SACRAMENTO — Soaring medical costs may drive up premiums paid by already beleaguered California employers for workers' compensation insurance -- after rates plunged 65% over the last six years.
Gov. Arnold Schwarzenegger, who forged major changes in the state workers' comp law in 2004 that slashed rates, has launched a bid to stop a potential 24.4% rate hike now being discussed in Sacramento.
California employers are required by state law to buy insurance to cover medical bills and disability benefits for employees hurt at work. The cost of these premiums have long been a political hot potato and especially so this year with the 2010 election campaign for a new governor already underway.
Any potential increase, business advocates say, also comes at a time when the economy is dismal and businesses are facing increases in the state's sales and income tax rates.
Retailers say they can't risk raising prices in the middle of a recession to pay for higher premiums. "Where do they think the extra 24% is going to come from?" said Roman Versch, the owner of a Pet Depot in La Verne and an animal hospital in West Los Angeles.
In 2003, Schwarzenegger campaigned on a promise to terminate out-of-control insurance costs that he said were driving companies and nonprofit organizations into bankruptcy. He succeeded spectacularly. The governor's overhaul became his signature political achievement, saving employers an estimated $40 billion over the last six years.
Now, those gains are being threatened by medical costs that are rising even faster than general medical inflation rates. On top of that, three recent legal decisions, if not reversed on appeal, are expected to lead to bigger monetary awards for injured workers who suffer permanent disabilities.
Word of a potential 24.4% increase in premiums came last week from an insurance industry-backed statistical agency that plays a key role in the rate-setting process for workers' compensation insurance premiums.
Under state law, the Workers' Compensation Insurance Rating Bureau is required to estimate how much workers' compensation costs have gone up and submit it to the state Department of Insurance.
The state insurance commissioner, as required by law, must consider the research and his own findings before issuing his own advisory to insurance companies for setting rates that take effect July 1.
