Costs Too High for Employers, Injured Workers' Payouts Pinched

Saturday, June 30, 2007 | 0

By North County Times Opinion Staff

Even the best of reforms sometimes needs a little course correction once its unintended consequences become apparent. So it seems with the workers' compensation reforms Gov. Arnold Schwarzenegger achieved in 2004. While they did accomplish some necessary cost reductions for California companies, it's time to examine whether the reforms are unfairly punishing injured workers and failing to fulfill their promise to employers as well.

Fulfilling a campaign pledge, Schwarzenegger led a much-needed charge to reform California's workers' comp system. In 2003, the state's rates were twice the national average, and high workers' comp rates were dragging down just about every business other than the medical or legal professions.

Among other things, the reforms limited a worker's choice of doctors to those on an employer-approved list and limited the number of visits, standardized benefits for each category of injuries to eliminate arbitrary reimbursement rates and established a review panel meant to limit costly litigation. The reform legislation also allowed insurers to override treatment decisions that fell outside specified American Medical Association guidelines.

The reforms have paid off: Employers' cost to insure workers fell from a 2003 high of $6.47 per $100 in payroll to $3.25 per $100 in payroll at the end of 2006. Property and casualty underwriters, hammered by deregulation and the payouts to victims of the 9/11 attacks, have rebounded and then some.

But the reforms may have tipped the scales too far in favor of insurers at the expense of workers and employers. Though California's employers are paying less to insure workers against on-the-job injuries than they were at the peak of 2003, employers' costs are still more than 40 percent higher than the $2.30 per $100 in payroll they were paying in 2000. For all our reforms, California is still among the 10 most expensive states for workers' comp.

Insurance companies, meanwhile, have watched their profits soar as costs have plummeted. Insurers only paid 37 cents in claims for every dollar in premiums they collected in 2006. When administrative and other expenses are deducted, insurers still enjoyed a 40 percent profit margin -- slightly more than the industry paid out to injured workers.

Adding insult to California's workers' injuries, payouts for major injuries such as losing a limb or an eye on the job are far below the national average. States such as Arkansas and Mississippi, not known for their high costs of living, actually pay higher benefits for such injuries, according to the U.S. Chamber of Commerce.

A 2006 study performed by the state Commission on Health, Safety and Workers' Compensation showed that payments for permanent disabilities had already been cut by between 50 percent and 70 percent in just the first year.

Employee advocates -- especially their lawyers -- are crying foul, saying such steep reductions can be traced to the provision that gave insurers the power to impose strict American Medical Association guidelines on care decisions.

They have caught the ear of Insurance Commissioner Steve Poizner. Last week, Poizner ordered the California Department of Insurance to review the process by which insurers implement those care guidelines. The Republican insurance commissioner also moved to slice insurance companies' premiums by 14.2 percent for policies that go into effect after July 1.

Poizner is also convening a workers' compensation summit to encourage more insurers to get into the state's market. More competition should help drive down workers' comp costs even further.

More competition has already helped trim employers' costs, as have the quality controls and fraud protections that Schwarzenegger signed into law in 2004. But workers' comp is still costing California's employers more than our competitors in other states and still compensating injured workers less than elsewhere. That sounds like a system that, however much improved by the reforms of 2004, still isn't working very well for either employers or employees.

This editorial first appeared in the North County Times.

-------------------------------

The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.