May 5, 2005
It’s Time to Heal Workers’ Comp
When Gov. Arnold Schwarzenegger reformed California's disastrous workers' comp system in 2004, I was bothered by the effort expended by Sacramento's elected Democrats to fight reform in order to protect their lawyer allies who were gaming the badly broken system.
Although the Democrats controlled the state legislature and governorship for five years, they adopted only tepid reform under Gov. Gray Davis, aimed largely at reducing doctor and drug costs -- not the main causes of the worst workers' comp crisis in America.
In a column for The Journal a year ago, I noted that the media failed to explain the long resistance by the Democrats to deep reforms. Had the media been awake, we might not have been saddled so long with terrible policies that created the most expensive workers' comp system in the nation, yet provided truly injured workers among the worst benefits.
Where did all that money go? Much went to middlemen like lawyers who were milking California's supposedly "no fault" system in court, fueling a cottage industry of private detectives who earned a living investigating workers -- and too often catching them moving furniture or working in demanding new jobs.
Senate Bill 899, the Schwarzenegger reform authored by state Sen. Charles Poochigian (R-Fresno), took direct aim at the bloat and the spiraling costs of "permanent disability" awards from which the lawyers skimmed their fees.
Not surprisingly, the reforms aren't perfect. David DePaolo, of workcompcentral.com, said California needs to ensure that permanent disability awards for the truly injured compare to awards in states with fair systems. His preliminary findings show "California is now at the bottom in compensating for permanent disability."
Nevertheless, the rules written by California's tough workers' comp czar, Andrea Hoch, are bringing positive change. According to the state Division of Workers Compensation, rates dropped 16 percent in the past year, and experts expect another 10 percent drop this year. Moreover, filings of disputed claims are dropping rapidly.
Hoch was confirmed by the state Senate a few days ago after an attempt to oust her by the lawyer lobby, unions and elected Democrats. We can thank Senate President Pro-Tem Don Perata, the powerful Oakland Democratic who shrugged off intense pressure from Democrats and voted for Hoch, leading to her confirmation by the senate.
Hoch, California's former assistant chief attorney general for civil law, appointed last year by Schwarzenegger to write the new regulations, has refused to allow loopholes that lawyers hoped would give them a toehold to resist reform.
Her regulations are clearly helping small businesses that fuel the California economy. They were socked by rate increases of 250 percent to 1,000 percent, according to legislative testimony, and were laying off workers or fleeing California.
One local business, reeling last year from skyrocketing costs, was Northridge Mills garment factory in San Fernando. President Howard Barmazel, a man respected both by his Jewish brethren and his 400 mostly Latino workers, was one of the good guys, offering solid jobs to workers and making an earnest effort to promote home ownership among them.
But Barmazel was fighting to survive in the face of workers' comp costs of more than $25,000 per week. Even so, he greatly feared SB 899, which put new and complex responsibilities on him.
Today, a year later, Barmazel praises SB 899. And no wonder. His rates have dropped by roughly 20 percent, and he expects further reductions. That means security and prosperity, not only for him but also for his workers.
"The truth is, I'd probably have shut down by now without the reforms," Barmazel said. "I've not only seen a 20 percent drop in my premium, but I have had virtually no claims."
He's not sure exactly how the reform law has achieved this. But he praises a core element requiring California to use American Medical Association (AMA) guidelines for determining "permanent disability" -- as do 41 of 50 states. Unions and lawyers had made sure, for years, that using AMA guidelines to determine permanent disabilities was banned -- yes, banned -- in California.
Barmazal's hunch is that "the medical mills and the attorneys have finally figured out they are not going to get anywhere. That is a big, big positive for small business."
Susan Gard, spokeswoman for the state Division of Workers Compensation, said reform has squeezed out middlemen who profited from "permanent disability" awards that, prior to reform, resulted in huge disparities for the exact same injury.
"It was a system that encouraged the outcome of 'disability' because doctors got more fees and lawyers got more fees by encouraging people to hold out for more treatment and higher award amounts," Gard noted.
There's probably a need to improve SB 899 to ensure that the seriously injured don't get shorted -- as noted by DePaolo. But the Democrats, who fought long to protect the tainted system and then tried to oust Hoch, have lost the moral high ground in this debate.
That job must fall to Schwarzenegger, Perata and Hoch, who even in the super-heated partisan world of Sacramento, are showing that they can resist the partisans and middlemen fighting reform and ensure that workers' comp works for all.
Jill Stewart is a syndicated political columnist and can be reached at www.jillstewart.net.