How to Spot Real Workers' Comp Reform: Lawyers Hate It

by Jack Stewart
March 1, 2004
Having succeeded in his campaign for voter approval of the debt relief bond measure, Governor Schwarzenegger can now turn his attention to overhauling California's broken workers' compensation system.

A recent poll shows that two key facts are in play: Seventy-seven percent of California voters support the specific provisions of the Governor's plan, even after hearing arguments for and against it. Second, voters understand that the biggest problem confronting California's economic health is the workers' compensation system.

The Legislature should have acted by March 1 to pass meaningful reform. But the resistance from certain special interests has been fierce, and none is squawking more loudly about Schwarzenegger's reform plan than the attorneys who specialize in representing workers and thrive off of the subjectivity and unpredictability in California's system.

Because the fees paid to applicant attorneys depend on whether the injured worker receives a permanent disability award, it should come as no surprise that lawyers get involved in three out of every four permanent disability claims. This is what drives litigation and other costs in a supposedly "no fault" system. In fact, cash and medical payments for permanent disability constitute 82 percent of total benefit costs in California's system.

Litigation also is the target of Governor Schwarzenegger's reform plan.

Among other things, the Governor's plan will require the use of objective medical findings to determine the nature and extent of a claimed work injury, require the use of independent medical review panels to head off litigation and prohibit compensation for injuries that are not primarily work-related.

These reforms will weed out unjustified claims by people who are trying to game the system. That, in turn, will reduce litigation.

And that explains this characterization of Schwarzenegger's proposal by the California Applicant Attorneys Association:

``The governor's workers' compensation proposal is hurtful, mean-spirited, and will produce cruel results.''

So far, the only "reforms" suggested by the attorneys are to impose more regulations on insurance rates, a half-baked idea that would do more harm than good, and add more administrative costs to the system.

As system costs and litigation have increased in recent years, about two dozen workers' compensation insurers have gone out of business and others have reduced or stopped offering this line of insurance in the state. This has driven more than half of all employers to the "insurer of last resort," the quasi-public State Compensation Insurance Fund, a nonprofit entity that has also been forced to increase rates dramatically. Insurance Commissioner Garamendi has correctly warned against adopting a regulatory scheme that undermines the ability of workers' compensation insurers to return to California profitably, which would restore stability to the system and reduce over-reliance on the State Fund.

In addition, the attorneys' rate regulation proposal would do absolutely nothing for the many large companies, nonprofits and government agencies that are self-insured. Their workers' compensation costs increased 173 percent 1997 to 2002 - a true reflection of the fact that the workers' compensation crisis is being driven by too many lawyers pushing too many inflated or bogus disability claims.

Manufacturers - large and small alike - support Governor Schwarzenegger's plan because it goes right to the heart of the problem. Unless action is taken to approve the Governor's plan, more businesses will be forced to shut down or relocate out of California, and many more jobs will be lost.

The Legislature still has time to do the right thing for California's economy by passing the Schwarzenegger workers' compensation plan.

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