Popular workers’ comp overhaul faces 2006 rewrite

The hard-fought overhaul of California’s $16.3 billion workers’ compensation
insurance system, viewed by employers and insurers as a done deal and the
single most important policy victory of Republican Gov. Arnold
Schwarzenegger’s administration, is back on the table.

Democrats, organized labor and the lawyers who represent workers with
on-the-job injuries are pushing for change in regulations that went into
effect nearly a year ago. Members of both parties say they are likely to get
it, but in what form?

“We do expect that workers’ compensation will be on the radar in ’06. We
think our job really will be to defend that reforms that have been enacted.
Those reforms are, in fact, working,” said Nicole Mahrt of the American
Insurance Association.

The potential changes reflect a convergence of several factors.

First, is the swelling political muscle of Democrats and their labor allies
following the November special election. Second, is the wording of the
controversial regulations that went into effect last January. Third, is the
appointment of Democrat Susan Kennedy as Schwarzenegger’s top administrator.

Kennedy, formerly a top official in Gray Davis’ administrator, is familiar
with workers comp issues and worked on 2002 legislation that boosted
workers’ benefits. “Absolutely, she will be involved in this. She was
involved then, she’ll be involved now,” said a Capitol Democratic staffer
familiar with insurance issues.

Fourth, is the 2006 election cycle. Schwarzenegger, down in the polls, is
politically vulnerable and members of both parties say he may favor changes
in the huge workers’ comp system to cultivate political support among voters
and the Legislature’s majority Democrats.

“We sure hope so,” said David Rockwell, president of the California
Applicants’ Attorneys Association, whose members represent injured workers
in court and before the Workers’ Compensation Appeals Board. “We’ve got a
commitment from the (Assembly) Speaker and the (Senate) President Pro Tem to
change the permanent disability regulations, to put forth some legislation
to change the PD.”

“(Administration officials and legislative leaders) have said over and over
again that there was never any intent to hurt injured workers,” said
Rockwell, a Modesto attorney.

During the past four years, several bills have targeted California’s
workers’ compensation insurance system, the decades-old program that assures
care and benefits for employees injured on the job. The system has long been
troubled by premium and medical fraud, spurious or exaggerated injury claims
and carrier insolvencies. Since 2002, both Davis and Schwarzenegger signed
major bills to improve benefits, get a handle on fraud and spiraling medical
costs and require stricter evidence in deciding the severity of job-caused
injuries and the level of benefits.

Employers generally applauded the reforms as the cost of their coverage
declined dramatically in recent months, but workers’ groups said those
savings came directly from the workers’ reduced benefits. In a major report
released Tuesday, the Workers’ Compensation Insurance Rating Bureau said
total premiums totaled $16.3 billion through the first nine months of this
year–down a whopping $7.3 billion from 2004, when premiums totaled $23.6
billion. The Bureau is an in industry-supported, nonprofit research and
advisory group.

“It’s clear that the reforms are working and costs are going down. We would
fight any change to the system,” said Sara Lee, state Chamber of Commerce

The most recent bill, and the most controversial, was SB 899 by Sen. Charles
Poochigian, R-Fresno. Among other things, it resulted in regulations–they
took effect on Jan. 1, 2005–requiring California to adhere to guidelines set
up by the American Medical Association try to bring uniformity, medical peer
review and objective analyses to injury assessments. Generally, injured
employees unable to work receive up to $728 a week, although there are
numerous exceptions and restrictions that apply.

The regulations include the Permanent Disability Rating Schedule, or “PD
schedule,” that partisans in the looming 2006 workers’ comp dispute say will
be the focus of the political battle.

Groups representing labor and injured workers say the regulations are a
thinly veiled attempt to cut benefits, and point to recent studies that show
sharp declines in both the settlements and injury ratings of hurt workers.
Their attempts to overturn the regulations in court have been rebuffed.
They point to UC Berkeley’s Frank Neuhauser, who studied the impact of the
regulations in 3,500 cases, says that ratings have decreased 40 percent and
benefits have declined by 50 percent. Those dramatic decreases that reflect
the lowering cost of coverage, which pleases employers who pay for workers’
comp coverage. But injured workers say the savings have been achieved by
cutting their benefits, and violate Schwarzenegger’s promise that workers
would not be hurt by his proposed reforms.

The language of the regulations, written by Andrea Hoch, the former head of
the state Division of Workers’ Compensation, includes a little-noticed
provision that they can be rewritten or modified if they prove ineffective
or harmful. It is that provision, critics say, that opens the door to
negotiations over new rules. “She left plenty of wiggle room,” said Angie
Wei, a lobbyist for the California Labor Federation.

Changes in the PD regulations could be made without legislation, experts
say. “Actually, we expect changes will be coming and, if so, we would prefer
it in the regulations, rather than in a bill in the Legislature,” one GOP
staffer said.

Sen. Richard Alarcon, D-Los Angeles, has carried workers’ comp-related
legislation in the past, and Republicans believe he is likely to carry a new
bill next year. Alarcon was not immediately available to comment.
State workers’ comp officials say the regulations allow–but don’t
require–review or revision after 18 months, which is July 1, 2006. That
coincides with the new fiscal year, and suggests that negotiations over the
PD rules could become part of the larger, political negotiations over the
state budget.

“I don’t stand in the governor’s shoes, but I would be quite surprised to
see a retreat or retrenchment from the reforms,” Poochigian said. “If there
is an unfairness in the compensation that is being given, then that’s worthy
of evalutation, but that doesn’t mean there’s a need for wholesale reform or

“We can’t go back to the old days,” he added.

But Wei isn’t so sure.

“Everything is possible in this business,” she said.

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