X-Raying Workers’ Comp

The Arnold Schwarzenegger show moved to Long Beach this week, where he shouted “hasta la vista, baby” to fraud in the workers’-comp system at a Boeing plant in Long Beach. But if you’re a Boeing worker, you might want to hold the applause. Likewise, if you’re a worker without health insurance, or if you’re an older worker, or one with a sore back — you’d best think twice before jumping with joy, especially if you risk hurting yourself in the process.

For employees, reforms signed into law this week trade a few legitimate gains for a number of lost or reduced benefits. Employers, for their part, will have more control over doctors and treatments and the hope of lower insurance rates. Even better still is the outcome for insurance companies. They’ve emerged with a more profitable business climate and no obligation to share these gains. It was precisely what they wanted from Governor Arnold Schwarzenegger, whose campaigns they have heavily subsidized.

All these changes were wrought to tame an out-of-control $25 billion system, whose purpose is to help injured workers while also helping companies avoid litigation.

“Throughout the reform, the most important thing for us was putting workers first,” Governor Schwarzenegger told his audience on Monday. “This reform will create workers’ compensation the way it used to be meant to be: to heal injured workers and get them back on the job.”

Democrats who signed on to this compromise, including state senator and liberal stalwart John Burton, hope it works out that way. But Senator Richard Alarcon (D–Los Angeles) voted no. “Clearly, there were tremendous reductions in benefits to workers,” said Alarcon, who chairs the Senate’s labor and industrial-relations committee, which has jurisdiction over workers’-comp bills. “The logic is that people were abusing the system. But these cuts will affect truly injured workers as well as those who abused the system. And because these reforms provide most of the control to employers, it is most likely that abuses would fall on the shoulders of working people. This didn’t turn out the way I wanted.”


So let’s start with that back of yours. It’s been bothering you off and on for years, but you toughed it out, didn’t miss a day on the job, didn’t ask for any lightening of the load. Until last week, when the agony forced you into bed. And now you can’t do your job, or work the hours you need to pay the rent.

You file a workers’-comp claim.

First off, you better hope that your pain shows up in an X-ray, or it will be a darn sight harder to get treatment than it used to be. If you fail this test, however, focus on the upside: Your sacrifice means that it also will be harder for the cheats to claim benefits.

The new system will squeeze out “fraud, inefficiency, incorrectness and litigation,” said Schwarzenegger spokesman Vince Sollitto. “In the past, because of the lack of objective standards for diagnoses or treatment, workers with the same kind of injury could get different awards. There was a large incentive for injured workers to litigate. We had the highest lawsuit rate in the nation and the worst return-to-work ratio.”

A running theme of the reforms is an insistence on “objective” medical findings to discourage fraud, even though the process will inevitably also work against some honest workers who are in pain.

Now, Mr. Sore Back, let’s say you used to play semipro baseball, or maybe you danced in the regional ballet. That’s pretty hard on the spine. So was lugging your three kids into the house when they fell asleep in the back seat on the way home — even if that was 10 years ago. And your previous job involved a lot of lifting, or maybe it was overly sedentary and involved too little lifting. And just maybe, at your age, the old back ain’t what it used to be anyway. Is it true that your grandfather had a degenerative disk? All that information gets considered. You may be 100 percent hurting, and 100 percent unable to work, but you’d get only 10 percent of the benefit if your current work in your current job has only borne witness to 10 percent of the damage.

And what if you’ve worked for companies that didn’t provide health insurance? Because of that, perhaps you didn’t get your stiffness treated while it was minor and an easier fix. Good luck with your claim, now that you’re nearly bent in two. Your pain is the system’s gain. After all, you can’t expect workers’ comp to serve the general health needs of the state’s 7 million uninsured. That’s partly what had happened before — workers were using workers’ comp as a fallback because they lacked regular health insurance.


But this phenomenon isn’t exactly outright fraud. Inescapably, some who “game” the system, by improperly seeking benefits, are truly hurting. They “fraudulently” enter workers’ comp because they lack health insurance that otherwise could have helped them. Providing a health solution for these taxpaying workers has not yet shown up on Schwarzenegger’s famous to-do list. In the meantime, these reforms will punish such workers by making any kind of health care more difficult to obtain.

What’s more, don’t count on a friendly diagnosis to maximize your benefits. You’ll get a choice of doctors for a second opinion, all right, but from a pool selected by employers. And you have to burn through three company-approved doctors before being entitled to an independent medical review.


Of course, the status quo was not an option either, not with insurance premiums skyrocketing. The first step came last fall, in the last throes of the Gray Davis administration, when legislators standardized payments to doctors and limited certain treatments. In January, insurers cut their rates, but only modestly compared to rates that, for some businesses, had doubled and tripled over the past three years.

