Workers Compensation Reform

By Jeff Rainforth

This is an outline of my plan to save roughly $7.2 billion in the current WC program while doing the what it was setup for, helping injured workers. Highlights: Eliminating insurance companies from the equation.

The failure of the Workers Compensation program has its roots in the elimination of caps on the amount insurers could charge employers for an insurance policy. The legislation doing so took place in 1995, and, the subsequent price war between insurers, (although good in that prices were temporarily lowered) bankrupted many of the smaller companies who just could not compete with the "Big Dogs." Today, there are higher premiums than ever due to rising legal and medical costs, more people claiming injury, expanded coverage, fraudulent claims, and lack of competition. Where does the main problem lie? I believe the problem lies with the insurance companies.

Insurance companies are run for profit. Insurance companies know that employers must take out Workers Comp. insurance. Insurance companies lobby, and contribute heavily to our elected officials to see that the laws that will make them more money are passed. Why do you think deregulation happened in the first place? Because the insurance lobby wanted it to, and, they gave enough money to state officials by way of campaign contributions to make sure it passed.

The answer? There are two in my opinion. The first, eliminate the middle man. Take insurance companies out of the equation. Workers Compensation is about an 18 Billion dollar a year industry (Not including companies who are "self-insured"). This is how much it cost the businesses to cover their workers in 2002. The California State Auditors office noted that, payments to physicians and hospitals to cover injured worker's claims for 2002 was a little more than $4 billion. Indemnity payments (payments to workers for lost wages etc.) were $4 billion for 2002. Here is the problem. WORKERS COMPENSATION EXISTS MERELY TO PROVIDE MEDICAL COVERAGE, AND COMPENSATION TO WORKERS INJURED ON THE JOB! The total cost to do just that in 2002 was a little more than 8 Billion dollars! WHERE IS ALL THE OTHER MONEY GOING TO!!!??? Well, first, there are operating costs. Someone has to figure out who should get what money, and how much, then send it to the hospitals, doctors, and the workers. The state auditors office reports that insurance companies spent $4 billion on operating costs in 2002. They also reported that there was a $5.6 billion increase in reserves (note profit). I have shown that all we need to cover injured workers medical costs, and pay them for lost time and wages is $8 billion. The complicated mess that is the Workers Comp. Program wastes entirely too much money. All that is needed is to take the 8 Billion dollars, and to distribute it to the hospitals and doctors, and to the injured workers. IF WE HAVE DONE THAT, WE HAVE DONE EXACTLY WHAT THE PROGRAM WAS DESIGNED TO DO, HELP INJURED WORKERS. As Governor I will seek to eliminate insurance companies from the equation, have employers and employees contribute directly to the State Workers Compensation Fund, and the STATE will be in charge of disbursing the funds to the workers, and to the health care industry. Other state's workers comp. programs have operating costs that stand at 20% of the total spent on the program. California's does not need to be any more expensive than that. I am going to say that we will need an extra $1 billion for a fraud investigation team, updated computer systems and software which allows efficient tracking of costs, legal disputes arising from denied claims, and other expenses. That puts the total workers compensation costs at $9 billion. 20% of $9 billion is $1.8 billion dollars. This $1.8 billion will be used for "operations," or, deciding who gets the money, and how much should be paid. The total for the comp. fund now stands at 10.8 billion dollars. WORKERS COMPENSATION CAN DO WHAT IT WAS DESIGNED TO DO, WITH $10.8 BILLION! THAT IS $7.2 BILLION LESS THAN WE ARE SPENDING NOW ON A BROKEN SYSTEM!

OK. That was the first answer. Now for the second. Bring back the price caps on the amount of money insurance companies can charge businesses for coverage. It's that simple. Workers Comp. does not exist so others can profit, it exists to help injured workers, that's it. The state would control the amount the insurance companies could charge. Prices would not be able to jump 20% in one year, because, their would be price caps.

The state also needs to have a uniform pricing schedule that covers all treatments. As it is, there isn't one. This means that a hospital in L.A. can charge $100 to fix a broken bone, while, a hospital in San Francisco may charge $400. Why the discrepancy? There needs to be a uniform pricing system that is good statewide so that there is less room for fraud and error, and that the money is spent wisely.

The state also needs a software program, and computer system which allows tracking of medical costs over time in order to make decisions on raising or lowering the amount of money paid for certain procedures. Currently, the state has no central computer system and/or software program capable of doing this.

THE END RESULT

The end result in cutting the cost of workers compensation? First, those injured will not suffer in the least. The same amount of money will be spent for their care. Businesses will greatly benefit as their workers comp. fees will drop by almost half!!! Businesses have been laying off workers, not hiring new ones, cutting pay, and moving out of the state because of the exorbitant WC rates! This will reverse! Yes, it will reverse. That $7.2 billion saved, will be money used to expand, hire new employees, give others raises etc., etc. It is a $7.2 billion boost to California's economy. This is what will happen if you decide you want me as your next Governor. The choice is up to you.