The other crisis
Legislative committee will decide the fate of 19 workers' comp. reform bills

By Brian Elsasser

After the Workers' Compensation Insurance Rating Bureau announced a 12 percent increase on premiums July 30, California Insurance Commissioner John Garamendi warned of dire economic consequences if the state legislature doesn't pass needed reforms before it adjourns in September.

Although overshadowed by the state budget deficit and the recall vote, the escalating workers' comp. crisis threatens to force hundreds of businesses out of California or into bankruptcy, thereby eliminating thousands of jobs. The legislature passed 19 bills to reform the system, but all were modified as they moved between the California State Senate and the California State Assembly, so their fate is now up to a conference committee that is expected to convene as soon as Aug. 18.

The WCIRB estimates employers will pay $29 billion in workers' comp. insurance premiums this year, compared to the $10 billion they paid in 1995. In crowded hearings before the state senate Labor and Industrial Relations Committee in April, dozens of small-business owners told harrowing stories of dramatic rises in their workers' comp. insurance premiums, 20 percent a year on average, which is four times faster than inflation in medical costs.

Yet these rises in premiums are not trickling down to injured workers. Claims for work-related injuries have declined significantly since their peak in 1991. California's benefit payouts to injured workers also remain low – lower than all but 10 other states, despite California's high cost of living – even after being increased last year. With premiums so high and benefits so low, some blame health care providers for the problem.

Unregulated rates charged by outpatient surgery facilities will be a major battleground in the upcoming conference committee hearings. "Since these facilities are currently completely unregulated, they can charge whatever the market will bear," Tom Rankin of the California Labor Council told the Bay Guardian.

Without price caps, Rankin said, outpatient surgery facilities will cost the workers' comp. system about $1.8 billion in 2004. Ironically, increased use of such facilities was adopted as a way of controlling costs in the managed care system because they are cheaper than hospital stays.

The bipartisan committee will consider a triangulation of different interests: workers, businesses, and the insurance industry. Two of the 19 bills – S.B. 757 and S.B. 228 – represent opposite ends of the political spectrum, and their fate could set the tone for the rest of the package.

S.B. 757, authored by state senator Charles Poochigian (R-Fresno) and supported by the California Chamber of Commerce among more than a dozen business interests, would regulate outpatient surgery facilities by attacking the recent increase in benefits. The bill proposes to reduce the number of injured workers eligible for certain outpatient treatments, stating "Occupational injuries [would] only [be] compensable ... when such injuries are at least 50 percent work related." Creating a "percentage threshold" where none existed before would create more opportunities for costly litigation while dodging the issue of outpatient surgery facility profits.

On the other hand, S.B. 228, authored by state senator Richard Alarcon (D-Van Nuys), leaves injured workers' benefits alone, instead identifying uncapped outpatient surgery fees as the real cause of the crisis in workers' comp. Alarcon proposes to regulate the fees to save approximately $1.8 billion. His bill would also place a cap on currently unregulated pharmaceuticals fees paid for by the workers' comp. system.

Yet all sides say they are pleased to see the reforms being handled openly by the committee, rather than quietly killed or passed during the chaotic last days of the session, when special-interest maneuvering often trumps informed debate.

For more information contact the Senate-Assembly Conference Committee on Workers' Compensation Reform at (916) 445-7928.