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Just What Does Schwarzenegger Want For California Work Comp?
By John Franklin - March 11, 2004

Schwarzenegger wants the employer or insurer to choose the doctor, creating a company-controlled system. 

The governor wants to require workers to prove that an ailment is primarily work-related.  

And he wants to set “objective medical standards”. 

These are three changes he’s stated he’d like to impose that first come to mind.  But… and here’s the proverbial question: will these changes, if implemented make the difference which translates into significant savings while caring for injured workers at the same time?   What an age old question...

In response, many workers say complete employer control over choice of doctor would lead to inadequate care.   But, Schwarzenegger believes it would save money.  Then, since work comp provides free health care, workers without health insurance have an incentive to turn every injury into a work-related one. But the governor's solution -- forcing workers to prove that an ailment is primarily work-related -- would give insurers more ammunition to deny claims.   Henceforth, this would save money.

California allows the doctor to have the final word on the nature and extent of an injury. Employers worry this makes it easier for workers to exaggerate their pain or loss of function. But setting ``objective medical standards,'' as in the Republican bills, is believed by those authors to be a money saver.  But, to opponents it appears to be an effort to downplay soft-tissue injuries such as repetitive stress syndrome. Then, this could lead to employers ignoring real problems because pain doesn't show up on an X-ray, and employers would lack incentives to provide equipment that prevents back injuries and crippling wrist pain.

So, it's all about the proverbial pros and the cons, once again...

Workers’ Compensation consumes approximately $25 billion a year in California.  The Golden State embraces the nation’s highest Workers’ Compensation insurance premiums, but deliver benefits to workers that are average, at best.   Efforts to lower costs and improve benefits always step on the toes of powerful interests, from doctors and lawyers to labor unions and business groups.

Going to the people with a ballot initiative was Schwarzenegger's idea. In his State of the State speech in January, the governor gave the Legislature until March 1 to pass significant reform -- a deadline that's been missed (although it was never taken seriously by anyone who knows how that body operates). A more important deadline is probably March 31. If intelligent reforms are passed by then, according to Insurance Commissioner John Garamendi, employers could see savings as early as July.

If that's missed, the next deadline is April 16: the date by which 598,105 valid signatures must be gathered to ensure a place on the Nov. 2 ballot. The Small Business Action Committee is beginning its signature-gathering for an initiative embodying the governor's approach, which is anathema to many, in particular labor and lawyers.

Here’s What’s Been Going On
The Legislature deregulated work comp insurance in 1991, which provoked cutthroat competition and a steep drop in premiums. This drove some insurers out of the market and others into insolvency. The remaining companies raised premiums by huge amounts to make up for their losses (which were compounded by the World Trade Center disaster and steeply rising health care costs). With so many private companies fleeing the state, the state-created insurer of last resort, the State Compensation Insurance Fund, became California's largest Workers’ Compensation insurer. Because work comp insurers are required to hold reserves deep enough to cover all future claims -- and claims can go on for 30 years or more -- State Fund must continue to charge high insurance premiums to maintain those reserves. But, it's better to have many companies involved, to spread around that big reserve requirement.

Many lawyers and labor groups insist the answer to soaring insurance rates is re-regulation, with the state setting premiums. But John Garamendi, the California Insurance Commissioner, says no, re-regulation will discourage insurers from returning to California. Instead, Garamendi proposes just a slight adjustment: imposing a minimum rate for premiums that insurers can't go below. That presumably would prevent companies from undercutting each other with artificially low rates -- the root cause of today's immediate problem of soaring premiums -- or writing policies with inadequate reserves.

Work comp is full of unintended consequences, of incentives gone wrong. Reform proposals being floated in Sacramento may get rid of some abuses or expenses, only to throw something else out of whack.    That’s the risk…

But, what can Schwarzenegger do but try?   Just like dozens and dozens of politicians before him since what seems like the beginning of time in California.   

 
 

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