Gov. Arnold Schwarzenegger’s workers’ compensation reform,
designed to pump up California’s economy, has so far only fattened
insurance company coffers while potentially decreasing benefits to
injured employees and only providing modest savings for local
business owners.
Hollister – Gov. Arnold Schwarzenegger’s workers’ compensation reform, designed to pump up California’s economy, has so far only fattened insurance company coffers while potentially decreasing benefits to injured employees and only providing modest savings for local business owners.
Accusing insurance companies of profiting by gouging businesses, a leading democratic senator announced yesterday he will reintroduce legislation to regulate workers’ compensation insurance rates in the state in effort to give the reforms the desired effect.
“We are moving backward. We are reducing benefits to workers who are truly injured, and we are not passing on the savings to the smallest businesses in the state of California,” said Sen. Richard Alarcon, the chairman of the Senate Labor and Industrial Relations Committee.
New workers’ compensation regulations, which should have taken effect on Jan 1., are still unfinished but the Office of Administrative Law approved emergency regulations on New Year’s Eve that mirror the permanent regulations. The emergency regulations will expire in 120 days but can be renewed. Essentially, the reforms allow the severity of the disability to determine how much compensation injured workers get to make up for their inability to earn a living.
However, critics of the new regulations predict employee benefits could be cut by as much as 70 percent according to the California Applicants’ Attorneys Association. And, thus far, employers have only saved an average of 10.4 percent on insurance premiums since the middle of 2003, according to the Associated Press. California Insurance Commissioner John Garamendi said the cost of injured workers claims dropped 22.6 percent during the same 18-month period, according to the Associated Press.
And while the modest savings have helped small businesses in San Benito County, Economic Development Corporation Director Al Martinez said it is not doing enough to encourage businesses to come to California.
“Anything to lower the rates is better than nothing, but a lot of people feel, like myself, that it’s not aggressive enough,” he said.
Tom Corbin, owner of Hollister’s Corbin Motors Inc., said he was glad to see the workers’ comp reform and hoped it would ease his company’s rising insurance costs. Over the past two years, Corbin said, his insurance costs for workers’ compensation have increased about 25 percent each year.
“Costs are based on what the job description is,” he explained. “At super-high-risk jobs, the workers’ comp could be 100 percent of the payroll, so if you’re paying someone $500 a week, their workers’ comp could be $500 a week. We’re kind of a light industry, so our workman’s comp rates are around six to 11 percent or so of our payroll. So if that goes up 25 percent, it’s a lot more.”
But other businesses in the region have only reported slight savings to their overwhelming costs.
“Our rates were so high we couldn’t keep people on,” said Renee Bannon, the controller for West Coast Linen Services Inc. in Gilroy. Bannon recently switched her company’s insurance from the State Compensation Insurance Fund, a quasi-state insurance agency known as State Fund, to American International Group Inc., but only saved 1.5 percent. “I hope AIG will continue to lower our rates.”
Employers have a choice how to pay for workers compensation. Large employers with the assets can self-insure, while other companies can buy from insurance providers or the State Fund. The State Fund, however, covers the majority of California businesses at 55 percent and has been criticized for mismanaging its 260,000 accounts – a large reason why the private insurance industry has not dropped its rates, according to Garamendi.
“State Fund has very serious operational and management issues that make it difficult to effectively pass cost savings on to employers,” Garamendi said Monday. “Their previous financial problems have resulted in rates being very high. Since State Fund is keeping its rates high, the rest of the market has no competitive reason to reduce its rates.
“The effectiveness of the reforms is largely determined by the ability of insurance companies to implement the reforms and pass the savings on to employers. With 55 percent of the market, State Fund is absolutely crucial in this process. If it operated efficiently, billions of dollars would be in the hands of employers.”
Martinez agreed stating that many businesses in the area are at the mercy of the State Fund rates.
“Small business people I know of, like auto repair shops… State Fund is about driving them out of business because the rates are so high, I guess because of the nature of the work. But small businesses especially are getting killed with this stuff.”
There have been two sets of reforms in recent years. In 2003, Gov. Gray Davis signed into law reforms designed to control the costs of medical treatment for injured workers. Schwarzenegger’s reform package was a broadside on the entire system, altering, in part, treatment and benefits for temporarily and permanently disabled workers and limiting initial treatment options for injured workers.
From 2000 to 2003, California Workers’ Compensation rates increased an average of 149 percent, but some local businesses said they saw even greater increases before the Governor signed the reform bill last April. In April, Marich Confectionery said their Workers Compensation bill increased 433 percent in three years, prompting the chocolate maker to send Schwarzenegger a ten pound chocolate bar with sizable bite taken out to represent their workers’ compensation costs.
However, Martinez said the Governor’s “sweeping reform” has done little to lure new businesses into California yet or ease the burden on small business in San Benito County.
“I don’t think we’re competitive (with other states),” he said. “We’re still at a very high cost to do business in.”
The Associated Press contributed to this report
Jessica Quandt covers politics for the Free Lance. Reach her at 831-637-5566 ext. 330 or at [email protected].
