Pressure Mounts for Workers’ Comp Price Controls
By HOWARD FINE
As the state Legislature confronts a March 31 deadline to craft a workers’ compensation reform package, pressure is mounting for renewed regulation of prices in the state.
Democratic legislators, upset over reports that insurers apparently have not passed on enough of the cost savings from last year’s reforms, are demanding stepped-up regulation of insurers in exchange for consideration of other reforms demanded by Gov. Arnold Schwarzenegger.
“There is only one way to guarantee that the insurance industry will pass savings on to employers and that’s rate regulation,” said state Sen. Richard Alarcon, D-Van Nuys, who chairs the Senate’s Labor and Industrial Relations Committee.
Alarcon and his Democratic allies hold the key to any compromise that emerges in the coming weeks. And last week, there were indications state officials previously opposed to rate regulation,including state Insurance Commissioner John Garamendi (photo),were softening their stance.
“There is a really strong move afoot to institute some form of rate regulation,” Gara-mendi said last week. “Our office has found that there are regulatory schemes that can work in such a way that insurance companies have prospered.”
Even traditional Republican opponents of insurance rate regulation are easing their opposition.
“I have told those who are champing at the bit to regulate the insurance industry that they are free to do so,” said state Sen. Charles Poochigian, R-Fresno, who is carrying Schwarzenegger’s reform package. But he said he was opposed to tying rate regulation to an overall reform package.
“I hope that my Democratic colleagues see that extracting a pound of flesh for their support is not the way to go,” he said.
Others say just such a deal might emerge from meetings of the so-called “Big Five” in the next couple of weeks: Schwarzenegger; Senate President John Burton, D-San Francisco; Senate Republican Leader Jim Brulte, R-Rancho Cucamonga; Assembly Speaker Fabian Nunez, D-Los Angeles; and Assembly Minority Leader Kevin McCarthy, R-Bakersfield.
The March 31 date by which Schwarzenegger has demanded a reform package from state legislators could slip to April 16. That’s the signature-gathering deadline for the Schwarzenegger-backed workers’ comp reform initiative to make the November ballot.
Those reforms would tighten definitions of workplace injuries, restrict the ability of injured workers to choose an independent doctor and add incentives to return injured workers to work. They also would narrow qualifications for permanent disability benefit payouts.
There is no rate regulation in the Schwarzenegger-backed plan.
To back up his initiative threat, Schwarzenegger earlier this month gave $1 million to the effort to get it qualified. But he has said he would rather see the Legislature pass a reform package on its own.
“Nobody wants this initiative to get on the ballot,” said Lori Kammerer, a consultant and lobbyist for employer and labor groups on workers’ compensation reform. “It’s viewed as too risky and expensive for everyone.”
It is against this backdrop that Democrats are pushing hard on the need to rein in premium prices.
And the pressure is being felt by other lawmakers, according to Brendan Huffman, director of public policy for the L.A. Area Chamber of Commerce.
“We had lawmakers tell us that if they are going to support the workers’ compensation package put forward by the governor that’s going to result in lower costs, they want something in writing from insurance companies saying that those savings will be passed on in lower premiums,” Huffman said.
Given the failure of many carriers in the all-out price war that followed deregulation, there’s a strong consensus to re-establish the minimum rate that existed prior to 1993. But Alarcon also is pushing for maximum rates that insurers would be able to charge employers.
Insurance industry officials said they oppose any rate regulation.
“Insurance rate regulation is not the problem. We need to focus on reining in the main cost drivers, including medical costs and litigation,” said Nicole Mahrt, a spokeswoman for the American Insurance Association’s Western region office.
Garamendi said last week that his office currently is looking at other states to see which regulatory models are most appropriate.
“What’s different about California, of course, is that anything we come up with has to take into account the State Compensation Insurance Fund, which now controls 60% of the marketplace,” Garamendi said.
As the quasi-public State Fund has increased its share of the marketplace, concerns arose over its solvency, which prompted Garamendi to force the carrier to raise rates. In recent months, though, State Fund has come under criticism for not lowering rates enough in the wake of last year’s reforms.
Both Alarcon and Garamendi said that any new insurance rate regulation must impose more control over State Fund. But State Fund spokesman Jim Zelinski said further regulation is not needed.
Fine is a staff writer with the Los Angeles Business Journal.
