Garamendi: New Comp Changes Can Save Billions

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By Caroline McDonald

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NU Online News Service, Nov. 20, 3:55 p.m.EST?California Insurance Commissioner John Garamendi, at ahearing in the state capital yesterday, told legislators thatadditional reforms to the state's workers' compensation systemcould save employers additional billions of dollars.

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He encouraged members of the Assembly Insurance Committee totake their time on writing new workers' compensation legislationand to get it right.

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"If the goal is $11 billion and we have $5.5 billion in handwith the cleanup legislation, we're halfway there," Mr. Garamendisaid.

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To chieve the goal, he said the permanent disability systemneeds attention. A study by the Commission on Health & Safety& Workers' Compensation of the Rand Corporation will provide astarting point, he said.

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Addressing workers' compensation fraud problems, he said thesystem itself leads to ambiguities, inconsistencies and abuse. "Weneed to tighten it up" to eliminate abuse."

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Further, he noted, there needs to be a "wobbler" or pivot pointput into place to punish employers seriously cheating the systemwith phony data. Presently, he said, "misreporting" is amisdemeanor, while not buying insurance at all is a felony.

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"Is there a difference? Not really in the extent of the crime.There ought to be a wobbler put in place that allows for a felonywhen it is a very serious question of misreporting."

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He urged the committee to include a medical fee schedule."There'll be squeals, but let the howling occur," he said. "Getthat foundation in place."

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Mr. Garamendi said language in the penalty schedule from lastyear needs to be put in place because small errors can lead to hugepenalties.

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On return to work, he said, the single biggest run-up in costover the last decade has been on the medical side. Before 1995 thiswas 40 percent, but now medical costs are about 60 percent of thetotal costs.

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On temporary disability, he said people are out of work longer,even though they are getting more medical care. "Something doesn'tcalculate here."

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Right now there is "a serious incentive not to go back to workfor the employee as well as for the lawyer involved," he said."There need to be incentives for the employee to return to work andfor the employer to take the worker back."

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Those who are truly injured persons deserve to get medical careimmediately, he said, so that "you can then reduce the need forlawyering."

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Most importantly, he noted, the committee needs to take its timeto get the legislation right.

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"You have literally until the end of March to make an effect onemployers in the state of California," he said. "The reason is thattwice a year the pure premium cost of claims is calculated by theWorkers' Compensation Insurance Review Board and by me."

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He added that the timing is such that "if you complete thelegislation by the end of March, it can then be calculated into therates that go into effect on July 1, 2004."

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Though it would be even better to have it earlier, he said, "youmust take enough time to do it correctly. This is complex stuff;it's very easy to do it wrong."

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Mr. Garamendi said to get cleanup legislation done now, "don'tget caught up in all the complicated and controversial policyissues; just clean up what you did last year," he advised.

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Eight years ago, he said, the total cost of workers' comp toevery employer was $9 billion. This year, he said, "it is in the$30 billion range?no different than a $20 billion taxincrease."

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Last session the Legislature did a "major piece of work," hesaid. "I calculate the savings in that legislation at some $5.5billion going forward," he said, "And another $5 billion inone-time savings."

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The first order of business of the current special session ofthe legislature, he said, should be to "nail down those savings."This can be done by cleaning up errors and ambiguities, and shouldbe done within the next few weeks. "I recommend that that be donein as noncontroversial a way as possible."

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