Workers’ Comp Costs Could Bring Job Cuts
By HOWARD FINE and LAURENCE DARMIENTO
Jim Ball knew that workers’ compensation rates were on the rise, but when he opened his quote during Christmas week, the 60% increase in his company’s premium, effective the following week, sent him into panic mode.
Ball, president of South Gate-based Sure-Grip International Co., which makes inline and rollerskates, now faces the prospect of cutting some of his 45 workers or dropping all medical coverage,just to pay the $40,000 annual workers’ comp bill.
What especially galls him is that Sure-Grip has been a model citizen when it comes to workers’ compensation, instituting the required safety programs and not having a single claim filed against it in the past four years.
Yet in that time, Sure-Grip has seen its workers’ comp rates go up more than 150%.
“It’s just unbelievable,” Ball said. “There just isn’t anything I can do about it.”
All over California, employers are getting hammered with staggering 30% to 60% increases in annual workers’ comp premiums. These jumps have resulted in average premiums more than doubling over four years.
And more rate hikes are in the offing as cost savings that were supposed to offset last year’s benefit hikes have not been realized. Because of state budget cuts, employers are being asked to subsidize the state agency that operates the workers’ comp system.
“Rates are going up dramatically,” said Dave Bellusci, senior vice president and chief actuary of the Workers’ Compensation Insurance Rating Bureau. “By next year or the year after, we could see premiums totaling $20 billion.”
In 2001, the last full year for which figures are available, total workers’ comp premiums in California reached $12 billion.
All this while the actual number of claims has stayed relatively constant and even declined slightly.
The average premium per $100 payroll,the most common objective measurement of workers’ comp rates,has shot up 122% since 1999.
In the third quarter, it topped $5 per $100 payroll for the first time ever, eclipsing the previous record of $4.40 set during the workers’ comp crisis a decade ago.
These figures don’t take into account the most recent increases effective Jan. 1.
The latest jump is the result of a pair of recommended rate hikes from former state Insurance Commissioner Harry Low totaling 21%,as well as substantial benefit increases passed last year.
Those increases were hastily enacted last February as Gov. Gray Davis tried to shore up the labor vote for his re-election campaign.
Among other things, they nearly double the maximum weekly benefit for temporarily disabled workers from $490 for injuries occurring through last Dec. 31, to $602 for injuries occurring this year, $728 for injuries that occur next year and $840 for injuries occurring in 2005.
The benefit increases were supposed to be offset by cost savings to the workers’ compensation system.
But those savings have yet to materialize, thanks in part to state budget cuts.
“When the funding to implement the savings has been cut, it’s hard to price premiums to factor in those savings,” said Jeanne Cain, western region vice president for the American Insurance Association.
Among the key reforms being held up by the budget crisis are plans to both encourage and lower the cost of outpatient care through the establishment of a schedule of fees for services, such as for knee or shoulder surgery.
That care should be cheaper than receiving the same service in a hospital, with its higher overhead, but that has not necessarily been the case since there are no set fees, said Dick Gannon, director of the state Division of Workers Compensation.
“That is the weak part of the balloon,” he said, noting savings estimates are in the hundreds of millions annually.
Generic brand drug use is another key reform slow in getting started.
The reforms mandate that pharmacists must prescribe generic drugs if brand name drugs are not required by the prescription, but the department has not been able to mount an education campaign, Gannon said.
In order to see other cost-saving reforms, businesses are now being asked to pick up the tab for the state agency that operates the workers’ compensation system.
That’s because the state’s financial crisis prompted Davis last year to cut 10% out of the budget of the Division of Workers Compensation, which trimmed 90 of its nearly 1,000 positions.
The loss of manpower made it impossible, state officials claim, for the division to enact money-saving reforms.
The governor has proposed funding the system’s $100 million costs through an assessment on state businesses.
Currently, businesses pay 20% of the cost, which amounts to about $1 per employee per year. That could rise to nearly $7 per employee per year to implement the reforms.
Fine and Darmiento are staff reporters at the Los Angeles Business Journal.
