Calif. Commissioner Targets Ailing Workers’ Comp System

Based on recommendations from two stakeholder advisory panels, Calif. Insurance Commissioner John Garamendi is proposing immediate action in seven areas to restructure California’s ailing workers’ compensation system, which experts agree is driving businesses out of California.

The seven areas of immediate focus include, improved financial oversight; medical cost containment; consistency in determining the level of permanent disability; improved coordination and communication with state agencies regulating the system; continued aggressive fraud interdiction; creation of a 24-hour medical care system merging health insurance with workers’ compensation medical care; and development of professional training and quality standards for service decision makers.

“Medical costs, indemnity, litigation, and other service expenses are out of control and draining a workers’ comp system that is destined to crash if we don’t meet the issues head on and make some tough choices,” said Garamendi. “California has the highest premium costs in the nation. However, benefits for injured workers remain in the lower third of all states. That is the definition of a broken system.

“Our task is to reverse this runaway trend so California has lower costs, while providing adequate benefits. Only a complete restructuring of this complicated, litigious, fraud infested, grossly inefficient and ineffective system can achieve this goal,” said Garamendi. “Premium rates will only come down when the Legislature and the Governor approve fundamental restructuring and reform.”

Garamendi convened the panels before taking office in January. One group is composed of diverse membership from small business, employers, physicians, employees, applicant attorneys, defense attorneys and other parties with a compelling interest in the system. The second includes insurance industry representatives.

“There is remarkable consensus from both groups on the need to address this situation,” said Nick Roxborough, a partner with Roxborough, Pomerance and Nyle LLP, who led the non-insurance industry advisory panel. “Our two groups, though composed of people from opposing sides of the equation, recognize that the problems with workers’ comp run deep and threaten employers, workers, and the very fabric of California’s economy.”

Gary Hernandez, attorney with Sonnenschein Nath and Rosenthal, led the insurance industry group. “By getting us involved before taking office, Commissioner Garamendi demonstrated that he recognizes the urgency of this problem,” said Hernandez. “The resulting dialogue will lead to definitive and constructive resolutions.”

The full reports will be available at the Department of Insurance in Sacramento on March 3, 2003.