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Governor Schwarzenegger Hangs Tough on SB 899
The Workers' Comp Executive
April 19, 2006

During a media event to observe the two-year anniversary of workers' comp reform bill SB 899 Governor Arnold Schwarzenegger told a throng of reporters, "I'm delighted that two years ago we reformed the system." In a prepared a media statement the Governor said he "vows to fight efforts to rollback the savings."

Asked if the governor is telegraphing that he will veto any workers' comp bill that rolls back the reforms, a high level workers' comp advisor to the governor told Workers' Comp Executive "that's a pretty bold statement," with an emphatic nodding of the head.

The governor said he set out after he was elected to reform the California workers' comp system and enact "not a bogus reform, but a real reform." Citing the most recent figures, Schwarzenegger says rates have gone down 40 percent, 577,000 jobs have been created, and billions in new revenue has been realized thanks to SB 899.

Prior to the governor's event, Voters Injured at Work held its own media conference decrying the cuts in the permanent disability benefits and medical treatment saying that injured workers have been harmed. But the small businesses who flanked the governor say the reforms are helping their employees.

"If our employees were not happy, our litigation rate would not have gone down 66 percent. We're bringing people back to work much faster," says Nancy Axtell of PRIDE Industries.

The Governor says his appointees did an "incredible job" with the permanent disability schedule, and says in June his administration plans to go back and look at the reform to see how it's working.

"Some people are getting less because perhaps they were gaming the system before," he says.

The point was to fix a broken system and reinvigorate the market. The Governor is right to be delighted. Now he should stick to his guns.

CA State Senator Charles Poochigian:
Two Years After Workers' Comp Reforms - Better Jobs Climate, But Fight Isn't Over

(April 19, 2006) This month marks the two-year anniversary of Governor Arnold Schwarzenegger signing SB 899, the comprehensive workers' compensation overhaul I (Senator Poochigian) authored in 2004. The road to reform was bumpy, but it was paved by California's job creators, who pressured lawmakers into finally reforming our costly and dysfunctional system. In 2003, California had the highest workers' compensation costs in the nation, at $6.46 per $100 of payroll. Many businesses reported triple-digit premium increases as reason for fleeing the state. More than 20 private insurers filed for bankruptcy while the "insurer of last resort," the State Compensation Insurance Fund (SCIF), saw its market share balloon to 53 percent. California's broken workers' compensation system had chilled the state's business climate.

Improvements Spawn Savings

Fast forward to 2006, and the post-reform picture shows remarkable improvements. California no longer has the highest workers' compensation rates in the country - as of January 1, four states had overtaken us. Insurers are reporting that costs have fallen to $4.42 per $100 of payroll, and pure premium rates are down to pre-1996 levels, with a cumulative 55 percent rate reduction reflected in policies renewing this July.

Since SB 899, California's workers' compensation insurance market has become dramatically more competitive. Private insurers are returning, group self-insurance has expanded rapidly, and SCIF's market share has fallen significantly.

Employers have saved $8.1 billion since 2003. These savings grow to $15 billion when contrasted with what 2006 costs might have been, absent reform.

Removing this cost burden has not just benefited businesses, but the jobs climate as a whole. California's unemployment rate was 6.8 percent in 2003, but has fallen to 5.1 percent today. I believe that our workers' compensation system reforms very significantly contributed to this.

State and local government coffers have also greatly benefited from SB 899. Los Angeles County alone has reported one-year savings to taxpayers of $141 million. It projects the savings to be more than $700 million through 2010. This money can instead be used for critical needs, such as public safety and infrastructure. Government agencies across California are replicating these kinds of savings.

Need to Protect Reforms

While all of this is good news, employers must be on guard against the continuing pressure to undo the cost-saving reforms. Legislation is already moving to rollback some of their most significant provisions, including the revisions that made the permanent disability system more objective.

The Senate Labor and Industrial Relations Committee convened a hearing in March that was dominated by groups that have consistently opposed comprehensive reform. Much of the testimony cited long-standing problems that were present well before SB 899 was signed, or referenced problems with denial of care and treatment guidelines established by SB 228 (Alarc—n).

To bolster their calls to roll back the reforms, opponents relied on a limited study by the Commission on Health, Safety and Workers' Compensation (CHSWC) that surveyed a narrow number of claims, and is not reflective of the system as a whole.

A better study to reference would be the upcoming 18-month review that is required by SB 899 itself, and will weigh data collected from the law's effective date on January 1, 2005, through June 30, 2006. After this review is complete, we should have a better picture of the full impact of the reforms on workers and employers.

About a dozen bills have been introduced this year that could be used as vehicles to thwart the progress that has been made so far. Whether legislation to turn back the clock on workers' compensation reform will be advanced in an election year remains to be seen. Employers need to communicate to legislators and the Governor their strong desire for lawmakers to stand firm on protecting these important reforms.

On another front, three initiatives that would eliminate key provisions of SB 899, and could toss out the workers' compensation system in favor of a sue-your-boss alternative, have been cleared for circulation. While it is unclear whether there will be a concerted effort to place these initiatives on the ballot, they should be on the collective radar screen of all California employers.

Business leaders should remain mindful that opponents of reform will inevitably continue to seek ways to increase revenues at the expense of employers' workers' compensation premiums. Those who profited from the bad old days will try to upset our ongoing effort to ensure that all the reforms and regulations are implemented fairly, and that the system is benefiting those it was designed to protect.

As this process plays out, the business community must remain vigilant. Only by vigorously defending the workers' compensation reforms can we protect the progress we have fought so hard to achieve. Senator Charles Poochigian (R-Fresno) is the author of SB 899, the comprehensive workers' compensation system reform legislation signed by Governor Arnold Schwarzenegger in April 2004.

Senator Charles Poochigian (R-Fresno) is the author of SB 899, the comprehensive workers' compensation system reform legislation signed by Governor Arnold Schwarzenegger in April 2004.