Garamendi's WC Plan, No Timetable Yet

Based on the recommendations from two stakeholder advisory panels, Mr. Garamendi announced seven areas for immediate focus. That pronouncement was immediately applauded by the American Insurance Association in Washington, D.C. However, a workers' compensation study group said he had not addressed a key cost issue.

Mr. Garamendi said the areas of the system that need work are improved financial oversight; medical cost containment; consistency in determining the level of permanent disability; improved coordination and communication with state agencies regulating the system; continued aggressive fraud interdiction; creation of a 24-hour medical care system merging health insurance with workers' comp medical care; and development of professional training and quality standards for service decision makers.

Mr. Williams said when the time is appropriate, Mr. Garamendi will announce what he plans to do with suggestions made by the panels.

One possibility is that legislation could be introduced as a result of the panels' findings, Mr. Williams said. "At this point, he's still reviewing it and he's going to use it to make decisions like that. That will be part of his decision making process."

AIA said Mr. Garamendi has correctly identified many of the serious problems plaguing the state's workers' comp system and the critical solutions vital to improving the marketplace.

AIA also applauded the commissioner's decision not to appeal the Board of Equalization's (BOE) ruling overturning the effort of the California Department of Insurance to retroactively tax workers' comp deductible policies.

"We are encouraged that Commissioner Garamendi is using the bully pulpit of his statewide office to advocate and promote the need for changes and reforms to California's struggling workers' compensation system," said Jeanne Cain, AIA vice president, Western Region. "Many of the commissioner's ideas are consistent with reforms insurers have long been advocating.

"We strongly agree with his recommendations to control skyrocketing medical costs, reduce litigation and bring consistency to the permanent disability rating determination process."

She added that systemic reforms are critical in order to restore profitability and attract new capital to California's workers' comp market. "Right now insurers are losing 20 cents on every dollar they collect in premiums," she said.

However, she noted, "While we support many of Commissioner Garamendi's recommendations, some of his ideas, such as creation of a 24-hour medical care system, have proved unsuccessful in other states."

She said the NAIC reviewed "many similar projects attempted in the mid-1990s and found that they all failed. We look forward to working with the commissioner, the legislature and all parties committed to reforming California's ailing workers' compensation system."

Eric J. Oxfeld, president of the National Foundation for Unemployment Compensation & Workers' Compensation in Washington, D.C., issued a statement saying that, "Business and insurance professionals concerned with workers' compensation in California have long advocated changes to help contain medical costs, bring greater objectivity and predictability to the calculation of benefits for permanent partial disability, and streamline system administration and dispute resolution.

"We applaud Commissioner Garamendi for recognizing these critical needs. But conspicuously missing is any reference to the costly benefit increase California enacted last year, expected to add $4 billion or more to the annual cost of California comp, which did not include any significant reforms to control costs.

Mr. Garamendi said that medical costs, indemnity, litigation and other service expenses are "out of control and draining a workers' comp system that is destined to crash if we don't meet the issues head on and make some tough choices."

He added that California has the highest premium costs in the nation. However, "benefits for injured workers remain in the lower third of all states. That is the definition of a broken system."

He said the department's task is to reverse the trend so that California has lower costs, while providing adequate benefits.

"Only a complete restructuring of this complicated, litigious, fraud-infested, grossly inefficient and ineffective system can achieve this goal," Mr. Garamendi said. "Premium rates will only come down when the legislature and the governor approve fundamental restructuring and reform."

Mr. Garamendi convened the panels before taking office in January. One group is composed of diverse membership from small business, employers, physicians, employees, applicant attorneys, defense attorneys and other parties with a "compelling interest in the system." The second includes insurance industry representatives, according to the California Department of Insurance.

"There is remarkable consensus from both groups on the need to address this situation," said Nick Roxborough, a partner with Roxborough, Pomerance and Nyle LLP, who led the non-insurance industry advisory panel.

Gary Hernandez, attorney with Sonnenschein Nath and Rosenthal, led the insurance industry group. "By getting us involved before taking office, Commissioner Garamendi demonstrated that he recognizes the urgency of this problem," Mr. Hernandez said. "The resulting dialogue will lead to definitive and constructive resolutions."