In Workers' Comp Drama, Rate Cuts Are Long Way Off
By HOWARD FINE
With all the talk of reform, Jim Ball had been looking forward to relief on his workers' compensation premium bill. Instead, the president of skate manufacturer Sure-Grip International got a Thanksgiving week surprise: a notice from his insurance carrier that his rates were going up 25 percent next year.
"I had really expected rates to go down slightly or at least stay flat," Ball said, noting that his South Gate company hasn't had a single claim filed against it in the past eight years. "I was stunned to see my rates go up as much as they did."
All over L.A., employers are receiving renewal quotes effective Jan. 1 that are significantly higher than what they are paying now. The increases come despite reforms passed by the state Legislature in September that are designed to lower premiums, primarily by placing cost controls on outpatient medical clinics.
As a result of those reforms, 95 insurance companies have filed rate reductions, averaging 3.6 percent for 2004.
But the rate filings are only preliminary estimates, with many variables that could delay relief for employers by months. The reforms came too late in the year to affect bills being sent today for 2004. There is also uncertainty as to exactly how big an impact the reforms will have.
"(Clients) thought that once the Legislature passed the reforms, boom, the rates would go down. I'm having a very difficult time explaining to them that it takes months for these reforms to be reflected in premium reductions," said Mario Guerra, president of Scanlon, Guerra, Jacobson and Burke Insurance Brokers in Woodland Hills.
The consensus among insurance brokers and industry officials, state regulators and others who track the workers' compensation insurance market is that rates will begin to decrease slightly for policies renewing next July. But the declines will be a drop in the bucket compared to the more than doubling of workers' compensation costs that employers have seen over the past four years.
More substantial decreases could follow for 2005, but only if further workers' compensation reform measures are passed next year.
Democratic lawmakers, labor leaders and consumer watchdog groups contend that employers should have been seeing double-digit rate reductions already. They claim that insurance companies are lining their pockets with the savings from the September reforms and are not passing those savings onto employers, a charge that insurance industry representatives deny.
But even State Insurance Commissioner John Garamendi (photo), who last month recommended insurance companies reduce their basic premium rates 15 percent, conceded that legitimate factors are converging to keep rates from falling.
Garamendi said last week that claim costs continued their steep rise for much of this year and that the legislative reforms came too late to make a difference for January premium renewals. Just six months ago, the insurance commissioner recommended a 7.2 percent increase in basic premium rates, effective July 1. That increase is being factored into January renewals.
Also, the second round of benefit increases for injured workers kicks in on Jan. 1. The increases range from 5 to 15 percent, depending on the type of injury.
"With all these factors, it's no wonder that insurance rates aren't going down yet," said Guerra, the broker. "You may see some rates start to come down with April 1 renewals, but you won't see substantial numbers of premium decreases until July."
Some reassurance emerged last week on one front: it now appears that the September reforms will be implemented. Doubts had earlier been raised when Democratic state Sen. President John Burton threatened to repeal the reform bills, upset at then-gubernatorial candidate Arnold Schwarzenegger calling those reforms "bogus." Last week Burton said his repeal proposal was aimed at sending the governor a message and that he did not believe the reforms would be repealed.
Also in the hearings last week, a representative from the Department of Industrial Relations, testifying on behalf of the Schwarzenegger administration, said that the governor's executive order suspending all new regulations would not apply to the workers' comp reforms, which the administration deemed "necessary" to the state's welfare.
The fate of further reforms is still uncertain. Last month, the Schwarzenegger administration unveiled a 136-page bill aimed at saving an estimated $11 billion in costs in the $29 billion workers' compensation system.
The bill, which is being carried by Sen. Charles Poochigian, R-Fresno, would require worker injury awards to be based on a standardized system of "objective medical findings" like x-rays, instead of the often-subjective complaints of pain. It would also sharply curtail many treatment prescriptions and mandate mutually agreed-upon choice of doctors for injured workers.
Democrat lawmakers, labor officials and applicants' attorneys blasted the legislation as a giant "takeaway from injured workers" and vowed to fight many of the major provisions.
Democrats also insist that whatever reforms are passed contain some crackdown on the insurance industry to ensure that savings are passed on to employers. The insurance industry, the California Chamber of Commerce and Republican lawmakers are resisting this move.
As a result, the administration has given up getting the legislation passed this year and is now regrouping to adjust some of the provisions in the bill. The new timetable is for the bill to be reconsidered in January, with the goal of getting it passed sometime in March.
Garamendi said that the reform package must be signed into law by March 31 in order for it to be factored into his mid-year rate recommendation.
In order for premium rates to drop by double digits either in July or next January the bulk of the reforms in the Poochigian bill would have to remain intact, Garamendi and industry watchers concurred last week.
Meanwhile, Sure-Grip has laid off 20 of his 45 employees in the past year and farmed out much of the manufacturing work to China. Soaring workers' comp costs topped the list of reasons for the shift.
"Sure, if the rates do go down and I'll believe it when I see it it will help my bottom line," Ball said. "But the damage has already been done."
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