Much Lower Workers’ Comp Costs Expected

A new forecast from the insurance industry Wednesday said California’s workers’ compensation system costs could drop by $7 billion this year -- prompting Democrats to demand that insurers slash their premiums for workers’ comp policies.

The Workers’ Compensation Insurance Rating Bureau, an independent, industry-financed think tank, said the savings would result from last year’s workers’ compensation insurance reforms, as well as a drop in the number of self-insured employers.

The rating bureau’s latest estimate is more than double what it projected late last year that the state’s troubled system might save, the Department of Insurance said.

California’s annual workers’ compensation costs rose by 80% to $18.8 billion between 1998 and 2003, even after the latest savings were factored in, according to the office of state Sen. Charles Poochigian (R-Fresno). Those costs are set to go up an additional $8.5 billion over the next five years without more cost containment.

Democrats seized on the latest figures from the rating bureau as proof that premiums paid by employers are too high. They are demanding that all future workers’ compensation rates be approved by regulators to ensure that insurance companies don’t reap excess profits.

“The simple message is that insurance companies need to stop gouging employers in the state of California,” said state Sen. Richard Alarcon (D-Sylmar), author of one of last year’s cost-saving bills, which aim to contain medical costs and limit certain other benefits to injured workers.

Insurance Commissioner John Garamendi said he was drawing up possible regulations that would make sure savings from workers’ comp reforms were passed along to employers. California business owners currently pay the nation’s highest premiums for coverage of on-the-job injuries.

Insurers warn that increased regulation could drive insurers out of California.

“The common-sense reality is if companies know that savings are out there, they are going to lower their rates and compete for new business,” said Samuel Sorich, president of the Assn. of California Insurance Companies.

Employers haven’t reaped much benefit from last year’s reform measures. After the law passed in September, Garamendi recommended that workers’ comp carriers reduce their average rates by 14.9% this year. They ended up cutting rates in California by an average of 3.6%.

Some Republican lawmakers, meanwhile, dismissed the brouhaha over the rating bureau’s latest numbers as a smokescreen that could hinder the task of crafting a set of comprehensive workers’ comp reforms. The reforms would save jobs, they say, by slashing the costs of what they claim is a litigious, gold-plated system.

Rallying Wednesday morning on the steps of the statehouse, a group of Republicans vowed to drive ahead with a petition campaign to put a workers’ compensation initiative on the November ballot if the Democratic-controlled Legislature didn’t pass reform legislation that Gov. Arnold Schwarzenegger can live with.

Initiative proponents, mainly business groups, began collecting the first of an estimated 950,000 signatures Tuesday and said they expected to have a measure qualified for the ballot by April 16.

Schwarzenegger’s spokesman, Vince Sollitto, called the new savings estimates from the rating bureau “welcome to a certain extent.” But he stressed that “they should not dissuade or distract us from the larger need for major systemic reform.”

The governor, he said, preferred a legislative solution over an initiative. Schwarzenegger is optimistic that almost daily meetings with employers, labor unions, legislative leaders and technical experts will result in quick passage of a reform law, Sollitto said. Schwarzenegger has moved his self-imposed deadline for workers’ comp reform to March 31 from March 1.

The San Francisco-based insurance rating bureau said it arrived at the higher savings estimate after discovering it had made an error in its earlier cost calculations. A memo explaining the mistake, signed by Dave Bellusci, a top bureau executive, blamed it on two factors: underestimating medical cost savings and overestimating the number of employers who are self-insured.

Bureau officials did not return phone calls seeking comment.