Opinion: Legislation simplifies workers’ comp for California’s employers

California has topped Chief Executive Magazine’s Worst States for Business list for two years running. Our state has lost 1.2 million jobs in the last three years, and while the unemployment rate dipped slightly in May to 11.7 percent, it remains unacceptably high. Any legislation that will reduce red tape and make it easier for California companies to prosper should be welcomed enthusiastically and passed quickly. And that’s exactly what AB 228, sponsored by Assemblymember Felipe Fuentes, D-Sylmar, will do.  

AB 228 is common sense legislation that clarifies the ability of State Fund, California’s self-supporting, not-for-profit workers’ compensation insurance carrier, to cover the out-of-state employees of the California companies that rely on it for their workers’ compensation insurance.

Right now a California employer that’s insured with State Fund has to obtain at least one, maybe more, separate policies to cover their employees who work outside California because California’s insurance code does not explicitly give State Fund the authority to provide that coverage.   AB 228 would simply clarify the California insurance code to allow State Fund to provide workers’ comp insurance for ALL of a California company’s employees – including any who work out-of-state.

This will significantly streamline the insurance process for California companies with out-of-state employees, and their insurance brokers.  Instead of having to go through the application process with two or more insurance companies, brokers and their clients could get coverage for all of a company’s employees from State Fund in a one-stop shop – saving time and money. Many private companies, of course, already offer one-stop shopping because they can accommodate their policyholders’ coverage needs regardless of state borders.  This legislation would level the playing field for employers who want to work with State Fund.

Why is this important? Because of State Fund’s unique mission, and the role it plays in California’s economy. State Fund was created by the California Legislature in 1914 after the “no-fault” workers’ compensation system was enacted.  It is charged with two roles:  1) to be an available market for all employers seeking workers’ comp coverage; and, 2) to compete fairly with other insurers. State Fund is charged with the mission to compete fairly in the private market so that it can remain a viable and affordable option when market conditions worsen and private insurance companies scale back their product offerings.  We saw this happen in 2000-02: when 28 private carriers claimed insolvency and left the California market, State Fund stepped up to fulfill its role as a critical safety net for California by providing coverage for most of those policyholders.  State Fund’s strong presence was a key factor in preventing a workers’ comp market collapse and resulting drain on the state’s economy.

Private workers’ comp insurance carriers oppose AB228 because they now have a lock on this business and do not want additional competition.  They argue that State Fund will have an unfair advantage because, as a public enterprise, we do not pay federal taxes.  That red herring completely ignores the fact that State Fund must fulfill an important mission as the market’s safety net and comply with the significant requirement to take all comers.  In other words, private carriers are free to deny coverage to those they deem too risky or costly to cover, but State Fund cannot. Private carriers can flee when returns are unattractive for California workers’ compensation insurance. State Fund’s doors have remained open to employers no matter what since 1914.

This is not a radical proposal; it’s currently being done in many other states.  Of the 26 State Funds around the country, 16 currently serve their state’s employers by providing coverage for out-of-state employees. According to data from Dun & Bradstreet, approximately 45,000 employers have headquarters in California and documented out-of-state locations. State Fund’s intention is to serve the subset of these businesses that are headquartered in California and also conduct the majority of their operations here. We estimate 20,000-30,000 California businesses may qualify.

Millions of Californians rely on the security and certainty State Fund offers the state’s employers, particularly the small businesses and new ventures that are key to California’s economic recovery.  Today’s economy has become increasingly borderless in ways never imagined in 1914. In today’s world, a small business with 30 hard-working Californians in San Jose, can hire a web designer in Austin, Texas, and a fiveperson sales staff in New York, Chicago, Boston, Atlanta, and Miami.  AB 228 says this is a California business. Who would argue!

 AB 228 simply seeks to make it easier for California employers to benefit from the security and services State Fund has to offer. Clearing away red tape is good for California companies and for our state’s economy.