July 14, 2004

California's woes continue

Things remain interesting in California.

Shortly after the legislature passed Gov. Arnold Schwarzenegger's sweeping reforms, Insurance Commissioner John Garamendi, announced that his office had calculated that those reforms, when combined with other, more minor reforms passed into law at the tail end of 2003, would translate to a reduction in total premiums statewide of nearly 21%. Well, here we are three months later. Insurers have filed their new rates, and the California Commissioner is not happy.

Correct that - he's happy with the two national carriers, Liberty Mutual and Republic Indemnity, which filed for reductions of 17.54% and 20.48%, respectively. Of course, those two giants only write a shade more than 4% of the state's premiums.

The overall reductions filed by all companies writing in the state, however, are only 10.38%, or half of what Garamendi wanted. Moreover, the behemoth State Compensation Insurance Fund (SCIF), which currently writes more than 53% of all premium, filed for only a 9.7% reduction in rates. (A separate issue, the ice we can't see under the water, is the very real concern for the solvency of the SCIF. The Department of Insurance will release a much-anticipated report on SCIF reserve adequacy in August, 2004. We should learn a lot from that report.)

With premiums in the state having soared to well over $20 billion, the Governor wanted to cut California's rates in half over time. That would nearly approach where rates were five years ago, before everything blew up. Unfortunately, what we see to this point won't even get him 20% of the way there.

No matter how the politicians in Sacramento spin it, employers in California continue to face business-breaking costs in workers' compensation.



While california continues to face business-breaking costs in Workers' comp..there are injured workers out here gettigng screwed over by the new law. What about the worker whose injury changes our life forever? What about our rights? No one thinks about that until it happens to them, and they are left fighting a corrupt wc carrier and wc system. The Governor and assembly did no one any favors with the new law. It doesn't truely bring down the cost, yet it does take away many rights from injured workers. We went from a bad system to a horrible one, thank goodness Arnold is rich and never has to worry about getting hurt and trying to obtain his WC rights or payments!

Thank you for your comment, Sherri. When looking at the workers' comp crisis in California, it's clear that the money is going mostly to doctors and lawyers -- not to injured workers. The benefit levels in California are actually relatively low compared to other states. LynchRyan often consults with states on workers comp reforms. We seldom find that states are paying too much in the way of benefits to injured workers. We recommend that states keep their eye on the bottom line: the goal is to return injured workers to productive employment as quickly as possible. Cutting legitimate benefits for disabled workers is not the way to go.

What must be remembered in the California crisis is that State Fund cannot, like the private carriers, turn away business. When they wouldn't write - and many still won't - State Fund must. State Fund has single handedly saved the California economy and while its financial condition could be a lot better it is certainly not in danger of going under. It has positive cash flows, some $12 Billion in reserves, and management intent on remaining for service not for profit.
It is, in my opinion, the Liberty Mutual's of the world who are creating a crisis - by lowering rates and not writing business, by contributing negative publicity and opinions about this State Fund and every other state fund in the country and not demonstrating with their own capacity the willingness to write business. It appears that Standard & Poor’s has been caught by the Workers' Comp Executive expressing opinion without factual backup at the behest of whom I ask.
The problem in California boils down to a legislature who has as it's main constituency applicants' attorneys and workers' comp doctors (who frequently and sometimes illegally make refers to each other and share fees in one way or another) and who as a result cannot remove the main cost drivers from the system – doctors and lawyers.
This legislature has refused to reform its own reforms even when the results are clear; AB 749 is a prime example. There is little legislative or administrative action on medical cost containment – like using fact based treatment guidelines – like establishing a reasonable medical fee schedule - like removing some of the unreasonable administrative mechanical complications for which carriers get fined and lawyers get rich – like having a uniform methodology for assigning disability levels - there is little hope for a system when the legislature is confused, usually by contributions, about who its constituency really is.
There is little or no reform of the legal system. There are more cases in the California Appellate Courts having to do with workers’ compensation than any other type of case, except criminal. That statistic alone speaks to the real issues.
The states with reasonable rates have removed the lawyers from the system and developed alternative methodologies which move much faster and which are much less costly to deal with medical treatment disputes.


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This page contains a single entry by Tom Lynch published on July 14, 2004 3:24 PM.

Company Outings -- Compensable fun? was the previous entry in this blog.

Ohio getting tough on premium compliance is the next entry in this blog.

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