Calif. Legislators Craft Tentative Agreement on Workers’ Comp Reform

After vetoing SB 71 last fall, California Gov. Gray Davis made a pledge that he would reach out to legislators and others to comprise a reform bill addressing workers’ compensation.

Now, it appears Davis and legislative leaders have formulated a tentative agreement dealing with workers’ comp. The new benefits package, SB 1156 is expected to be revised with cost-saving measures that Davis has proposed, California Assembly Insurance Committee Chairman Tom Calderon said recently. Currently, the legislation contains most of the provisions contained in SB 71 and AB 1176, measures vetoed by Davis last year.

However, insurance industry officials are not jumping for joy.

Nicole Mahrt, director of public affairs for the Western Region for the American Insurance Association (AIA), said that the industry and employers do not feel like they have been able to get their feelings on the subject heard at the negotiating table.

“Quite frankly, there are definitely election-year politics involved,” Mahrt commented. “I don’t think the interests of insurers are being taken in here. We continue to try and work with the governor’s office and labor. Election year politics for the governor is what is driving this. Labor is an integral part of a Democratic election for any candidate. We’re saying its being fast-tracked. Employers and insurers have expressly been denied access to the negotiating process and the labor and the trial guys are cutting their deal.”

According to Davis’ office, the subject of workers’ comp. is an issue the governor has invested a fair amount of time in to find a compromise that is pleasing to all involved.

“The legislature and the governor’s staff have been meeting for about nine weeks,” Steven Maviglio, press secretary for Davis, said. “There’s no deal—no breakthrough. There are a lot of points of agreement.”

Maviglio pointed out that some issues are still contentious, but the sides “are getting closer and making progress.”

Assemblyman Calderon, and Sen. John Burton have been working together to navigate the benefits increase through the Legislature. Both Calderon, who is Chair of the Assembly Committee on Insurance, and Burton have had ongoing meetings with the Governor’s office to develop a compromise that both labor and business groups could agree upon.

“This is a critical time in the negotiations,” Calderon stated in a press release earlier this month. We are poised to put an initiative on the ballot if we do not receive the cooperation from all parties to ensure workers receive the benefits they deserve.

“California is 49th in the nation in benefits provided to injured workers. California’s working men and women are the backbone of our economy,” Calderon continued. “We cannot continue to reap the benefits of a strong workforce, without also compensating for the needs of those workers who are injured in the course of doing their jobs.”

In Davis’ statement regarding his veto of SB 71, he stated, “Since there is a general agreement about the need to increase benefits for injured workers, I believe that if we work together, the legislature, my staff and the interested parties can craft a comprehensive bill…before the 2002 legislative session begins.”

Mahrt pointed out that the workers’ comp package being put together presently is a measure that was basically parked over on the Assembly Floor and amended Jan. 14. Calderon, Burton and the trial lawyers have been meeting with the governor to put together a deal on workers’ comp,” she said. “They amended SB 1156 and made that the vehicle and it is basically a compilation of the two bills that were debated and went to the governor last year that he vetoed— SB 71 and AB 1136. Unfortunately, despite efforts to get some good cost-saving in there, [the insurance industry has] not been able to sit at the table. That’s our big concern right now.”

As reported in the Aug. 27, 2001 Insurance Journal, according to a Senate floor analysis, SB 71 “expresses the intent of the Legislature to meaningfully increase temporary disability indemnity, permanent total disability indemnity, permanent partial disability indemnity, life pension, and death benefits for all injured workers and their dependents. The bill also provides unspecified minimum and maximum benefit amounts for injuries occurring on or after an unspecified time for temporary and total permanent disability, permanent partial disability, life pension benefits and death benefits.”

Mahrt indicated at the time that the big question regarding SB 71, and the effort to get a workers’ comp bill in last year, centered on whether labor, the trial lawyers, employers and insurers would be able to agree to a package of reforms that will offset some of the costs of a benefit increase.

According to Mahrt, in 2000, the AIA spent the year trying to get a negotiation table together, and in the end, labor, the trial bar and Burton put what they wanted into the bill and moved it along to the governor. As of Jan. 17, 2002 according to Mahrt, the bill was three votes away from being on the governor’s desk. “They are definitely moving quickly here,” Mahrt offered.

Mahrt further noted that with workers’ comp, the impetus to do something and to take action doesn’t come along very often.

“When you’re talking about fixing the system, the opportunities don’t come along too often,” Mahrt commented. “You have to look at what Governor Davis said last year when he vetoed the bill. He said that he wanted to convene more negotiations. He wanted to see a bill that had four goals—this deal now only a few months later—nothing has really changed. The only goal that will be met by [SB 1156] will be providing significant benefit increase for injured workers. We think the other three are critical. We’re looking at passing a bill that does nothing to address the issue of implementing effective medical cost-containment measures. There are no objective standards for disability rating and medical costs as we’ve seen year after year in the last couple of years have continued to rise.”

Mahrt pointed out that the four proposed goals were:

• Providing significant benefit increase for injured workers.
• Promoting early and sustained return to work.
• Implementing effective medical costcontainment measures.
• Targeting benefit dollars to achieve the best outcome for injured workers.

If the bill passes, Mahrt stated it would go into law January 2003. “We [the industry] all see the same problem as being uncontrolled medical costs and lack of objectivity in the system,” she said.

John Norwood of Sacramento-based Norwood Associates said he also feels as if the insurance industry is being kept on the sidelines when it comes to negotiating a workers’ comp bill.

“Unfortunately those discussions are existing between legislators and legislative staff, labor and the administration,” Norwood commented. “Employers and insurers are not in the direct link. Lots of issues are being covered, but the main issue is still the level of benefits.”

According to Norwood, if the bill goes through, the fallout for the insurance industry is that prices are certainly going to go up. “That in and of itself isn’t a good thing,” Norwood said. “Agents are watching this matter very closely. To the extent prices go up, commissions go up maybe yes, maybe no. The adverse impact is on their clients. Yes, people have to have this, but if people shrink their operations or move, you lose that base.”

When asked if election-year politics have entered their way into the discussion, Norwood said definitely yes. “For Davis, it is a matter of a Democratic constituency. People predicted last year he’d have to move to the left to take care of his core constituency—certainly labor is that.”

Now, Davis and the legislature are looking to put a bill into place that works for everyone, including an insurance industry that remains skeptical at best.