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State's Biggest Insurer Cuts Workers' Comp Rates 7 Percent
By Tom Chorneau, Associated Press Writer - June 6, 2004

SACRAMENTO (AP) _ In a major disappointment to small business owners, lawmakers and Gov. Arnold Schwarzenegger, the state's dominant workers' compensation insurer said Friday their rates will drop only 7 percent next year. That's far below the 25-to-30 percent that many hoped reform legislation would bring.

But officials at the State Compensation Insurance Fund, who write more than half the workers' comp policies in California, said the modest rate decrease "prudently balances" the needs of the quasi-governmental insurance agency to shore up its depleted surplus and the desire to provide rate relief to its policy holders.

"Perhaps the best news is the potential for further rate reductions going forward," said State Fund Vice President Jim Neary, who noted some elements of reform "are unquantifiable" but are expected to bring down rates next year.

Vince Sollitto, a spokesman for the governor, said the administration is not looking at the news as a setback. He pointed out that major elements of the reform bill have yet to be enacted and that Schwarzenegger's savings estimate was for the longer term.

"Today's announcement continues a positive trend of falling rates," said Sollitto. "We know costs are definitely going down as result of the recent reforms and the governor believes costs and rates should continue to come down as the reforms go into full effect this year and next."

But Assembly Speaker Fabian Nunez, D-Los Angeles, said the meager drop was unacceptable and he would be talking to Schwarzenegger over the weekend about options the state might have.

"This is a far cry from what we expected the State Fund to do," said Nunez, who noted that some private insurance firms have said they will reduce rates next year as much as 18 percent. "I'm deeply disappointed that this is the response we get after two years of legislative reform."

Insurance Commissioner John Garamendi said last week that workers' comp rates should be cut an average of 21 percent. In a statement Friday, Garamendi promised to review the rate plan to make sure all the savings are being passed on to employers.

"This is disappointing, but I understand the historical financial issues that State Fund faces,'' he said. "Nevertheless, as required by law, my Department will analyze this filing to determine whether all of the available savings are indeed being passed on to employers."

California's workers' comp costs have soared in recent years, from $6.4 billion in claims paid in 1997 to an estimated $25 billion last year. The average cost of dealing with workplace injuries also has risen dramatically, from $2.68 per $100 of payroll in 2000 to $6.30 per $100 in 2003 _ the highest rate in the nation.

Although the legislature and former Gov. Gray Davis approved some reforms last year, the overhaul approved in April was considered much more significant. While the bill did not regulate insurance rates directly, the law allows insurers and employers to select pools of doctors injured workers must use--expected to impose much more control over the cost of care.

Democrats still wanted some form of rate regulation as part of the bill but Schwarzenegger and Republican lawmakers said market competition would push the rates lower without government intervention.

Nunez said the issue of rate regulation may now come back into play. "We need to find some way to do this together," he said. "I don't want to be the one to say, 'I told you so,' but the only reason we did this was to provide rate relief to employers."

Jim Zelinski, a spokesman for the State Fund, pointed out the insurance agency has been the "last resort" of coverage for millions of employers after many private insurance companies were driven from the market a decade ago.

Because of the rapid increase in policies, the Fund's reserves have been depleted and need to be restored -a requirement under state law, Zelinski said.

 

 
 

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