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April 2004
Dear Friends,
By now I am sure you have heard a great deal about the Workers' Compensation crisis. However, you have received about 50% of the needed and important information from media sources.
 |  | | California Assemblymember Jackie Goldberg, 45th Assembly District | |
Like everything you hear today, the message is not about the issue at hand. Instead, the message is about criticizing the legislature for being dysfunctional and partisan (and unnecessary), and how the Governor is bipartisan and needs an initiative to force the recalcitrant and terrible legislature just to do its job. You will hear this repeated over and over, on each and every issue.
Now I will discuss the Workers' Compensation issue at hand. Workers' Compensation rates are too high, and the system does need reform. But, you should know also know that insurance companies and businesses pushed for "de-regulation" a few years back. Like energy/electricity, this industry was de-regulated. Parenthetically, Workers' Compensation deregulation was "designed" by the same legislators who set up the energy de-regulation. The notion was that competition in the marketplace would "naturally" bring down the rates. However, this did not seem to be the outcome in the energy or Workers' Compensation de-regulations.
What happened with the Workers' Compensation "reform"? Well, the key "reform" was eliminating the minimum rate regulation. Originally, the State wanted to make sure that those who paid into the system would actually have a fiscally sound insurer to pay the costs of the program when an employee is injured on the job. Therefore, insurance companies had to charge a rate that was high enough to guarantee solvency of the insurance company. When deregulation occurred, the rates were cut dramatically because the plan was to eliminate the minimum rate setting authority of the State. This was just what the insurance companies and business leaders predicted. However, it is critical to understand that insurers were charging rates below break-even, as compared to their expenses. They could do this because insurers were making significant profits from investing the premiums they collected in the stock market and in other investments. So this was almost a "loss leader." Furthermore, the practice had the added attraction of driving smaller companies out of the California market altogether.
When the "dot.com" stocks plunged and when the dramatic fall of most other stock prices occurred, some smaller insurance companies went bankrupt. Others began raising their rates. The rates, no longer subsidized by insurance company investments, had to begin reflecting the actual costs of writing Workers' Compensation insurance in California. So let us look at what happened and what is now being proposed.
The worker's compensation system began in 1913 by progressives who wanted to make sure that medical care and at least a very small income would be provided to injured workers. The system was also supposed to protect employers from constant lawsuits that alleged corporate negligence as the cause of workplace accidents. In California, the only remedy for job-related claims is the workers' compensation system, regardless of who is to blame. Workers injured on the job are guaranteed lifetime medical care for that injury, and a cash award if they are permanently disabled. Also, if they are permanently unable to return to work, they are guaranteed a pension for their remainder of their lives.
But no matter who you ask, they will all agree that this is not a "streamlined no-fault" system any longer. Cases drag on over real disputes over proper treatment. Medical care costs have soared. Some try to "game" the system through keeping their case open as long as possible. Also, fraud, usually by the collusion of dishonest medical providers and attorneys, have seriously "injured" the system.
There are many "interested" parties in this situation. There are insurance companies, attorneys for the injured, medical providers, insurance brokers who sell private insurance, labor unions, and of course individual workers.
As mentioned above, deregulation legislation passed in 1994 that allowed "competitive rating" by insurance companies. Many insurers irresponsibly lowered rates to either try to capture more of the market, or to drive out smaller insurers, or both. Insurance carriers dropped rates by a whopping 50% in 1994. They lost massive amounts of money, and many insurers went into bankruptcy, while others simply stopped writing workers' compensation insurance at all.
Nonetheless, rates in 2002 were only 20% higher than 10 years earlier. A 2% increase per year would have yielded that current rates and would never have been called a "crisis."
But instead of a steady, inflation-related increase of 2% per year, insurance companies doubled their rates between 1999 and 2003. Of course, this made it difficult or impossible for businesses and non-profit organizations to absorb such huge increases over so short a period of time.
This led to the initiative process, because the Governor prefers to "negotiate" with the legislature only when he has a "gun" to our heads. For the record, long before the Governor had even decided to get involved in a "recall," the Democratic-controlled legislature and the Democrat in the Governor's Office rolled back $7 billion in cuts to reduce costs to the Workers' Compensation System. But no rates were rolled back, and everyone began the year 2004 believing that nothing had happened.
Now, the Governor, the California Chamber of Commerce, and the Insurance Companies have begun a campaign to gut the current system. Gut it they did. The following are the changes, in brief:
- Workers who are permanently disabled will have their disability payments "apportioned" as to how much of the disability was caused by the recent work-related injury. This means that if you are 60 years old, and do heavy lifting, but were able to do your job before the injury you just experienced, you will no longer receive disability payments for your permanent injuries. Instead, your employer and the employer's insurance company will be able to argue that perhaps your age, or your bicycle accident when you were 22, or other factors account for some percentage of the reason you can no longer do your job. This percentage will forever reduce your compensation.
