Garamendi: New Comp Changes Can Save Billions

By Caroline McDonald

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

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

"If the goal is $11 billion and we have $5.5 billion in hand with the cleanup legislation, we're halfway there," Mr. Garamendi said.

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

Addressing workers' compensation fraud problems, he said the system itself leads to ambiguities, inconsistencies and abuse. "We need to tighten it up" to eliminate abuse."

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

"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 felony when it is a very serious question of misreporting."

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

Mr. Garamendi said language in the penalty schedule from last year needs to be put in place because small errors can lead to huge penalties.

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

On temporary disability, he said people are out of work longer, even though they are getting more medical care. "Something doesn't calculate here."

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

Those who are truly injured persons deserve to get medical care immediately, he said, so that "you can then reduce the need for lawyering."

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

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

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

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

Mr. Garamendi said to get cleanup legislation done now, "don't get caught up in all the complicated and controversial policy issues; just clean up what you did last year," he advised.

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

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

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

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Garamendi: New Comp Changes Can Save Billions

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