Workers' Comp May be Headed for Another Tough Ride in Calif.

Wednesday, August 18, 2010 | 0

By John Kabateck
National Federation of Independent Businesses

California's workers' compensation system frequently defies common sense.

Case in point: A recent Wall Street Journal analysis found Americans are utilizing less health care, including fewer doctor visits, drug prescriptions and medical procedures. Some national health insurers predict that lower "medical utilization" trends could help stem cost increases and drive down premiums.

In sharp contrast are recent figures from the California Workers' Compensation Insurance Rating Bureau finding that workers' compensation medical costs have increased 60 percent since 2005. Among the reasons are more doctor visits, more treatments per visit, expensive surgeries and prescribing powerful pharmaceuticals. Basically, more utilization.

After several years of relative calm in the workers' compensation market, this medical inflation forced insurers to pay out $1.5 billion more in benefits and expenses than they earned in premiums in 2009.

At the same time, employers are on edge over a set of worrisome court cases rolling back a more objective system for setting disability payments and about skyrocketing benefit costs.

These trends are raising both economic and political concerns, and causing fears over another workers' compensation crisis.

Economically, small employers struggling in the "great recession" cannot afford increases in their workers' compensation premiums.

Insurers losing money will inevitably increase rates. We know from the last crisis that such increases could be exponential, dragging down businesses and killing any hopes for job growth.

The issue goes beyond insurance costs for small businesses. Taxpayers shell out each dollar their city or school district pays for workers' compensation benefits. Such payments typically come right out of the general fund, so each dollar spent is one dollar less for public safety, parks and libraries.

As the Legislature's raids on local government funds continue, skyrocketing workers' compensation costs would be added punishment.

Politically, a distressed workers' compensation system will pose an immediate gauntlet for California's next governor. Pundits are already speculating what either candidate might do to preserve the legislative reforms of 2003-04 and make the tweaks necessary to regain control over medical costs.

Whatever the outcome, California is unlikely to elect another governor so passionate about workers' compensation. Gov. Arnold Schwarzenegger was determined to reform California's troubled workers' compensation system before he took office in 2003. Within months, he signed a bipartisan reform package that took on the system's most entrenched interests and addressed its biggest failures.

Despite a six-year attack mounted primarily by attorneys for injured workers, the governor has maintained that a cost-effective and efficient workers' compensation system is critical for a prosperous economy.

The results have been extremely positive. Benefit levels for injured workers were increased and are being delivered more promptly, medical abuses were curbed, litigation has declined, and the system is more efficient.

As a result, injured workers are back to work more quickly and in higher numbers. At the same time, jobs have been saved due to the reduction in costs to employers.

After so much progress, the WCIRB numbers are particularly distressing. Confidence is the shot in the arm employers need to regain their footing and become job creators again. But uncertainty about a fundamental business cost as workers' compensation insurance, clouded further by politics, could shatter that confidence.

In a governor's race all about jobs, preventing another workers' compensation crisis demands attention.

<i>John Kabateck is executive director of the National Federation of Independent Business, California. This column was reprinted with his permission after appearing as a guest commentary in the Oakland Tribune.</i>