Unexpected Revision of Workers’ Comp Costs a Big Surprise

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, March 12, 2004 Share this on FacebookTweet thisEmail this to a friend

On March 9th, the Workers’ Compensation Insurance Rating Bureau (WCIRB) unexpectedly revised the costs savings attributable to SB 228 (Alarcon) and AB 227 (Vargas), the principle workers’ compensation bills signed into law last year. The bills are now estimated to save $4.5 billion in costs.

According to the Bureau, the cost of benefits for 2004 is $17.9 billion or $7 billion less than the $24.9 billion predicted last year. But it appears that most of the "savings" are a fiction because they arise from a recalculation of the size of the self-insured market down from 30 percent to 20 percent of California's employees. Senior Vice President of the Bureau Dave Bellusci cautioned that the projections are preliminary and it's too soon to tell if the recalculation will result in another rate cut by insurers.

The warning from the Bureau did not deter Senate Labor and Industrial Relations Committee Chair Senator Richard Alarcon (D-Sun Valley) who announced that “the Bureau had just found $7 billion in savings.” Later he said “he plans to ask insurance companies to revisit their rates for 2004 and pass the savings to employers.”

Insurance Commissioner John Garamendi commented that the “new figures represent the same savings that he and other architects of last year's reform legislation have predicted.” He added that “last year, the reforms primarily addressed runaway medical costs and was just the first step. We must redouble our efforts to pass the second phase which tackles the irrational permanent disability rating system.”

On a different view, Assembly Speaker Fabian Nunez (D-Los Angeles) commented that “Since February, the Governor, leaders in the legislature and their staffs have been meeting on a regular basis to construct meaningful, lasting reform of the state's workers’ compensation system. We are making significant progress. It is encouraging to learn the reforms we passed last year are estimated to provide additional cost savings. We know there is more to be done. While others choose to grandstand, Democrats in the Assembly are committed to continuing the hard work of crafting responsible reform.”

“Make no mistake," he commented, "the voters approved of the bipartisan approach taken with getting Propositions 57 and 58 onto the March ballot. Voters want substance, not rhetoric. Assembly Democrats will continue to work with the Governor, we hope Republicans in the Assembly and Senate feel the same way.”

The Capitol is abuzz with inquiries about how the WCIRB overlooked $7 billion. The Bureau is expected to provide a full explanation of the problem by early next week.
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