It’s about lawyers’ compensation

When much-needed reform to workers’ compensation flounders or fails, look to our distinguished members of the bar for the blame

Illustration By David Wagner

Skyrocketing workers’ compensation costs for small businesses, nonprofits and local governments are shaping up as the third profound economic disaster under Governor Gray Davis and the third effort by my own Democratic party to find its spine. Yet, I must report that despite glowing talk about fixing things, things look very bleak indeed.

At a packed Sacramento hearing on April 23, snaking lines of small-business owners, nonprofit operators and mayors waited their turn to tell the Senate Labor and Industrial Relations Committee incredible stories about workers’ compensation insurance premiums that have spiked as much as 1,000 percent recently.

Testimony revealed that 5,000 of California’s 80,000 restaurants are expected to shutter because of staggering new workers’ compensation premiums and that smaller businesses now put all their profits into workers’ compensation—meaning they no longer pay any state income tax, just when California needs those taxes most.

Most distressing were the stories told to the committee by officials from nonprofits and community- services groups that do incredible good and yet are being devastated by the cost disaster.

Dave Dial, of Pro-Care Home Health Services in Sacramento, which cares for medically fragile children, told a hushed, standing-room-only crowd that because he is a Medi-Cal provider, he cannot pass on his increased costs, yet his workers’ compensation premium shot up 52 percent just this year.

“I can’t keep paying that, so I either have to switch to caring for more private patients and fewer of these Medi-Cal kids that we want to help, or I have to get out of the business,” Dial said.

David Tollner, of the Pacific Autism Center for Education in Sunnyvale, saw his costs soar from $70,000 in 2001 to $400,000 this year. “If this continues, you will see a great loss of nonprofits in California,” he warned.

Saddest was the chief of the Foundation for the Retarded of the Desert, a longtime facility in Palm Desert that cares for more than 600 severely disabled people, where premiums have spiraled more than 1,000 percent.

Dr. Richard Farmer employs many disabled people who do not qualify for most disability coverage because they have pre-existing conditions. Yet, Farmer said, “I have to carry workers’ compensation insurance on them anyway. … I now have 90 days to come up with an extra $112,000 I do not have, or I have to close down in July. If they force us to close down, at least I will have pleaded my case to you.”

Small businesses are going under—or underground. Gerhard Kiessling, owner of Minuteman Plumbing and Drain Services, of Santa Ana, is using his credit line to pay his $100,000 workers’ compensation premiums this year, which cost only $25,000 last year. “This is driving many contractors underground, paying cash to their employees, where such benefits as 401(k) and health coverage is no longer paid,” he said. “We need immediate relief!”

One small-business owner said she pays $30,000 for a workers’ compensation premium on an employee who earns $62,000 a year. “I could buy them life insurance, huge perks for retirement, and still have $23,000 left for other things,” she said with disgust.

Local governments are probably taking the biggest measurable hit from California’s newest financial crisis, even though they are self-insured—so they don’t exactly go around raising their own insurance rates.

The Los Angeles County Board of Supervisors sent a spokesman to plead for deep reforms because the county spent $225 million on workers’ compensation this year, compared with $127 million in 1996. That difference represents millions of welfare recipients and poor children the county could not serve after 1996 because of a bloated, wasteful workers’ compensation system over which the county has no control.

Why is this crisis unfolding in California?

It is absolutely not, as workers’ compensation attorneys who buzz about this issue insist, the “fault” of insurance companies for under-pricing workers’ compensation insurance for too long.

In fact, almost everything the so-called applicants’ lawyers claim about this mess is suspect because they are one of the key causes of the disaster.

Insurance companies did severely under-price workers’ compensation insurance in a price war following the California Legislature’s decision to eliminate a “minimum rate” floor it long had forced insurers to charge. The price war caused many insurers to go broke and left others in damaged financial shape.

Now that insurers finally are pricing the insurance near what it costs them to provide it—and even now, they are still losing money on workers’ compensation in California— everybody is in sticker shock.

Insurers, however, have no control over the vast, out-of-control costs in California of providing injured workers medical care. Proof of that is a local government like Los Angeles County, which, because it is self-insured, does not use insurers as middlemen and is facing disaster anyway.

