Walters: Another Conflict Brewing Over Work Disability Costs

Gavin Newsom loves high-concept, almost edgy, approaches to governance – not unlike a younger Jerry Brown during his first governorship four decades ago.

However, as Brown eventually learned and Newsom will discover if, as expected, he follows Brown into the Capitol’s corner office, much of governing is not pro-active and creative, but rather reactive, mediating complex, high-dollar conflicts.
One of those perpetual conflicts, virtually a cottage industry, is certain to land on Newsom’s doorstep. It’s the $20-plus billion a year system of compensating workers for job-related injuries and illnesses, financed by employers through insurance policies or self-managed funds.
Five major interest groups constantly joust over the system’s costs and benefits, both cash and medical treatment – employers, insurers, unions, medical care and rehabilitation providers, and lawyers who handle disability claims.
The system’s recent history has been that about once a decade, several of the five form a semi-secret coalition for changes that benefit them and penalize the others. The coalition then prevails upon politicians to ratify their agreement, which is dubbed “reform.”

A Sneak Attack in the Final Days of His First Governorship

Brown was a party to one such sneak attack in the final days of his first governorship in 1982 that preyed upon employers, raising their costs by $3 billion a year. Exactly 30 years later, he presided over another.
In 2012, employers and unions, with insurers’ neutrality, agreed to raise cash payments to workers with “permanent partial” disabilities, the most expensive payouts, and offset the cost by squeezing medical care and eligibility for benefits.
The deal was opposed by medical groups and lawyers, but was pushed through the Capitol in the dying days of the 2012 legislative session and signed by Brown.
From an employer standpoint, it was a roaring success. At the time, it was supposed to raise benefits by $740 million a year and reduce costs by a like amount. However, the Workers Compensation Insurance Rating Bureau, which monitors the system, reported last year that the “reform” reduced annual employer costs by $1.3 billion, more than offsetting the cash benefit boost.
Nevertheless, those costs remain very high relative to payrolls, and fuel the perennial search for a new coalition – meaning that if elected, Newsom will also face the issue.
Oregon’s workers compensation system is the go-to oracle on how costs vary from state to state. Its latest national survey, released this month, found that California, which long had the nation’s highest costs as a percentage of payroll, had dropped to No. 2 behind New York.

$7 Billion a Year in Higher California Employer Costs

California’s current rate in the survey, 2.87 percent, is down from 3.24 percent in the 2016 survey, but still two-thirds higher than the national median of 1.7 percent. That differential translates into about $7 billion a year in higher California employer costs.

Obviously, working in California is not inherently more dangerous than in other states and employer groups, such as the Workers Compensation Action Network, partially attribute higher costs to fraud by greedy lawyers and doctors who recruit workers to file spurious claims, especially for “cumulative trauma,” disabilities supposedly caused by years of work, not a single incident.
Data from the Workers Compensation Insurance Rating Bureau show that Los Angeles is the epicenter of such claims and while some fraudsters have been prosecuted, authorities believe that the practice is still widespread in the region.
It’s likely, therefore, that the next round of workers compensation politicking will focus on battling fraud and using savings to increase benefits, with employers, insurers and unions perhaps forming another powerful coalition and Newsom forced to referee.
CALmatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.