California:
Reforming Workers’ Comp—On the Backs of the Injured

Dec 1, 2003

California passed a new workers’ comp "reform," supported by both Democrats and Republicans.

The new law puts a cap on the number of visits for vocational rehabilitation and therapy; it slashes drug payments and restricts outpatient surgery. These cuts are estimated to save businesses up to six billion dollars per year, or close to 20% of their workers’ comp costs.

Such a "reform" is nothing new. In 1993, during the last "crisis" in workers’ comp, workers’ benefits were also slashed mercilessly in California. As a result, claims declined by 20% between 1996 and 2001.

This is part of a national trend. Over the past 10 years, workers’ comp benefits in relation to wages throughout the country have been cut by 36%. Thus if there is a workers’ comp crisis, it’s not because workers are getting better coverage. On the contrary, injured workers are getting lower benefits, when they are allowed benefits at all.

If costs are rising, blame the big providers who control the system, the insurance and health care companies. In California, the prices of the private hospitals, outpatient clinics and medical groups that service workers’ comp claims have increased four to five times faster than general health care costs over the last five years. The private insurance companies didn’t complain–they themselves often have very tight ties and business arrangements with the health care businesses.

At the same time, the insurance companies themselves have added to the giant price increases. In the mid-1990s, after deregulation, many insurers entered the California market, engaged in an all-out price war to win market share. At the same time, they threw the premiums they collected into the speculative frenzy on Wall Street.

With the stock market crash, dozens of insurance companies fled the state or went out of business, leaving just a few big insurance companies dominating the market. And these companies hiked their rates astronomically, starting in 2000.

As a result, the insurance companies racked up big increases in profits. AIG, the largest workers’ comp insurer in the state and the second largest in the country, just reported 3rd quarter 2003 profits that were up 27%. The other top insurers announced profits that doubled over the last year.

It’s outrageous. Big companies carry on business in ways that guarantee workers will be injured and sickened. But instead of seeking to compensate the people business harmed, the state adds to their pain.