Workers comp needs market reform

MAY 21, 2010

The subject of workers compensation reform appears on the surface to be an issue only pertinent to employers and business owners. However, nothing could be further from reality. If more employees paid attention to employer regulations, fees and taxes and the cost of all insurances, the outcry would be much greater. Every tax and fee increase, every insurance hike, and every increased regulation costs the employer greatly, but it also costs employees’ jobs.

The misnomer that business owners merely pass along all cost increases to customers shows general ignorance in how business really operates. Most businesses cannot pass along cost increases – supply and demand dictate costs. Democrats operate under the premise that tax, insurance and regulatory costs and increases are just passed along to the customer.

Workers Compensation Insurance is one business cost that cannot be passed on. And with workers compensation insurance fluctuations business owners are often caught short when the bill comes in.

The Senate Labor and Industrial Relations Committee recently held a hearing to decide if the Division of Workers’ Compensation (DWC) is “appropriately serving California’s injured workers.” At the hearing were representatives from labor, applicants’ attorneys, the California Workers’ Compensation Commission (CHSWC), The Department of Workers Compensation (DWC), the Department of Industrial Relations (DIR) and the Legislative Analysts Office (LAO).

But no employer group to represent small, medium and large businesses in the state was present. A lone representative from a farming business testified from the perspective of employers. But he was a company vice president and not an owner. He certainly was able to speak to his company’s experiences with workers compensation costs and reform. But legislators need to talk directly to business owners – the people who sign the front side of the check.

Before Gov. Arnold Schwarzenegger was elected during the recall election against Gray Davis, employers were paying staggeringly high workers compensation costs regardless of workplace safety or experience. A company with no workplace injuries was still facing a 50-percent workers compensation insurance increase, as the recall election took place.

From 2000 to 2003, California workers’ compensation insurance premiums posted double-digit percentage increases and in 2005, employers were facing another 50-percent rate increase according to the state’s actuaries.

Instead, with Schwarzenegger’s reforms, state actuaries recommended a cut of 10.4 percent in the cost of workers compensation insurance. All business owners realized substantial drops in workers comp insurance costs immediately, and the costs kept dropping as the market adjusted for more competition with insurers, particularly for employers with consistently good safety records.

Interestingly, at the same time Assembly Speaker Fabian Nunez admitted that Democrat lawmakers did not trust the free market system and in an attempt to keep control over employers, worked to substitute state regulations for market competition.  The Applicants’ Attorney Association promised a return to the old system, and still has not given up the fight since the reforms were enacted.

The Workers Compensation Insurance system began in the United States in 1910. The central tenet is that of a “no-fault” insurance system as workplace injuries and accidents are accepted as a fact of life. The system exists to deal with the financial consequences of workplace injuries and employee rehabilitation in as expeditious a manner as possible.

Compensation is paid as wage-replacement, at two-thirds salary, and employers pay for the workers’ medical and rehabilitation cost.

With most employers offering medical insurance to employees, workers compensation insurance appears to be double insurance costs to the employer. Workers compensation insurance has typically cost as much as a company’s medical plan.

Real reforms would involve doing away with the costly duplicity. For employers who have a medical plan, a third-party administrator could manage the wage-replacement payments while the employee rehabilitated, and the employer could pay all out-of-pocket medical expenses. This change would save an employer with 100 employees more than $200,000 per year, on average. That great amount of savings could pay many salaries instead of going to an insurance system or attorneys.

A free market solution is the only way to save more employers instead of the state Legislature continuing to talk about increases in a punitive system designed less to take care of the employee, and more about taxing employers.

–Katy Grimes


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