Calif. Governor Predicts 30% Increase in State’s Costs Despite Reforms

California’s workers’ compensation costs are going down, even if Gov. Arnold Schwarzenegger’s budget proposal includes big increases in the state’s costs for the program.

The Republican governor’s budget predicts the state’s cost of dealing with job-related injuries and illnesses among its employees will jump 30 percent over two fiscal years – despite much-touted changes Schwarzenegger pushed through the Legislature last April.

Jim Zelinski, a spokesman for the State Compensation Insurance Fund, a quasi-governmental agency that administers the state’s workers’ compensation program, said savings from the 2004 legislation and cost-cutting bills in 2003 weren’t factored into the projections.

“The bottom line is we do anticipate there will be significant savings from the last two reform packages, but no one knows the ultimate impact of that,” he said.

The budget plan Schwarzenegger released Monday predicts the state’s workers’ comp costs will jump from $527 million in the fiscal year that ended last June 30 to $632.9 million in the current year and then to $685.9 million in the year that starts July 1.

Schwarzenegger made cutting workers’ comp costs one of his biggest targets after he took office in November 2003, threatening to take a plan to voters if lawmakers didn’t pass something he could support.

The Legislature complied and approved a bill last April that the governor predicted would cut employers’ costs 25 percent to 30 percent.

The legislation, which took effect immediately after Schwarzenegger signed it, included cuts in workers’ benefits and creation of employer-designated teams of doctors to treat work-related injuries.

Critics, led by workers’ attorneys, Democratic lawmakers and labor leaders, say the legislation has resulted in big cuts for workers, relative little in savings for employers and big profits for insurers that sell workers’ compensation coverage to business owners.

Most private employers are required to buy workers’ comp coverage, but most government agencies – including most state agencies – and some large businesses are self-insured, meaning they set aside enough money in their budgets to cover workers’ comp costs.

Insurance industry representatives say the changes made last year are beginning to reduce workers’ comp costs and insurance rates and encourage more insurance companies to enter the California market.

The cost of workers’ comp insurance has dropped an average of 10.4 percent in California since the middle of 2003, according to the Department of Insurance. Insurance Commissioner John Garamendi says the cost of injured workers’ claims dropped 22.6 percent during that same 18-month period.

Lynelle Jolley, a spokeswoman the state Department of Personnel Administration, said there are “important differences” in projecting workers’ comp costs for self-insured and insured employers.

“Our future workers’ comp costs are not calculated the same way as an insurance (policy) is calculated,” she said. “Ours have to look at existing claims, not what future claims will be.”

But Bill McClure, a workers’ compensation specialist for Los Angeles County, said LA County officials have been able to reduce their workers’ comp cost projections.

Los Angeles County officials initially projected those costs would reach $414 million in the current fiscal year, but a more likely figure is $350 million or less, he said.

The rough cost estimate for the 2005-06 year is $380 million, but that too is likely to drop, he added.

Mark Gerlach, a consultant for the California Applicants’ Attorneys Association, a group of lawyers who represent injured workers, said it’s easier for state agencies to overestimate their workers’ comp budgets than to underestimate them.

“It’s extremely difficult for a state agency to get additional moneys above what has been budgeted if their initial estimates prove wrong…,” he said. “They have no incentive to be accurate with their estimates of the savings.”

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