- Each area of the state will establish a pool of doctors who will provide medical care under Workers' Compensation. 100% of the doctors in the pool will be selected by employers and their insurance companies. Prior to this, an employee could go to their regular doctor. To be candid, it is true that some attorneys worked with some doctors to drive up the costs of the system without much, if any, benefit to the injured worker. However, there many ways to prevent the "doctor shopping" that occurred in some cases. The insurance companies did NOT insist on this change. It was the California Chamber of Commerce who insisted on it. Furthermore, no one believes it will actually save money to the System because the employee will get to change doctors, albeit within the pool of doctors. They can change doctors three times if the employee believes s/he is not getting appropriate treatment. The only way an injured worker will be able to select a doctor outside the "pool" will be after three tries within this "pool" and after an in-person independent medical review (IMR), which will be paid for by the employer.
- No longer will the doctor's course of treatment be presumed to be correct. Instead, there will be some treatment guidelines from the American College of Occupational and Environmental Medicine that must be followed, even if the doctor disagrees.
- Those who get any percentage of permanent disability will have their payments reduced by 15% if they are re-employed by their employer. Also, under the new system, those injured workers who are less than 15% disabled will have their payments reduced.
- Penalties for late payments to injured workers for medical expenses, or late payments to injured workers for permanent disabilities are drastically reduced. With this proposal, there is practically an incentive to pay injured workers late.
- The number of weeks for Temporary Disability is capped at 104 weeks. This of course is fine for most workers. However, those who are harmed are those with the most serious injuries. There is a short list of medical conditions that can go longer than 104 weeks, but I was unable to find out why this particular list was selected.
Those were most of heavy "losses" to workers. There were a few changes that might be called gains. In brief they include the following:
- Injured workers are now entitled to immediate medical treatment up to $10,000.00. This includes a repeal of a provision that allowed employers up to 90 days to begin treatment. Immediate treatment often is essential to preventing injuries from becoming permanent. It also reduces lawsuits because employees do not have to fight to see a doctor for their injury. If anything is a "win" for injured workers, this is it.
- Union workers who have collective bargaining agreements with employers are allowed to pre-designate a doctor, if that is in their bargaining agreement. This means they will not have to use a "pool" doctor.
- Penalties are increased dramatically if an employer or insurance company can be shown to have a "pattern and practice" of late payments and denying care when required.
- No change was made to existing law on "causation" for medical treatments for injuries. Now, the really remarkable thing about all of this is that the California Chamber of Commerce persuaded the Governor to leave out rate relief guarantees from the measure that he signed into law. This means that the legislature and two Governors took at least $13 billion of costs out of the system this year and last year, but insurance companies are NOT required in any way to pass the savings on to the employers who purchase their policies. Already the insurance companies are saying it will take 3-5 years of experience for them to know if and how much rates should change to reflect these cost reduction measures. Meanwhile, they are not likely to reduce their rates because they do not have to. The insurance companies say "no one should want us to risk the savings if they will not actually materialize."
Assemblyman Lloyd Levine and I, along with many other Democrats, disagree with that. When the market is out of whack, it does not correct itself overnight. In the meantime, insurers will continue to make record profits, and smaller businesses will not get the rate relief that this crisis was about. So Mr. Levine and I have a bill called AB 16 (4x) which requires rate relief for two years. It is only needed for two years to "tame the market" from these extremely high rates. Then we are willing to let the market forces work. The measure passed out of the Assembly on the same night that the Workers' Compensation Bill (SB 899) was passed by the Assembly. I was not willing to vote for SB 899 because there was no guarantee of the savings being passed on and because of the draconian changes to the current system.
AB 16 (4x) gives the State Insurance Commissioner the power to set rates for insurance companies if he finds they are not passing the savings along to the employers. Please contact your state senator and tell her/him that you expect them to vote for AB 16 (4x) so that the savings will be passed on to rate payers. I hope you will write to the Governor and urge him to sign this legislation when it is passed out of the Senate later during this legislative session. The (4x) simply means the bill was introduced in the Fourth Extraordinary session, which is what we label the sessions called by the Governor for a specific purpose. In this case, the Fourth session dealt with all issues related to Workers' Compensation.
Finally, let me close by saying that there will be no end of lawsuits by injured workers because the draconian measures will be challenged. In my opinion, we could have done a whole lot better. We could have reduced costs by cutting the "gaming" and fraud out of the system. This is not a reform. It is a roll back of worker's rights to fair treatment when injured at work.
Of course, there will be more chapters to this tale in the future. For now, we are stuck with a bad deal. Some say we should have said "no" and fought it out on the ballot; but the ballot measure was worse yet. Perhaps, we could have defeated the ballot measure. We will never know. I do know one thing. If injured workers cannot get appropriate treatment or appropriate Temporary or Permanent Disability compensation, I for one am willing to repeal the entire Workers' Compensation System that began in 1913. In that legislation, injured workers accepted a system that is now seriously compromised in exchange for giving up their rights (under tort law) to sue their employers for medical care and disability compensation. It may be time to restore tort law rights to injured workers.
Be well and next time we will discuss the budget revision. Stay tuned.
Love,
Jackie
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