Calif. Commissioner Pushes for WC Reform

September 3, 2003

Saying that the time is now for reform, Insurance Commissioner John Garamendi highlighted the plight of nonprofit agencies across the state that have been burdened with soaring premiums due to the condition of the state’s broken workers’ compensation system Sept. 3.

Garamendi met with representatives from nonprofits in Los Angeles
and San Francisco as part of his effort to bring about real reform of the $29 billion system. Medical, legal and administrative costs within the system have increased at an exponential rate, forcing more than two dozen insurers into bankruptcy and burdening employers with the highest premium rates in the nation.

Last Friday, Garamendi set the bar for providing relief to employers, informing the Legislature’s Workers’ Compensation Conference Committee that $6.25 billion must be trimmed from the system in order to bring premiums back to the 2002 level. The reforms must be substantial to achieve that savings.

“The clock is ticking down not only on the Legislature to enact reform, but also on the employers – including nonprofits – who cannot continue to absorb these absurd premium increases,” Garamendi said.

Tim Watkins, president of the Watts Labor Community Action Committee, said his nonprofit could close its doors if relief from workers’ comp costs doesn’t arrive soon. “We’ve been providing skill training, employment opportunities and low income family housing and apartments since 1965,” he said. “[But] we have depleted our resources to date, cut our administration in half and face a possible shutdown of current programs if a workers’ compensation solution is not found.”

Mark Cotter, senior director of Operations at the Boys and Girls Clubs of San Francisco has seen their premiums increase 53 percent in the last year. “We are laying off staff, closing down youth programs, and we have not expanded in two years,” he said. “Most of our donations go to paying workers’ compensation premiums.”

Garamendi said he has heard similar stories across the state since he began tackling this problem after he was elected last November. “We cannot have a half-hearted effort at reform or businesses will continue to suffer, jobs will disappear, and California’s economy will remain mired in place,” Garamendi said. “I urge the Committee to enact reforms that meet the needs of our employers.”

Garamendi’s reform plan includes measures that would cut billions from the system. But they must be enacted in sufficient amounts to achieve the desired savings.

For example:

His proposal to tie payments for services performed at outpatient surgical centers to the Medicare fee schedule would save an estimated $1 billion annually. But if it is watered down, the impact would be dramatic. For every 10 percent increase above the Medicare fee schedule savings would be reduced by about $100 million.

Medicare plus an additional 40 percent would save only $630 million.
Medicare plus an additional 60 percent would save only $440 million.
Medicare plus an additional 80 percent would save only $260 million.

Garamendi’s proposal to refine the definition of “cure and relieve” in patient care, as well as set guidelines for treatment that are based on the American College of Occupational and Environmental Medicine recommendations, would save an estimated $2 billion annually. However, if that proposal is not enacted, or is watered down, the savings would be substantially reduced.

“Our state cannot recover fully when its employers are burdened with these outrageous costs,” Garamendi said. “The reforms discussed here could go a long way toward helping resolve many of the state’s problems, including the budget. I urge the Legislature to enact reforms that are immediate and substantial.”

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