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December 7, 2004 > Workers' Compensation Insurance Woes

Workers' Compensation Insurance Woes

by Ceri Hitchcock-Hodgson

A major part of Governor Arnold Schwarzenegger's campaign in 2003 was a promise to reform California's highly problematic workers compensation system. Once on the verge of collapse, California's workers' compensation system has undergone a dramatic overhaul. Spurred by public outcry that helped his election efforts, Governor Schwarzenegger worker's compensation reform was initiated through implementation of Senate Bill 899.

SB899, created by Senator Charles Poochigian (R-Fresno), was touted as the panacea for what is said to be one of the worst workers' compensation systems in the country. Insurance premium costs have been rising rapidly. Some increases, as much as 50% over the past few years, have forced many businesses to leave the state.

On April 19, 2004 Governor Schwarzenegger signed Senate Bill 899; legislation that provides for the complete overhaul of California's workers' compensation system. "Today I delivered on my promise to create real workers' compensation reform," the governor declared to his audience.

The State of California currently contends with the nation's highest insurance rates to employers for workplace injuries and some of its lowest benefits to workers. Although the governor delivered on his word to create an outline for reform, what parts of the bill have gone into effect so far?

A number of the provisions in the bill require the Division of Workers' Compensation to implement regulations as soon as possible. On November 1st of this year, the first genuine steps were taken.

SB899 calls for the sweeping reform of California's disability system, which some critics have said is wrought with subjectivity that leads to questionable and inconsistent disability ratings. The bill implements medical provider networks (MPNs) and defines various levels of injury, the amount of disability assigned to an injury.

An MPN is a group of providers set up by an insurer or self-insured employer and approved by the Department of Workers' Compensation administrative director to treat workers injured on the job. MPNs are expected to be an important tool to manage medical costs in the workers' compensation system while still ensuring quality of care and choice to workers injured on the job. Employees will be allowed a choice of provider(s) within the network and the opportunity for a second and third opinion if the employee disagrees with the diagnosis or treatment offered. MPNs will help bring the widely accepted principles of managed care, similar to HMOs (Health Maintenance Organization) and PPOs (Preferred Provider Organization), to the workers' compensation system.

When will employers see the effects of reform?
Premiums are determined by class of employee (clerical employees generally cost less than construction employees, for example) as well as by regional benefit levels. Premiums are based on a "per one hundred dollars of wages" premise. For example, a restaurant owner pays about $8.50 for every $100 of wages paid per employee while a manufacturer could find they pay upwards of $15 per every $100.

"I haven't seen any evidence of it on my bill yet," said Mission Pizza owner, Phil Willis when asked about newly implemented worker's compensation reforms.
It will take a few more years until employers see evidence of workers' compensation reform reflected in their bills. According to the State of California Worker's Compensation website (, employers will not see any significant rate relief until 2008.

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