California OKs change in workers' comp law

SAN FRANCISCO — California lawmakers approved an overhaul of the state workers' compensation system, allowing Gov. Arnold Schwarzenegger to fulfill a campaign promise and saving as much as $7 billion for companies such as Costco Wholesale.

The bill cuts costs by mandating that doctors from a pool hired by companies must declare whether a worker is eligible. The new law seeks to fix a system with benefits that rank in the lowest third among U.S. states while employers pay the nation's highest premiums.

Workers' compensation insurance "has been a poison on our economy," Schwarzenegger told reporters in the Capitol.

Schwarzenegger pushed legislators to compromise by running a petition drive for a workers' compensation measure on the Nov. 2 ballot.

Costco used its California stores as a magnet for petition-signers, and Schwarzenegger visited stores in Sacramento and Burbank, Calif., this week to create fanfare for the drive. Costco accounted for more than 18 percent of the 800,000 signatures gathered before state lawmakers acted.

Labor leaders complained about Costco's petition activities, and Costco officials later admitted the signature gathering was against company policy and offered similar time to petition opponents at the Burbank store.

Costco argued the old workers' comp law cost its California stores $60 million a year, according to Bruce Greenwood, senior vice president for the company's Greater Los Angeles region. While 40 percent of Costco employees work in California, the state accounts for 70 percent of Costco's total workers' comp costs.

In the second quarter of 2003, the retailer had to take an after-tax charge of $16 million, or 3 cents a share, to boost its workers' compensation reserves, largely to help cover rising claim costs in California.

Under the new law, companies that pay into their own internal workers' compensation program, known as self-insurance, may see some savings immediately. The overhaul of the 91-year-old system doesn't include any regulation capping premiums charged by insurance underwriters.

The system, which treats 800,000 workers annually and had $18 billion in claims last year, would save as much as $7 billion annually, according to state Assembly Democrats' estimates.

The Assembly passed the bill 77-3 with the state Senate following it by a vote of 33-3, both above the two-thirds majority that allows it to become effective immediately after Schwarzenegger signs it, according to California law.

California, home to almost one-sixth of the companies in the Standard & Poor's 500 Index, was being battered by insurance costs driving employers elsewhere, Schwarzenegger complained during the campaign.

The new law reduces penalties on insurance underwriters, lowers the amount paid to workers if they have a pre-existing condition, narrows the definition of permanent disability and creates incentives for employees to return to work.

Some workers' compensation lawyers said the bill placates big business and insurers at the expense of injured employees who will have worse medical care and fewer options. Trial lawyers groups argued that the state should cap insurance rates.

"It's using this political clout without any real understanding of what the real problems are to create an artificial reduction in rates by taking away the rights of injured workers," said San Jose lawyer Bruce Sutherland. "The so-called savings, which are not guaranteed, are the inability of injured workers to get to doctors for care, who will be interested in providing that care, instead of just company doctors."

California's premiums soared to the highest in the United States over the past three years. In early 2003, California's workers' compensation cost per $100 of payroll was $5.85 while the national average was $2.46.

Even though premiums rose fast, costs rose faster, driving at least 18 private insurers to stop writing new business since 2000. That left the State Compensation Insurance Fund as the largest underwriter with control of more than half the market.

Since 2000, 12 insurers in all have either been put under conservators or liquidated.