A national insurance advocacy organization reported that California’s workers’ compensation system is more reliable after major reform efforts, but some employers and insurance agents worry that the system may be in trouble again if rates fall too far. The American Insurance Institute reported that the reforms have put $8 billion back into the state’s economy by allowing insurers to lower their rates almost in half. “California’s workers’ compensation system is stable, predictable and competitive. Significant cost savings have enabled insurers to lower rates by 46 percent, on average. Insurance Commissioner John Garamendi will consider yet another double-digit decrease at the end of (April),” said Ken Gibson, AIA vice president, western region. Gibson added that other states are considering California as a model for the reform of workers compensation systems across the country, which are dealing with increasing medical and benefits costs. Nicole Mahrt, spokeswoman for the AIA in Sacramento, said that many insurers simply could not afford to be in the workers comp business. “It was just an honest to God disaster,” said Mahrt. “In 1999 and 2000 insurance companies were paying out $1.82 for every dollar they were taking in.” Setting limits The reforms changed the system, making sure that patients could not see an unlimited number of doctors in order to get a wide variety of diagnoses, and put limits on things like the number of chiropractic visits and financial settlements. Those parameters, Mahrt said, make it easier for insurance companies to know how much they’ll have to pay out in workers compensation benefit and charge premiums accordingly. “If we have a stable and predictable environment, we can predict how much this product is going to cost, and we can say ‘pay us this much, and we can cover our costs,'” Mahrt said. “I think (the reforms) have given insurers much more confidence that the system is not going to make them pay out $1.82 for every dollar they take in.” But not every business buying workers comp insurance has been relieved of the workers comp burden, however. Michael Pocrass, chief financial officer of Chocolates a la Carte in Valencia, said the company did not see much of a drop off in rates, although he is expecting a slight decrease this year, and they’ll have to fall much farther to erase the gains over the last few years. A study published by the California Workers’ Compensation Institute detailed the results of the reform bills’ efforts to contain medical costs. Average outpatients surgery facility fee payments fell 38.9 percent from 2001 levels after the implementation of the fee schedule in 2004. The legislation also reduced the fee schedule allowances for physician services and pharmacy fee schedules by 4.1 percent and 9.6 percent, respectively. Jeffrey Lang, senior vice president and sales manager of Accordia of California Insurance Services Inc. said that the reforms have translated into financial benefits for employers. “Since the reforms have come in place, we’ve seen a lot of really good rate reductions for employers, it’s really benefited everybody,” Lang said. Entering market Over the past couple of years, more than two dozen companies have either entered the California market or expanded their presence here. Those companies include insurance industry giants like AIG, Fireman’s Fund, Redwood Fire & Casualty, part of the Berkshire Hathaway group, and many others. Two insurance companies have also set up shop in California, San Francisco-based CompWest and Employers Direct Insurance Company in Agoura Hills. Jim Little, founder and chief executive officer of Employers Direct, has said that his company, which has only been in business for a few years, is able to offer low rates partly because it does not have years of financial liability like other companies that offer workers compensation in California. Employers Direct has more than $150 million in workers’ compensation premiums at the end of 2005, and has cut it rates almost in half since opening in 2003. The company is a direct writer of worker’s compensation policies. CompWest also reports that it was created specifically to operate in the post-reform era, and has written over $50 million in premiums as of the last part of 2005. Its rate reductions for last year were close to 30 percent. Bert Seneca, general manager of Beverly Garland’s Holiday Inn in North Hollywood said that rates for his business have fallen overall since the reform efforts. His hotel became an Employers Direct customer because it preferred to not go through a broker and wanted to work with a company that processed its own claims. Seneca said that as long as the reforms stay in place, he’ll feel more confident about the hotel’s coverage as long as the state legislature doesn’t roll back the reform measures. “If they want to roll back some of the reform measures, that could be detrimental to a lot of employers,” said Seneca. Lang worries, however, that companies may be dropping their rates too far, and could be setting themselves up for more financial trouble. Although market fluctuations are typical, he said, moving too much from one end to the other could set California up for another financial disaster. “If the state could work in conjunction with the insurance companies, agents and brokers, we could all come to a central meeting place that makes everyone happy,” Lang said. “I’d say that probably where we were six months ago is where we need to be.”
