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Workers' Comp Hammers Away at Builder's Firm

October 18, 2003|Brian P. McCarthy | Brian P. McCarthy is a contractor in Los Angeles.

I am a licensed general contractor and have been doing business in California for more than 10 years. I have been fortunate, through much hard work and sacrifice, to build a small and successful remodeling business that currently employs five men full time. But over the last year or so I have watched a marked decline in my business and am convinced it is due in large part to the workers' compensation insurance crisis in our state.

The workers' compensation insurance system, as structured, is destroying businesses and entire industries in California, especially the construction industry. Rates have increased to the point where conscientious and law-abiding employers can no longer compete in a market where the underground economy rules supreme.

A contractor who pays workers' compensation premiums and other payroll taxes, which can be the equivalent of 50% to more than 100% of gross wages paid, cannot possibly compete against an unscrupulous contractor paying his employees "under the table."

As a contractor who has seen firsthand how a single moderate injury -- during 10 years in business -- led to a nearly 50% increase in his workers' compensation premiums, I feel qualified to speak on the damage this system is doing to my industry.

I watched an employee recover from a moderate workplace injury that he sustained before he quit, only to successfully sue me for permanent disability through workers' compensation after learning that he didn't qualify for state unemployment insurance benefits. A worker must have been fired and be ready and able to work to qualify for unemployment benefits.

I witnessed a process that employed dozens of administrators, attorneys, adjustors, investigators, etc., to incompetently handle a single broken bone claim. I spent a morning in a workers' compensation appeals board waiting room where the lawyers outnumbered allegedly injured workers by a ratio of at least 2 to 1.

I have spent countless hours filling out forms, being interviewed, attending hearings and otherwise preparing a defense over one dubious injury claim that my insurance provider "of last resort" failed to adequately protect my company from.

The irony of all this destructive and unproductive effort is not lost on me. I build things and my little company creates jobs. Families are fed, clothed and housed by our hard work and true productivity. One of my employees recently became a U.S. citizen and purchased his first home.

Though it is undeniable that we need a system to assist injured workers with their care, rehabilitation and return to work, the current system is clearly broken, and employers -- who pay 100% of workers' compensation premiums -- are bearing the cost of its collapse. The blame for its failure lies clearly on the state of California for creating a deeply flawed and unsustainable system, permeated with fraud, red tape and administrative incompetence.

By requiring employers to have this insurance while not properly enforcing that law, the state is negligent. By not rooting out fraud perpetrated by employees, doctors and lawyers, the state is facilitating what might be called "a crime ring" for which honest employers are unwittingly footing the bill.

By creating a system that offers injured employees benefits beyond the system's ability to pay, the state has an obligation to find another way to pay for them -- and not by creating yet another payroll tax on employers.

Workers' compensation insurance as we know it, while well intended, has become a luxury that we simply cannot afford. The laws, which strongly favor workers, have germinated a subculture that has turned workers' compensation into a retirement (rather than return-to-work) program.

If government is going to require such insurance by law, government has a responsibility to solve this problem. It must fix it, subsidize it or let workers' compensation as we know it die.

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