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COMP INCREASE SOUGHT

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SACRAMENTO, Calif. -- Bolstered by new research on California's workers compensation system, labor representatives and claimant attorneys are planning to renew lobbying for legislation that would increase workers comp benefits.

Proponents of the legislation contend that billions of dollars in savings that payers have realized in the wake of 1993 workers comp reforms should be shared with employees in the form of higher benefits. Their lobbying on this issue led both chambers of the state Legislature this year to pass identical bills calling for increased workers comp benefits.

The workers comp bills are in policy committees in each chamber and can be taken up again in the next session, which begins in January.

Proponents of the measures are more confident of their chances of winning increases in permanent partial, permanent total and temporary disability benefits because of a report released last month by the Rand Corp.'s Institute for Civil Justice.

Among the Rand study's findings is that in the first five years after reporting permanent disability injuries, employees on average lose 40% of their wages but receive only 33% of those losses back in benefits (BI, Nov. 24).

Rand was hired by California's Commission on Health and Safety and Workers Compensation to evaluate the PPD component of workers compensation. The commission was created as part of the state's 1993 workers comp reforms to evaluate the PPD system and oversee workers comp changes.

"We now have this Rand study that makes it very clear that people who are getting disability benefits are grossly undercompensated, so we have a little more ammunition from a source that might be considered less biased," said Tom Rankin, president of the California Labor Federation AFL-CIO in Sacramento. "I'm sure a benefit bill will be placed on the governor's desk sometime during the year. What form it will finally take, I'm not sure."

Joseph Markey, president of the California Self-Insurers Assn. in Sacramento, said he also expects legislation to increase workers comp benefits, in some form, will land on Gov. Pete Wilson's desk.

The CSIA and employer associations fear their costs will increase excessively if lawmakers heed the arguments of labor and employee attorneys.

Self-insured employers, in particular, would be harmed, Mr. Markey said. Much of the savings that benefit-increase proponents cite in their call for higher benefits comes from insurance premium reductions that have resulted from a competitive insurance market and the introduction of open rating, he explained.

"We certainly would be complaining if somebody said self-insurers should pay increased benefits based upon the savings incurred by the insured community," he added.

Members of his organization benefited slightly from the 1993 reforms because the legislation reduced benefits for such things as vocational rehabilitation and psychological claims, Mr. Markey said.

But they also increased benefit payouts in an amount roughly equal to 50% of the $1.5 billion in savings expected from the reforms at the time they were passed, he said.

Therefore, members' costs have remained relatively constant, increasing about 1% to 2% per year, Mr. Markey estimated.

Other employers have experienced even greater cost increases, particularly large, self-insured companies with high-wage earners.

Theresa Muir, manager of the workers compensation division of Southern California Edison Co., said Edison's average incurred cost per claim has risen each year and nearly doubled from 1993 to 1996, rising to $10,138 from $5,665 in that period.

Increases in medical payments account for a portion of that, but most of it has been driven by "sharp increases" in indemnity associated with permanent disability and temporary disability claims, she said, adding that those increases are typical for large employers with high wage earners.

But attorneys and labor representatives argue that since the workers comp reforms in 1993, employers have saved billions of dollars and that those savings should be shared with injured employees.

Proponents of increasing benefits dispute some of the employer reports that their costs have increased in the wake of the reforms. They point out that in 1991, when claims costs in California peaked, employers were pouring about $9.8 billion -- including workers compensation premiums and claims payments -- into the system, an amount that has dropped since then to about $6.3 billion each year.

Therefore, employers have saved about $15 billion since 1991, and more of that should go to injured workers, said Frank D. Russo, president of the California Applicants Attorneys Assn., a professional association of lawyers who represent workers comp claimants. He points to the fact that claims frequency is down about 30% from a peak in 1991. Mr. Russo also said he doesn't believe insured employers could see a drop in costs, while self-insureds would not.

"Both insured employers and self-insured employers have had a tremendous drop in the amount they have had to pay in compensation since the 1993 reforms," he said. "Anybody who says they are not saving money, that just defies all logic. When insurance premiums plummet by a third, there is no reason to believe that other peoples' costs wouldn't go down by a similar amount."

Mr. Russo charged that employers are trying to renege on a promise made during the push for the 1993 reforms that half of all savings would go to injured employees. That pledge was never put into legislation, but it was contained in a press release issued by Gov. Wilson when he announced the signing of the reform legislation. Other than that, it was a gentlemen's agreement, Mr. Russo said.

The bills awaiting action in Sacramento, however, would make sharing of any cost savings law.

The bills state: "The Legislature finds and declares that employer savings have already exceeded the $1.5 billion originally estimated to result from reforms enacted through 1993. . .It is the intent of the Legislature to allocate equally between workers, in the form of benefit increases, and employers, in the form of reduced workers' compensation expenses, all of the savings that resulted from workers compensation reform legislation."

The bills also would increase benefits for temporary disability by an indexed amount and provide a 15% across-the-board increase for all categories of permanent partial disabilities, according to a Senate Industrial Relations Committee spokesman.

The legislation would increase annual premium costs 4.6%, or $271 million, according to an analysis by the committee. Factoring in increased utilization due to higher benefits, the annual cost increase could rise to $366 million, according to the analysis.

The state does not track self-insured employers' costs, but the Senate committee analysis suggests that adding in self-insured costs would raise the amount by another 30% to 40%.

Employers say that a 30% reduction in claims frequency that proponents of the bills cite is misleading.

The number of claims has dropped, but not as sharply as has been said, they contend. Employers say that the current level of claims is being improperly compared with peak years that were influenced by a recession when many employees likely filed claims as a result of job losses.

In addition, the reduction in claims frequency is also due to a crackdown on workers comp fraud launched before the reforms. Also, the reduction in overall claims has come from other factors, such as a drop in the number of employees at some companies.

For example, Edison has experienced a decline in claims frequency to 1,400 in 1996 from 2,113 in 1993. But in 1992, the company had 20,000 employees, and today it has about 13,500, Ms. Muir said.

Employer representatives point out that attorneys representing employees in workers comp cases earn most of their income by billing 12% to 15% of the amount paid out in permanent partial disability benefits to applicants. Therefore, employers argue, they have a vested interest in raising these benefits.

Both sides, however, agree that some form of benefit-increase legislation will pass through the Legislature because Democrats control both chambers. But compromises are likely before anything is signed into law, because Republican Gov. Wilson would probably veto some aspects of the two existing bills.

One provision likely to be struck would award death benefits to be paid to a worker's surviving spouse for life in the same amount as temporary total disability indemnity would have been paid to the employee.

Employer groups are prepared to lobby against the bills when legislators reconvene.

"Using data from the Workers' Compensation Insurance Rating Bureau, the opposition's spin doctors have circulated their own version of just how much employers have saved," states a recent bulletin from the Sacramento-based Californians For Compensation Reform. "However, their calculation of the savings is inaccurate and speculative at best, and does not take into account that while claim frequency is down, the cost of each claim continues to rise dramatically."