Summer 2003

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Guest Commentary 

Tim Smith is a Sonoma County supervisor and president of the California State Association of Counties (CSAC). This copyrighted commentary was published in the July-August issue of California County and is reprinted with permission.

Workers’ compensation has emerged as a new economic crisis for California. Our workers’ compensation premiums are the highest in the nation, and employee disability payment benefits are below average.

Insurance companies are, in significant numbers, either failing or fleeing from the California market, leaving the State Compensation Insurance Fund (SCIF), traditionally known as the insurer of “last-resort,” to provide coverage to approximately half of the businesses in the state.

The SCIF has become so overwhelmed by new clients that it may be forced to temporarily cease accepting new accounts, potentially leaving many employers without workers’ compensation insurance options and unable to legally conduct business in this state.

Reform of the workers’ compensation system has become a substantial legislative debate at the present time, one year after the adoption of major benefit increases and modest reforms in AB 749 (Calderon).

Impact on counties

Workers’ compensation is a huge issue for California counties for two reasons. The first is that it has become an inhibitor to the state economy, and a robust economy is vital to provide Californians with job security, prosperity and revenues for essential governmental services.

The second issue is that California counties employ more than 300,000 employees (excluding in-home support service workers) and are experiencing workers’ compensation cost increases as other employers.

Total workers’ compensation costs for California employers are expected to exceed $20 billion in 2003, including approximately $400 million in costs to county governments. In one recent three-year period alone, county costs increased 47 percent, even though the number of employee injuries per 1000 employees decreased by 20 percent.

What went wrong?

Workers’ compensation is a no-fault insurance program that provides employees who are injured on the job with medical care, temporary disability benefits to replace lost wages, permanent disability benefits, death benefits to survivors and vocational rehabilitation for job retraining. It is also the exclusive remedy for injured workers for job injuries and illnesses and it protects employers from expensive and adversarial tort liability claims.

So how could the system that functioned reasonably well for employers and employees for almost a century become so dangerously dysfunctional? The answer involves many factors, principally focused on the service providers.

Medical care remains significantly unmanaged and costs have increased more than 100 percent since 1999. Our system invites legal costs with extensive opportunities for litigation and legal contingency fees factored proportionally into benefits, such as permanent disability and vocational rehabilitation.

The system has experienced dramatic increases in the number of minor permanent disability claims, with 90 percent of claims going to injuries for disabilities of less than 25 percent. Vocational rehabilitation has ceased serving its original intention and has become another cash benefit option. Penalty fees for late and missed payments are excessive. Causation standards are generally very liberal, particularly for significant elements of the public sector in which injuries and illnesses are presumed to be job connected unless the employer can meet the merely impossible test of proving non-job causation.

Following deregulation in the mid-1990s, the insurance industry engaged in ruthless competition from which only a few providers have survived and are now forced to dramatically increase costs. Fully insured workers’ compensation costs have risen 77 percent in the past four years.

CSAC’s position

The California State Association of Counties (CSAC) supports quality workers’ compensation benefits for injured workers. CSAC does not support reducing indemnity benefit levels currently authorized in law. We do support reforms regarding administration and litigation.

It is CSAC’s conviction that significant cost containment reforms must be implemented this legislative session. More than 60 bills have been introduced to reform the workers’ compensation system. At this time, a relatively small number of bills that collectively provide modest reforms survive and await consideration.

We urge the Legislature and governor to demand nothing less than serious reform of the workers’ compensation system, which is the single greatest opportunity for the Legislature to improve the California economy for the citizens of this state.

(c) 2003 California State Association of Counties