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Workers' compensation
insurance companies are sending policy renewals to customers
across the state this month. By and large, the message is good
news for employers. After years of punishing increases, premiums
are finally coming down.
Despite these
positive developments, opponents are working tirelessly to
rollback the reforms. If successful, their efforts could
undermine years of progress and severely damage California's
recovering market.
Responding to
skyrocketing workers' comp costs, the
Legislature passed a
series of reforms beginning with AB 227 and SB 228, signed by
former Governor Gray Davis days before the 2003 recall. Governor
Arnold Schwarzenegger then led the effort for a sweeping
workers' comp overhaul, SB 899, which comprehensively reformed
the system. The bill passed with only six "No" votes in the
120-member Legislature, and was signed in April 2004.
Detractors railed
against SB 899 because it did not include price controls that
would force insurance companies to lower premiums. Government
rate regulation, they argued, was the only way that any savings
generated would be passed on to employers. This reveals a lack
of understanding of how markets work.
In a free market,
sellers keep their costs in line if they want to stay
competitive. Recent workers' comp trends prove that this market
approach is working. Average rates fell 16 percent from the
fourth quarter of 2003 to the third quarter of 2004. Premiums
should fall another 15 percent in the second half of 2005.
Despite this 31-percent decline, opponents won't let facts get
in their way.
In spite of
overwhelming evidence from insured private businesses, public
agencies, self-insured companies and others, opponents argue
that the reforms are not benefiting California employers. They
are sounding a drumbeat for yet another round of rate regulation
legislation.
A bill to cap
workers' comp premiums was introduced in the Legislature once
again this year. Not only would the bill do nothing to help
self-insured employers (about 20 percent of California
businesses), it also sends the wrong signal to insurance
carriers who are contemplating a return to California. The
measure was defeated this session, though proponents have vowed
to bring it back.
New guidelines have
brought California's standards closer in line with those used by
the rest of the nation and are helping to restore competition.
In the past eight months, numerous carriers have started writing
new workers' comp policies here, and many others are waiting for
licenses to enter the market.
Price controls would
thwart the influx of new carriers seeking to enter the Golden
State. Only six states impose price controls on workers' comp
because most states have learned that they do not help consumers
in the long term. Another development that doesn't help is the
spate of lawsuits attacking the reforms.
Opponents have filed
lawsuits to invalidate the new medical provider networks,
apportionment guidelines, and the new permanent disability
rating schedule - some of the most significant cost saving
reforms. If left intact, these provisions are projected to cut
premiums up to $1 billion annually.
Interests that
benefited greatly under the old system, at the expense of
injured workers and employers, are seeking to derail these
reforms, which threaten their pocketbooks. If detractors of
reform were to be successful on all fronts, California
businesses could see recent cost reduction trends reversed and
experience skyrocketing costs once again.
Fortunately, Governor
Schwarzenegger has shown no inclination to rollback workers'
compensation reforms or regulate rates. Lawmakers must continue
to monitor developments in the system to guard against
unintended consequences and make sure that reforms are
benefiting those whom the system is designed to protect -
employers and truly injured workers. The good news is that
absent court action weakening reforms, employers should continue
to experience relief, and employees should benefit from a more
streamlined and predictable system.
Legislators with a
philosophical distrust of market forces should rethink their
dated views. Real market competition works. As workers'
compensation reforms have been implemented, many employers have
experienced dramatically lowered rates.
State actuaries would
have recommended substantial increases if not for the reforms.
Instead, employers are expected to enjoy a 31 percent rate cut
by the end of 2005, freeing money for new hires and better
employee benefits. To avert a return to the days of a fully
dysfunctional workers' compensation market in California,
lawmakers must reject price controls and let recent reforms
continue to improve our business climate.
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