or tripled over the last few years.

Union leaders, meanwhile, said they were frustrated by a decision by Democratic legislators to dump a demand for price caps on insurance rates, which had been a major sticking point throughout the weeks-long negotiations between the governor’s office and top lawmakers.

The grumbling seemed to underscore Gov. Arnold Schwarzenegger’s contention that it hasn’t been easy navigating a middle course between competing special interests during the protracted negotiations with legislative leaders.

But by pushing the compromise bill rather than sticking with more sweeping changes contained in his proposed workers’ compensation reform initiative, analysts said, Schwarzenegger risked making both business and labor unhappy and along the way failing to significantly improve the state’s business climate -- a step seen as vital to his promise of boosting jobs and the California economy.

Wednesday night’s strung-out negotiations clearly worried business lobbyists.

“The longer this goes on, the more concern there is in the business community that the negotiated deal is enough to solve the crisis and avert the need for an initiative,” said Michael Shaw, assistant state director of the National Federation of Independent Business, which represents about 35,000 small and privately held companies.

Sources close to the drafting of the bill bandied what they called a “ballpark” estimate that the proposed reforms could cut $4 billion to $7 billion in costs out of the state’s $22-billion system for aiding injured workers. Insurance executives, however, questioned the validity of any such estimates, saying it would be several years before anybody knew for sure how much savings these changes would have generated.

Unlike a previous workers’ comp reform package approved last fall, in which certain medical and other benefits were curtailed or eliminated, the latest proposals attempt to rewrite operating principles of the system, from how injured workers can select doctors to what guidelines would be used to make disability payments.

“There are changes that I would say are interesting, and a lot of this is experimental,” said Stanley Zax, president of Woodland Hills-based Zenith National Insurance Co., one of the state’s largest workers’ comp carriers. “Good or bad, nobody is going to know the answers to this for three to five years.”

If the reform package becomes law, Zax said, new insurers could enter the California market and existing ones may do more business in the state. In recent years, dozens of workers’ comp carriers have gone broke or stopped writing policies in California because of soaring costs, which contributed to turmoil in the system.

The legislative conference hearing to approve the bill, originally scheduled for the morning, kept getting pushed back as staffers, lawmakers and interest groups haggled over last-minute changes to specific wording, bogged down in the logistics of putting together hundreds of pages of legalese.

Lobbyists and reporters milled in Capitol corridors, trying unsuccessfully to obtain at least portions of the bill.

With the clock ticking down on his self-imposed Friday deadline for passage of a bill, Schwarzenegger was “optimistic there’s going to be a bill put on his desk by the end of the week,” spokesman Rob Stutzman said. Workers’ comp reform should lead to reduced insurance premiums and “allow us to be competitive with other states,” he said.

Passage by the conference committee, made up of three members from the state Assembly and three from the Senate, would set the stage for floor votes in the two houses Friday. The governor could then quickly sign a bill into law.

In the meantime, Stutzman said, the governor remains ready to submit the 1 million signatures he’s collected for a workers’ comp initiative if he doesn’t get a satisfactory reform bill. The names must be turned in to the secretary of state’s office by the close of business Friday to ensure a spot on the ballot in November.

Based on synopses of the bill being circulated, the primary cost-cutting would be generated by changes in the calculation of benefits for workers permanently disabled by on-the-job injuries.

So-called permanent disability benefits could be reduced by 30%, saving at least $1.5 billion, said Frank Neuhauser, a UC Berkeley researcher. An additional $450 million in cost reductions could come from a proposal to lower disability payments for injured employees who can return to work in light-duty positions. Putting a 104-week cap on temporary disability payments could save $300 million to $500 million more, Neuhauser said.

But estimating savings from proposals for the creation of a network of employer-selected doctors for treating workplace injuries is not so easy, he said. And putting a price on a plan to limit disability payments for injuries that originated off the job is also difficult, Neuhauser said.

Some business groups remained publicly ambivalent about the proposed bill. “I’m not going to characterize it until I see the final deal,” said Allan Zaremberg, president of the California Chamber of Commerce.

Dan Dunmoyer, president of the Personal Insurance Federation of California, a trade group, complained that snippets of the bill he had seen appeared to be imprecisely drafted.

“Depending on how [the courts] interpret this, it may not result in real reform,” he said.

“There are things in it that we’re not happy with,” said Vince DeVargas of Western Growers, which represents about 3,000 farm employers, mostly in California. He said the bill contained too many compromises that weakened the possible savings for employers.

Labor unions were grumpy that their Democratic allies in the Legislature gave up on the demand for price caps on premiums. The Democrats and labor organizations had argued that regulated rates would ensure that insurance companies pass along savings created by the reforms to employers through lowered premiums.

Schwarzenegger, though he considered rate regulation, dug in his heels this week, contending that price controls could make the California market less competitive.

Labor representatives also raised concerns about plans in the bill to give employers much more control over doctors who treat injured workers. But Bryce Docherty, a lobbyist for the California Medical Assn., said he viewed the proposal as “striking an appropriate balance” between the needs of workers to have a second opinion and employers’ concerns that some workers and doctors are gaming the system. Under the current program, employees can pick their own doctor after 30 days of treatment by a company or insurance-designated physician.

Times staff writers Nancy Cleeland and Robert Salladay contributed to this report.