Bi-Monthly Newsletter

CA Commissioner Unveils WC Reform - Insurance Industry Responds

Commissioner Unveils WC Reform
California Insurance Commissioner John Garamendi unveiled his new workers' compensation reform package Feb. 10. His proposal aims to bridge the gap between labor and business interests and provide a solid framework for Democrats and Republicans to address the system's serious problems.

The comprehensive reform package will require employers to deliver immediate benefits for injured workers, allowing the employer additional time—up to one year—to dispute claims. The reforms will change the system to encourage employees and employers to work toward returning injured workers to the job faster. The package will create an independent medical examiner (IME) to resolve disputes over treatment in permanent, partial, and total disability cases. The proposed reforms will also ferret out fraudulent actors in the workers' comp system by increasing fraud penalties.

The package also aims to add two additional voting members to the State Compensation Insurance Fund Board and clarify the Insurance Commissioner's authority over State Fund.

Other highlights of the commissioner's plan were revealed in a press release:
· Through the utilization of effective and efficient medical treatment require physicians to use the descriptions and procedures of AMA guidelines. Collect medical billing data to identify medical billing and treatment abuse by providers;
· Address the irrational penalty structure on refused or delayed benefits;
· Regulate minimum loss cost insurance rates to stabilize the market and pass through reform savings to policyholders;
· Establish a pilot program for qualifying carve-outs to integrate health and disability benefit delivery.

Garamendi's reforms do not include a strong, mandatory rate-setting mechanism that labor interests are advocating. According to the commissioner, this issue will need to be addressed by the legislature in the future.

Garamendi is urging the legislature to take immediate action on his proposal. It is not in bill form but will be heard by the Assembly Committee on Feb. 11. Garamendi hopes to avoid an expensive November ballot initiative that will delay workers' comp savings until July 2005. He is calling on the legislature to take action on his new proposal before April 1 so that savings will go into effect as early as July of this year.

"We simply can't wait," Garamendi said in a conference call for the media. "This proposal can eliminate the gridlock that threatens to stall meaningful reform to address California's broken workers' compensation system. We cannot afford to stand by while an impending political train wreck bears down on California's employers and injured workers. The California economy cannot afford to wait any longer."

Details of the Commissioner's plan are available at www.insurance.ca.gov.

Insurance Industry Responds
Jeffrey Fuller, executive vice president and general counsel for the Association of California Insurance Companies, released the following statement in regarding workers' compensation reform:

In 2003, the legislature took a major step in reforming California's broken workers' compensation system by enacting multifaceted reforms that have the potential to produce billions of dollars in savings for employers. In 2004, another major step is necessary to assure continued progress in transforming the workers' compensation system to an effective and efficient mechanism for serving injured workers.

The Association of California Insurance Companies (ACIC), an affiliate of the Property Casualty Insurers Association of America, believes that reforming this complex and convoluted workers' compensation system is a task best performed through the legislative process. ACIC will work with all involved to help achieve that goal.

But, failure to achieve substantial reform legislatively will leave the business community with no option but the initiative process.

Insurers are not the problem. From 1999 to 2001, insurers paid out $1.30 in claims and expenses for every $1 they acquired in premiums. In the last five years, 22 workers' compensation insurers went insolvent due to this lopsided revenue gap. Other insurers have left the workers' compensation market, and new companies are hesitant to enter the California market. Simple economics demonstrate that the high-cost factors within the system lie elsewhere.

Generally we agree with the governor's reform package. Specifically, we stress the need for:
· A predictable, stable workers' compensation system that will benefit injured workers and reduce the financial burden on employers.
· Establishing uniform disability payments based on objective medical findings, not findings made by attorneys and judges.
· Avoiding any rate control process that will disrupt the operation of an open and competitive marketplace – the best way to assure lower rates for insurance consumers.