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Workers' Comp Crisis Worsens Workers' comp costs have been rising nationwide, fueled by spiraling medical expenses. But by nearly every measure, California's system is the costliest, most cumbersome and closest to meltdown in the U.S., according to industry studies and experts. • California employers pay the highest premiums in the nation, an average of $5.23 for each $100 of payroll, according to research by the Oregon Department of Consumer and Business Services. Runner-up Florida was $4.50, while 40 states average less than $3. Yet weekly benefits to injured California workers rank in the bottom third of all states, in part because a large chunk of dollars in the system is being squandered inside a vast network of middlemen, as well as being lost to fraud and abuse. • Since the mid-1990s, the average medical costs on California's workers' comp claims have risen about four times faster than the rate of general medical inflation, according to the Workers' Compensation Insurance Rating Bureau of California. Injured workers take longer to return to work in California than in most other states — some say because of cheating, others blame bureaucratic delays — and they are much more likely to use a lawyer to help them navigate the system. In 2002, the average projected medical cost for claims involving time off from work reached $31,120, more than double what it was five years ago. • Overall, workers' comp insurers in California last year paid out $1.23 in losses and expenses for every dollar they received in premiums, the eighth consecutive year that the payout has exceeded premium revenue, according to the state rating bureau. So many private insurers have gone belly up or stopped writing policies in California that the state has been forced to pick up the pieces. The semipublic California Insurance Guarantee Assn., which pays workers' comp obligations when carriers become insolvent, is so overwhelmed with claims that it recently required an emergency bailout to keep money flowing to injured workers. Meanwhile, the State Compensation Insurance Fund, a public, nonprofit workers' comp insurer that by law cannot turn any California company away, now controls more than half the market. The fund hasn't been able to grow its capital fast enough to keep up with this torrent of new business, heightening the risk that it won't be able to pay all future claims. "The state fund is very sick and getting worse," said California Insurance Commissioner John Garamendi. "The entire system is broken." It all has a familiar ring. In the early 1990s, California's workers' comp program was similarly convulsed by soaring premiums, spiraling costs, a lousy economy and rising employer anger. Then-Gov. Pete Wilson spearheaded an effort to overhaul the system. The state made it tougher for employees to win benefits for job-related stress and limited claims made after a worker was fired or laid off. It also beefed up antifraud efforts and curtailed the costly process of "dueling docs" in which workers and employers shopped for medical experts to support their claims. But the biggest change was deregulation. For the first time, insurers were allowed to charge virtually any rate they chose. Premiums plunged as carriers competed aggressively for market share.
For delighted employers, it appeared that the reforms had worked. But experts say falling prices masked the underlying weaknesses that remained in the system as medical costs continued to climb, new abuses emerged and industry losses mounted. The premium party ended abruptly in 2000. Wounded insurers folded their tents. Skittish survivors jacked up rates and tightened underwriting standards. Employers
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