With new Governor Schwarzenegger’s blessing, the California Chamber of Commerce prepared to take matters into its own hands, with a ballot initiative that labor groups considered draconian. This pressure allowed Schwarzenegger to deal. Legislators blew right through some of the governor’s early “deadlines,” but they got it done last week, in a do-or-die stand to beat back the looming initiative.

The resulting compromise vastly outshines the Chamber’s alternative in the view of Burton et al. The Chamber’s plan gave workers no choice in doctors. The compromise lets the company pick the first doctor, while giving workers access to a second and third opinion — though the choice still must be made from a company-approved list. Workers with employer-provided health plans also have an option to pre-designate their regular doctor as the first who would see them.

And the compromise also entitles workers to as much as $10,000 in immediate treatment. Before, a company could delay payments as much as 90 days. “That’s often enough time to lead to permanent disability, and tremendous pain and suffering in the meantime,” said state Assemblywoman Jackie Goldberg (D–Los Angeles). Treatment without waiting is “a big gain, a huge change.”

But she also voted no, for the same reason cited by Alarcon, the failure to regulate insurance rates, which also drew ire from Doug Heller, executive director of the left-leaning, Santa Monica–based Foundation for Taxpayer and Consumer Rights.

“We do not dispute at all that there’s a workers’-comp crisis in the state,” said Heller. “Our own organization has seen a 75 percent increase over the last year alone and 110 percent over two years. And we don’t have it so bad, because we’re not working with manufacturing equipment. But the reason rates are so high is not because of a sudden spate of injuries or litigation or anything that’s particularly new, but because the insurance industry has absolutely gouged businesses in this state. When you mandate that consumers — in this case, businesses — must buy something, you need to regulate the sellers.”

Heller noted that the state already regulates auto insurance, medical malpractice insurance and homeowners insurance, and that some 25 states regulate workers’ comp, including Nevada, which is often described as a business-friendly magnet luring companies from California. Heller cited data showing that workers’-comp insurers managed a healthy 18 percent annual profit in Nevada over the last 10 years. The comparable figure in unregulated California is 1.8 percent, with the industry sustaining losses in recent years — a shellacking in the view of insurance companies. Heller attributes losses to policies that were underpriced to win market share. And he says the recent astronomical rate increases result from companies trying to make up the dollars they lost all at once. An insurance industry study challenges this conclusion, asserting that since 1998, on average, premiums have increased 96 percent while claims have increased 117 percent.

Schwarzenegger has sided with economic conservatives, who philosophically oppose rate regulation and also contend that it would make insurers less eager to return to the California market. “Rate regulation is unnecessary because we’re already seeing insurers from out of state coming back into the market, based on the reforms last fall,” said Lawrence McQuillan, director of business and economic studies for the right-leaning Pacific Research Institute for Public Policy in San Francisco. “We’ve turned the corner. It’s time to let these reforms play out and run them through the balance sheets of insurance companies for a couple of years.”

An industry representative agreed “Keeping the current system in place sends a message to insurers that they can come into the California market and compete against each other,” said Sam Sorich, president of the Association of California Insurance Companies. “If the insurance commissioner gets the power to establish rates, and if his decision is erroneous, companies are going to lose money, and I don’t think they want to take that risk at this time.”


But Goldberg and Alarcon are unimpressed by the small rate declines that followed last year’s reforms. Both are pushing legislation that would regulate rates. Schwarzenegger’s team wouldn’t allow rate regulation to be part of the compromise package, which suggests that he’d veto either bill.

So far, the governor’s position aligns with that of workers’-comp insurance companies, which have contributed more than $500,000 to his various campaigns since he entered politics less than a year ago. His staff denies that the governor has broken his vow to refuse special-interest money.

“The governor’s been quite clear about this issue,” said spokesman Sollitto. “He had indicated that he will not accept contributions from special interests, particularly from those groups that he is engaged with in direct negotiations, including the Indian tribes and public-employee unions.” Sollitto added that Schwarzenegger stopped taking money from the insurance industry after the March election, which is when negotiations over workers’ comp began in earnest. He didn’t know if such contributions could now resume. “It’s pretty clear that Californians understand that this governor can’t be bought, and that he has the interests of the people of California at heart.”

Goldberg credited Schwarzenegger for making some compromises, but scorned Schwarzenegger’s selective definition of special interests: “He was going around saying, ‘The people have a ballot measure.’ And ‘The people will take this out of the hands of the nasty, dysfunctional Legislature.’” The threatened initiative “wasn’t the people’s measure,” said Goldberg, “but the Chamber’s measure, and the average working man and woman is not represented by the California Chamber of Commerce.”


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