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home / insurance / in the media

The New York Times
Apr 17, 2004

by CHARLIE LeDUFF

Schwarzenegger Slays Another Dragon, Winning Overhaul of Workers' Compensation

LOS ANGELES - Gov. Arnold Schwarzenegger, perhaps the only politician who ever made reform of workers' compensation an applause line, won yet another victory on Friday when the California Legislature, as expected, overwhelmingly passed sweeping changes to the enormously expensive system.

Despite enthusiasm from labor and business circles that was only muted, the final product was a significant political achievement, just the latest in what has become a growing list for Mr. Schwarzenegger. In the six months since ousting Gov. Gray Davis from office in a historic recall election, he has broken gridlock in Sacramento and delivered on a string of campaign promises, from rescinding drivers' licenses for illegal immigrants to reversing $4 billion in car tax increases to winning public approval of a state bond issue addressing the state's vast fiscal problems.

"Of course the first thing I heard when I came to Sacramento in November is that it can't be done, that it is impossible," Mr. Schwarzenegger said at the Capitol after both houses of the Legislature approved the workers'-compensation bill on Friday. "I'm trying to teach them slowly here that we should just get rid of these words 'we can't' or 'I can't.' Everything is possible."

The workers' compensation system in California is by far the costliest in the nation, with claims that ballooned to an estimated $30 billion last year from $6.5 billion in 1997. Yet its beneficiaries -- employees who are injured on the job and so are entitled to coverage of medical expenses and to compensation for lost wages -- receive some of the nation's lowest benefits. Business leaders, who finance the system, have complained that much of the money is going to lawyers and doctors who, the businesses say, perform unnecessary and duplicative procedures.

During the recall race last year, Mr. Schwarzenegger made an overhaul of that system a centerpiece of his campaign, saying waste, inefficiency and the resulting rise in costs were driving jobs to other states. Crowds roared when, on the stump, he promised reform.

The newly passed measure, approved by 77 to 3 in the Assembly and 33 to 3 in the Senate, resulted from negotiations between the Republican governor and leaders of the Democratic-controlled Legislature.

Among its provisions is a requirement that injured workers choose from an H.M.O.-style pool of doctors. Another provision redefines what it means to be permanently disabled by on-the-job injuries, and places a two-year cap on temporary disability payments. Moreover, medical treatments will now follow national guidelines established by the American Medical Association.

Mr. Schwarzenegger, who is to sign the bill into law on Monday, had threatened to put the issue to a public referendum if the Legislature did not pass the measure by Friday. The Democratic majority, still unnerved by the recall of Mr. Davis, seemed in no mood to challenge the governor, and got the bill passed with five hours to spare.

Contrary to what some Democrats sought, the legislation, though applying the brakes to the cost of claims paid by insurance companies, does nothing to regulate premiums that they are paid by employers; the governor would not go along with such a provision.

The absence of that regulation left business and labor alike voicing some concern. Nathan Ballard, a spokesman for the California Labor Federation, said that although there were things to like in the legislation, "the problem with this deal is the profits go to the big insurance companies, not the employers or workers."

Allan Zaremberg, president of the California Chamber of Commerce, said that he was satisfied with the deal over all but that he wondered whether the insurers would be passing on its "substantial savings" to businesses. He said the chamber was insisting on a study in a year's time to assess the legislation's effects.

Mr. Schwarzenegger, who as a candidate promised that he would not be swayed by special-interest money, has accepted more than $500,000 in donations from workers' compensation insurers and has drawn criticism for doing so.

"He's a hypocrite," said Douglas Heller of the Foundation for Taxpayer and Consumer Rights, a nonpartisan watchdog based in Santa Monica. "He's proving that he's not the hero who is going to fix politics, but rather that he's just another politician."

Insurance executives, however, said the absence of rate regulation made good economic sense for a system so unpredictable that most private insurers avoid the California market. "Rate regulations would never work, and Governor Schwarzenegger understands that," said Nicole Mahrt of the American Insurance Association. "It would not save one dime, would do nothing to fix the system and discourage private companies from coming in and creating a competitive market rate."

Highest Workers' Compensation Rates
Average 2002 cost for employers for workers' compensation insurance, as a percentage of the national median.
1. California: 220%
2. Florida: 190%
3. Hawaii: 147%
4. Delaware: 143%
5. Rhode Island: 139%
6. Texas: 139%
7. Louisiana: 134%
8. New York: 132%
9. Montana: 128%
10. Nevada: 128%

(Source by Information Management Division, Oregon Department of Consumer and Business Services)


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