The real problem is that California has the most Byzantine, backward, corrupt, wasteful, pigs-at-the-trough system for providing care to injured workers in the country. Period.

Davis and Insurance Commissioner John Garamendi insist they are going to turn the system on its head and stop this crisis from becoming a horrific Mini-Me of the energy crisis. But what I have observed from the Democrats who control Sacramento gives me little hope of that.

Take state Senator Richard Alarcón, influential chairman of the Labor and Industrial Relations Committee. He has made two good moves so far. First, he proposed a law to limit fees doctors charge per service. Second, on April 23, he joined with other Democrats on his committee to back a bill by Republican Senator Charles Poochigian to stop endless extra trips to physicians.

Most states long have had fee caps. And in other states, you can’t see a chiropractor, say, more than 15 or 20 times. California? Live it up! There are no fee limits at all if you go to a private surgical center instead of a hospital. And there are no limits at all to the number of times you see your doc, chiropractor or physical therapist.

So, guess what? Some surgical centers charge five times the price of regular hospitals the moment a patient utters the phrase “workers’ comp.” But fees, surprisingly, are only a modest part of California’s problem. Far more money is blown because patients are encouraged to return again and again. It’s called “overutilization,” and it equals a big, fat ripoff.

Testimony before Alarcón’s committee included one case in which a patient visited his chiropractor 41 times.

Kudos to Alarcón for showing support for bills on these two no-brainers.

But so far, Alarcón is making sure that truly deep reforms do not get approved by his committee. (As we went to press, Davis was expected to announce his own package of reforms, and a passel of workers’ compensation reform bills were set to be heard in Alarcón’s committee.) And that’s a far better indicator of how the Democrats are going to waffle, buckle and cater to the pigs at the trough.

For example, it will boggle my mind if the Democrats approve, out of committee, any bills to end California’s nutty rules that allow injured workers to be the ones determining whether they are injured. Only three states rely on workers to decide if they are injured—and naturally, California relies most heavily on this incredibly subjective and grossly abused rule.

In normal states, determining whether a worker has been injured is hardly up to the worker. How crazy. Forty-seven states use “objective standards”—essentially, a doctor using guidelines from the American Medical Association (AMA). In California, using the AMA guidelines is actually illegal—labor unions and trial lawyers made sure the Democrats made it so.

John Stoos, chief consultant to Senator Tom McClintock, who is fighting to bring “objective standards” to pathetic California, said, “Senator McClintock is saying somebody else besides the worker has to agree there’s an injury—a doctor would be nice.”

Equally moronic, in determining whether somebody is permanently disabled, California law encourages the parties to go to court to fight it out. As a result, 50 percent of all California workers’ compensation cases end up in court. The resulting cost is believed to be in the billions. By comparison, in Utah, where objective standards are used, just 4 percent of cases go to court.

But does Stoos think McClintock’s bill to introduce “objective standards” stands a chance in hell, except in some horrifically watered-down condition? “We’re going to fight very hard for this, fight with all we’ve got—but no,” said Stoos. “We don’t expect this bill to get out of the committee.”

Why? Why are the Democrats, the party of the little guy, almost certainly going to kill any bill, including McClintock’s Senate Bill 414, that reforms such outrageous practices? Have the Democrats stopped caring about mom and pop businesses, nonprofits, local governments and the little guys who operate with bare margins and are getting creamed by all this?

A Democratic leader who recently left office would speak to me only off the record. He fears the power of the “applicants’ lawyers,” who represent workers’ compensation cases and will target for ouster Democrats who defy them.

This departed leader told me: “The fear among Democratic leaders of these lawyers warps everything that happens on workers’ comp, and it warps everything you will hear out of a Democrat’s mouth. I am ashamed of it, but you could easily see another energy-type crisis as the Democrats do as little as I expect them to do.”

Wow. It kind of makes you want to whack your head on your desk. I couldn’t get the incredibly diplomatic Poochigian to agree with me on that; the Republican is known for working well with both sides.

He merely pointed out that California schools have been forced to spend an extra $84 million in recent years, even though they are self-insured, because California’s system is so wasteful, rife with corruption and grossly litigious. “My staff figures that $84 million equals 1,300 new teachers or 1.7 million new textbooks,” Poochigian told me.

I have nothing further to add.