May 17 2007

By Julius Young

Governor Schwarzenegger has recently promised to fix California’s healthcare, claiming that his 2004 reforms “fixed” the California workers' comp system. But recent developments in California workers’ comp reveal a system that remains broken. Like the declaration of victory in Iraq by President Bush on an aircraft carrier several years ago, Schwarzenegger’s claims that he “fixed comp”, despite constant repetition, are misleading.

Insurer profits now exceed workers’ benefits according to a study released on April 30, 2007 by an industry rate setting organization, the Workers Compensation Insurance Rating Bureau (WCIRB). Since enactment of Schwarzenegger’s SB 899 in 2004, insurer profits have totaled $27.7 billion and benefits to workers (including medical treatment, temporary disability payments and permanent disability benefits for diminished earning capacity) have totaled $19.8 billion. That’s right. In what is fundamentally a social program designed to care for injured and disabled workers, benefits paid out to workers and to their medical providers were less than insurer profits!

How much was paid to workers? WCIRB figures show that in 2004 out of total premiums of $23.6 billion, benefits paid to workers were $7.8 billion. In 2005, total premiums were $21.4 billion, but benefits paid to workers only $5.8 billion. By 2006 total premium had shrunk to $16.6 billion, but benefits to workers amounted to only $6.2 million.

Weekly benefits for permanently disabled workers in California are now 4th lowest in the nation.

Want some examples? The following are from a U.S. Chamber of Commerce comparative analysis of state workers’ comp laws. The national average award for loss of a leg at the hip is $114, 522. In California it is $61,435, 6th lowest in the nation. Loss of an eye? The national average award is $74,558. In California it’s $17,714, lowest in the nation. For loss of a foot the national average is $80,977. In California it’s $28,820. Loss of a thumb? California’s benefits are 7th lowest in the nation.

Many employers have benefited from lower workers’ comp premiums, but even with lower premium volume comp insurers have managed to maintain huge profits due to the fact benefits to workers have been reduced. Keep in mind that these figures do not factor in additional insurer profits from investment income.

A May 2007 decision by a San Francisco workers’ comp judge cast a cloud over Schwarzenegger claims that the comp system is “fixed” and a successful model for healthcare reform. In the case, Boughner vs. Comp USA, Judge Jacqueline Duncan issued a 51 page ruling, concluding that the new California rating system is invalid. Finding that SB 899 required that the new rating schedule be based on empirical data, Duncan gave failing marks to the Schwarzenegger administration staffers who designed the new disability rating schedule.

Meanwhile multiple studies, including one undertaken by CHSWC, the California Commission on Health, Safety and Workers’ Compensation, have shown that permanent disability income replacement benefits to disabled workers have been cut by over 50%. An administration study of the issue is being undertaken, but Schwarzenegger appears to be in no rush to address the issue.

Last year Schwarzenegger vetoed a benefits increase bill, SB 815, authored by Senate President pro Tem Don Perata. This year both Perata and Assembly Speaker Fabian Nunez are back with bills to address the issue.

But the elephant in the room may be insurer profits. Can there be benefits which adequately compensate disabled workers if insurer overhead and profits are well over one half of premiums paid by employers? How long can the Governor maintain that he fixed a system that pays out such pitiful benefits? Does the Governor have a plan to address adequacy of benefits? And when will the press begin to focus on the sad state of California’s workers’ comp system? A system that remains broken.

Starting in 1979, Julius Young has represented thousands of individuals who have sustained life-changing injuries or illnesses while on the job. His goal is to secure the medical treatment his clients need and the maximum benefits they are allowed so they and their families can survive potentially devastating injuries. A partner of Boxer & Gerson since 1988, he practices workers’ compensation and disability law in Oakland.