The landmark workers' compensation package just signed into law by Gov. Gray Davis does more than raise benefits for injured workers. It makes sweeping changes to the workers' compensation system, reforms intended to offset the rise in benefits costs for employers.

But the reforms are getting a chilly reception from statewide business groups that fear they could backfire and cost employers millions more.

"This whole bill is really one big roll of the dice," said Nils Wright, editor of the Workers' Comp Executive, a Bay Area publication that tracks the industry. "And because workers' comp cases take years to resolve, it will take us several years to see if these reforms achieve the savings the authors say they will or end up increasing costs."

The new law, which takes effect next Jan. 1, nearly doubles benefit levels over the next five years, a projected cumulative increase of $2.5 billion. This will affect all employers, since by law, every employer in the state must provide workers' compensation coverage, either themselves or through an insurance carrier. The benefit increases are expected to raise each employer premium by an additional 20-25 percent.

The workers' comp package was hastily assembled after negotiations wrapped up late last month between Davis, Democratic legislators, labor leaders and trial attorneys. State Assemblyman Tom Calderon, D-Montebello, was the lead author of the bill. State Sen. President John Burton, whose benefit increase package was vetoed by Davis last year, was the co-author.

To offset the increase in benefits, negotiators assembled a package of reforms including:

< loosening standards on vocational rehabilitation;

< repealing the "presumption of correctness" of the treating physician where one doctor of the employee's choice is in charge of all treatment decisions and no second opinion is required;

< setting up a return-to-work incentive program that pays up to $2,500 per injured worker;

< making it easier for employers to apply managed care practices to injured workers; and

& lt; increasing the use of generic pharmaceuticals for treating injured workers.

These and other measures were designed to save employers $1.5 billion, offsetting part of the $2.5 billion benefit increase.

But the California Chamber of Commerce and other employer groups say in some cases, those savings are illusory; in others, uncertain at best. They are preparing a raft of "cleanup measures" likely to be introduced next session to remedy some of the problems they see.

"The so-called savings in this bill won't come anywhere close to offsetting the benefit hikes," said Dominic DiMare, lobbyist for the California Chamber. "In fact, the more one looks at it, the more likely it is that the 'savings' will add additional hundreds of millions of dollars onto employers' tabs."

But those who helped draft the legislation say the savings are real and that the $1.5 billion figure is conservative.



Savings touted

The savings may actually be closer to $2 billion, according to Mike Mattoch, a staff member of the Assembly Insurance Committee, which Calderon chairs. "Just one provision, eliminating the presumption of correctness of the treating physician, will save employers $900 million, by their own estimates," Mattoch said.

He also questioned the motives of employer groups.

"These are all things that employers themselves recommended to us over the last three years, things that at the time they said would save hundreds of millions of dollars. It's a bit disingenuous now for them to claim that the cost savings are marginal," he said.

Part of the problem lies in the difficulty of projecting future costs. Often changes that everyone believes will save money eventually have unexpected consequences that end up driving up costs.

In 1993, employer groups pushed for requiring injured workers to be treated by a single doctor, in the hopes of reducing "doctor shopping" that was driving up costs. Now, that provision is being blamed as the main factor increasing costs, since it gives the employee's physician control over the treatment, which is why it's being repealed in the new law.

DiMare called the return-to-work incentive program a "farce," because there is no funding provided for the program.

"They gave us nothing," he said. "It was supposed to deliver up to $2,500 per employee for accommodating their return to work. But they left that subject to the budget appropriation process."

Davis administration officials say they do have a funding mechanism in mind. Suzanne Marria, assistant director of the Department of Industrial Relations, who helped negotiate the package, said the funding would come from the premium tax paid by workers' compensation insurance carriers.

"This is money already coming to the state; we're going to redirect it to this program," Marria said.

However, because the funding proposal was not included in the legislation, it will likely be part of cleanup legislation later this year or next year.

Of far bigger concern to employer groups are changes being made to the vocational rehabilitation system. Set up to retrain injured workers for new jobs, the system long has been regarded as ineffective. Many injured workers never found those new jobs, and those that did often ended up not using all of the money allocated to them. Employer groups put it at the top of the list for reform, insisting that the cap of $16,000 per injured worker be lowered.

The legislation does lower the cap, to $10,000. But it makes a key change: it allows injured workers to "opt out" of the prescribed program and "self-direct" their retraining, provided they get the approval of a workers' compensation appeals judge.



Cash payouts

"Essentially, the injured worker can trade their right to supervised vocational rehabilitation for a $10,000 cash payout," said Lori Kammerer, executive director of the California Workers' Compensation Coalition, an employer group. "And the employer is still on the hook for future medical costs that an injured worker might need after the cash-out."

Kammerer said this provision is an inducement for applicants' attorneys lawyers who specialize in representing injured workers.

"The attorney gets 12 percent to 18 percent of the cash-out, so it's a way for applicants' attorneys to get an extra bonus," Kammerer said. "You're going to see applicants' attorneys advertising that they can get injured workers '$10,000 in free cash', which will drive way up the number of people seeking the cash-out. It could easily double the cost of the program from the current $500 million to $1 billion."

The bill's drafters and the applicants' attorneys dispute this.

"Look, the bill says that in an appropriate case, where an individual can benefit from a self-directed plan, they may opt for a settlement of up to $10,000," said Gil Stein, an applicants' attorney in Monterey who is incoming president of the California Applicants Attorneys Association. "In every case, that settlement must be approved by a workers' compensation judge, which is a check on any abuses."

Employer groups have other concerns about the new law. They say the requirement to use generic drugs will have limited effect, since generics are already widely used and it does nothing to reduce the pharmacists' dispensing fees.

Also, they say the penalties that would be assessed on employers for late payments to injured workers are too severe, especially since it's often the insurance carriers that delay payments to check and recheck the facts surrounding the claims.

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