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Workers’ Comp Deal in the Works for California

In a hush-hush environment over the last several months it appears that those who seek workers’ compensation reform has been given hope, despite the looming close to California’s legislative session.

And that hope may come in the form of a 300-page piece of legislation hammered out by labor and a few large, self-insured employers, according to those familiar but not involved with the negotiations.

A small group of labor unions and large employers have been meeting quietly since the spring to come up with a bill or bills that would cut costs system wide to help pay for an increase benefits for permanent disabilities.

As with the workers’ comp reforms hammered out in 2003 and 2004, the insurance industry has not been invited to the talks.

Until now several big players in Legislature, including California Governor Jerry Brown, have been mute about a deal. When asked about possible reforms over the last two months, a spokesman for Brown declined comment, or gave vague responses like, “don’t have anything to add at this time,” and “the Governor’s office would not comment on the timing of future reforms.”

Brown’s spokesman on the matter, Evan Westrup, maintained the governor’s “no comment” stance on Thursday.

And key players have been just as quite, or purposely vague.

California Department of Industrial Relations Director Christine Baker, who in spring wrapped up a highly publicized tour around California to gather input on ways to fix the system, has declined to be direct about fixes to the system that may be in the works or any negotiations.

Recently she was asked if “reform” is likely this year for California’s workers’ compensation system.

“I think that’s the wrong word,” she replied. “I think targeted reform is a better use.”

Mark Sektnan, president of the Association of California Insurance Companies, said he’d been made aware of the negotiations only recently, but he was sworn to secrecy.

According to Sektnan, those involved in negotiations have said they plan to present the reform language to him later Thursday and it’s expected to be introduced in Legislature on Friday or Monday, and possibly be in print by Tuesday.

Sektnan said the meetings were between a couple of large self-insured employers that are likely unionized and labor, and no known insurance industry presence was at the table.

“We have not been involved in any of those conversations,” he said. “No insurance person that I’m aware of has been involved in any of these discussions.”

There weren’t any insurers at the table during the 2003-2004 reform talks either. “Typically the insurance industry is not involved in the ongoing discussions,” Sektnan said.

It’s not clear whether the reform would be introduced as one bill or several pieces of legislation.

Sketnan said he’s heard they could use as a vehicle in which to place the language Senate Bill 863, a bill addressing workers’ comp liens authored by state Sen. Ted Lieu, D-Torrance, which has just been taken off the active file.

“We assume that that will be a vehicle,” Sketnan said.

Whatever the reforms are, they would certainly have to address cost pressures currently building in the system.

There has been talk about giving labor $1 billion in benefit increases, and to do that those proponents of change would have to find $1 billion to $2 billion in savings.

Insurance Commissioner Dave Jones recently approved  a nearly 10 percent increase for July 1 in the pure premium advisory rate, and a committee of the Workers’ Compensation Rating Bureau, which makes recommendations on changes to Jones, met last week and they plan to recommend an increase of about 7.6 percent for Jan. 1 workers’ comp renewals.

Those working on workers’ comp reform have identified and blamed rising costs on a faulty system itself, fraud, and redundancies that can be done away with. They’ve also blamed increased utilization, and the growing use of prescription opiods in workers’ comp cases, among the largest cost drivers.

But aside from tackling the unwieldy and seemingly insurmountable issue of utilization, none of what has been discussed may be able to make up the costs that labor is seeking, according to Sketnan.

The entity at the top of the list to pay for these increases?

“Providers are likely to get hit hard in this reform package,” Sketnan said.

During an interview in July with the Insurance Journal, Baker discussed targeting areas of the state’s workers’ comp system where there is “frictional cost,” and areas where there is “fraud, abuse and waste.”

She declined to elaborate on just how that could be done, nor did she mention in an extensive interview any knowledge of any ongoing negotiations.

Asked if any parties were meeting to negotiate, or whether she would facilitate that, Baker, considered one of the state’s top labor officials, replied: “I can’t speak to that issue. I’m hopeful they can do that.”

Baker in the interview also expressed her wishes for an increase in permanent disability benefits.

“They will have to get together and say they need a benefit increase, and find a way to offset that benefit increase,” she said. “There definitely needs to be a benefit increase. There needs to be an improvement in the permanent disability area.”

One legislator who has already introduced several workers’ comp related bills is Lieu.

Lieu’s staff has been mum on any reform talks and has been directing inquiries about Lieu’s possible involvement in bringing forward to a workers’ comp reform package to the bills he has already introduced, which includes a broadly supported bill to eliminate a loophole for spinal implants.

Ray Sotero, a spokesman for Lieu, said “he’s part of the discussion. I’m not sure what role he’s playing.”

Sotero couldn’t elaborate on Lieu’s involvement, but indicated it was only recently that the senator has been involved, and that he’s “seen nothing in writing.”

The first hints of possible reform, or overhaul, may have come from a joint hearing in Sacramento on workers’ compensation in California with the Assembly and Senate earlier this year.

It was titled, “Informational Hearing, Injured Workers Since SB 899: A Discussion on the Impacts of SB 899 on Permanent Disability Benefits.”

But the hearing, which was headed by Lieu, chair of the Senate Labor Industrial Relations Committee, was beyond a focus on permanent disability and the aftereffects of sweeping workers’ comp reform enacted in the last decade.

During that meeting, which apparently had speakers from all parties involved in the workers’ comp system, Lieu noted there were two “musts.”

One must was addressing permanent disability benefits, which ended up being cut as a result of the sweeping reforms ushered in during Gov. Arnold Schwarzenegger’s tenure, Lieu said. The other must he said was to make sure the premium rates do not rise in the future.

During the hearing both Lieu and California Insurance Commissioner Dave Jones expressed concerns about how the insurance industry would be able to hand the reforms and keep a handle on premiums.

Jones, a Democrat who just completed his first term as insurance commissioner, began by noting that in 1995 the workers comp market was deregulated by Legislature, leading to opening ratings replacing minimum rates. Fierce price competition ensued, he added.

“With no minimum rate law, carriers reduced rates below solvency,” Jones said.

The Department of Insurance was forced to take over and liquidate 31 carriers between 1997 and 2006, and California’s workers’ comp insurer of last resort, State Compensation Insurance Fund, swelled and was at one point writing over 50 percent of total market, Jones said.

An L.A. Times article on the reforms on Thursday quotes Angie Wei, legislative director of the California Labor Federation, as a key negotiator in the talks.

During the workers’ comp reform joint hearing earlier this year Wei blamed the system’s current issues on “unneeded speed bumps in the system that is screwing the injured workers,” and she suggested that while looking at inefficiencies and waste, “we should look at a minimum loss ratio. A bottom-line loss ratio. What’s good enough for the health insurers should be good enough for the workers’ comp insurers.”

She added that would shine “a brighter light into the insurance industry.”

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