The two biggest players in California's workers' compensation system — labor unions and large employers — are quietly crafting the biggest overhaul of the mandatory insurance program in a decade. The goal: provide more care to injured workers without raising premiums for businesses.
The negotiations are focused on squeezing waste from California's $15-billion system, which, while huge, often delays or denies compensation and medical care that could get injured workers back on the job.
Average compensation paid to California workers in cases of permanent partial disability was $12,000 last year. That's down more than half from $25,000 in 2004, according to the UC Berkeley Survey and Research Center.
The lower payouts are a result of laws approved by the Legislature in 2003 and 2004 aimed at reining in skyrocketing employer premiums. The changes provided relief to employers, who saw their premiums decline by about 60%. Insurers benefited with higher profits because they paid fewer and smaller claims.
But the changes have been tough on California's injured workers, experts said. Workers can spend years wresting settlements from workers' compensation courts while remaining too crippled to return to their old jobs.
"The disputes go on indefinitely. There are too many conflicting opinions," said Sean McNally, a vice president of Grimmway Farms of Kern County, the country's largest organic vegetable grower. His company, best known for its baby carrots, led the fight for workers' comp reform last time around.
Now, consensus is forming that it's time for the workers' comp pendulum to swing back toward the victims that the system originally was set up to assist. The administration of Gov. Jerry Brown is hoping to broaden support for the changes by holding public forums up and down the state this month.
"It seems perfectly clear to the participants in this system that the permanently disabled worker is not being adequately compensated," said Martin Morgenstern, a top advisor to Brown and secretary of the California Labor and Workforce Development Agency. "We have a serious problem, and it needs to be fixed, and fixing it isn't going to be cheap."
But the Brown administration concedes that it could be counterproductive to raise the cost to employers at a time when California is battling double-digit unemployment.
"We cannot raise premium costs to employers at this time," Morgenstern testified at a recent legislative informational hearing. Money to boost disability benefits can be found within the workers' comp system, he said.
An analysis of potential savings prepared in 2009 by workers' comp experts in the administration of then-Gov. Arnold Schwarzenegger identified $793 million to $1.5 billion a year in potential savings.
The biggest savings could come by simplifying the criteria for calculating permanent disability compensation for injured workers, the 2009 report said. Other economies would come by tying fees for outpatient surgeries to the lower-cost state and federal Medi-Cal system and by cutting into a backlog of more than half a million outstanding medical bills that have been piling up in the Los Angeles workers' compensation courts.
An updated version of the confidential analysis is being used as a template in the early stages of the workers' comp overhaul negotiations.
Getting an agreement to strip "inefficiencies and frictions" from the system depends on everyone in the workers' comp system "taking a haircut" by giving up some of their legal rights and privileges, said Angie Wei, the chief lobbyist for the California Labor Federation and the chairwoman of a state government research bureau, the Commission on Health, Safety and Workers' Compensation. That includes injured workers, employers, doctors, hospitals and insurance companies, she said.
"There are too many lawyers in the system," said McNally of Grimmway Farms. "We need to come up with one that's more administrative, more predictable, more affordable, puts more money in the hands of injured workers and brings down the cost to employers."
McNally's call for streamlining comes as costs to insurers are starting to creep up again after plummeting from historical highs. Average insurance rates fell to $2.16 per $100 of payroll in 2008 from $6.29 in 2003, according to an industry statistical service, the Workers' Compensation Insurance Rating Bureau. Since then, they've climbed to $2.37 per $100 of payroll.
At the same time, insurance companies report that they are spending more on claims, claims processing and general expenses than they are receiving in premiums paid by employers. In 2010, they spent $1.16 for every premium dollar, compared with 73 cents in payouts for each $1 in premiums in 2005.
"Medical costs specifically are on the rise," said Mark Sektnan, president of the Assn. of California Insurance Companies, a trade group. Any move to boost benefits for injured workers, he warned, needs to be offset "with reforms that will control costs and maintain predictability."
Insurers, during upcoming negotiations, will press to tighten fee schedules on doctors and other medical providers and to speed up medical treatment so that workers get the care they need without undue suffering, said Mark Webb, the vice president of Pacific Compensation Insurance Co. in Agoura Hills.
"If we have adequate benefits from the get-go, the idea will be that there will be less pressure on the injured worker to maximize their award," he said.
Finding enough waste to improve the lives of injured workers shouldn't be overly tough, said Jesse Ceniceros, president of Voters Injured at Work, an advocacy group. Ceniceros, a former Lockheed Marietta hydraulic mechanic, settled a claim in 2010 for injuries he suffered in 1999 to his hips and knees. He received half as much money as he would have gotten under the pre-2004 permanent disability requirement.
"Workers' compensation is a $14.8-billion system. It's a lot of money," he said. "The injured worker isn't benefiting from that."