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Savings of Work Injury Reform Bill in Question

September 11, 2003|Marla Dickerson, Nancy Vogel and Debora Vrana | Times Staff Writers

Architects of California's latest attempt to shore up the crumbling workers' compensation system trumpeted their efforts Wednesday as the most sweeping reform of the program in its 90-year history. But in the eyes of some, the numbers don't add up.

Observers say the bill that emerged from a bipartisan conference committee late Tuesday contains language virtually identical to that in a preliminary measure circulated last week, except for one key difference: The projected annual savings have mysteriously doubled to a range of $5 billion to $6 billion.

"The numbers being tossed around by the conference committee seem to be grossly exaggerated," said Charles Bacchi, legislative advocate for the California Chamber of Commerce. "We'd really like to get to the bottom of it. We don't want people operating under the mis- perception that it is bigger than it really is."

Jack Stewart, president of the California Manufacturers & Technology Assn., said his trade group also wasn't sure the savings claims would pan out. For example, he said, reform backers have claimed that eliminating vocational rehabilitation training for injured workers would save $1.2 billion a year. But the program's costs previously have been estimated at $600 million, he said.

"We're still trying to evaluate and figure out what the savings are," Stewart said. "You can't blame us for being skeptical."

The reform measure, which is expected to speed through the Assembly and Senate and be signed by Gov. Gray Davis by the end of the week, promises to wring as much as $6 billion in costs annually from the $29-billion system by slamming the brakes on runaway medical costs and rolling back premiums for businesses.

Key lawmakers who had a hand in drafting the legislation defended the integrity of the numbers. Sen. Richard Alarcon (D-Sun Valley), co-chairman of the workers' compensation conference committee, said he was confident the reform package would generate the targeted savings.

California Insurance Commissioner John Garamendi also said he was comfortable with the figures cited in the measure, saying they were based on "intelligence, hard analytical observation" and the work of credible sources -- the Workers' Compensation Insurance Rating Bureau, the California Commission on Health and Safety and Workers' Compensation and the Department of Insurance -- as well as information from big self-insured companies.

Besides questioning the numbers, some in the employer community said that although the bill contained some substantive reforms, just as significant was what it didn't include. Although legislators aggressively tackled some of the system's spiraling medical expenses, they didn't address some of the biggest cost drivers, including costly litigation and swelling permanent disability payments to injured workers.

Moreover, experts said that even if the current reforms delivered the promised savings, California would probably remain the most expensive workers' compensation market in the country, and one that insurers -- burned by the system's exploding costs -- may be wary of returning to anytime soon.

"There were clearly some sacred cows that didn't get touched," said Robert Hartwig, chief economist with the Insurance Information Institute and a nationally recognized expert on workers' compensation insurance. "I would say it's going to take another round of reform for insurers to be convinced that this is going to work."

Officials admitted as much in Sacramento on Wednesday, where members of the bipartisan committee appeared for a news conference after a late-night scramble to finalize the deal so it could be enacted before the legislature adjourned Friday for a nearly four-month break. The legislation had the backing of the committee's four Democrats and one of its two Republicans.

"We didn't get into this mess in one year and we're not going to get out of it in one year," said Assemblyman Juan Vargas (D-San Diego), a member of the committee. "There is a lot of work yet to be done."

Indeed, California's workers' compensation system, which protects more than 14 million California workers in the event they are injured on the job, is said to be so large, complex and dysfunctional that even veteran observers say it's hard to know where to start to fix it. Hit by rising costs, more than two dozen private insurance carriers have gone belly up in the last few years. That has scared off other insurers, pushed the state's insurance guaranty fund to the brink of insolvency and forced California's nonprofit insurer of last resort -- the State Compensation Insurance Fund -- to write coverage for more than half the companies in the state.

Meanwhile, premiums for California companies have exploded, doubling or tripling for some firms within the last couple of years alone. The state's employers pay far and away the highest premiums in the nation, an average of $5.85 per $100 of payroll compared to less than $3 in most states.

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