News | July 17, 1998

Five Years After Comp Reform, California Looks to Future

Five years after Governor Pete Wilson signed the major pieces of the historic workers' compensation reform legislation, California employers continue to experience dramatically lower costs while injured workers receive the improved benefits brought about by reform, according to California Department of Industrial Relations Director John Duncan.

Duncan recalls, "When Governor Wilson assumed office in 1991, the workers' compensation system was out-of-control, chasing desperately needed businesses and jobs out of state during the worst economic downturn since the depression. California's workers' compensation system had become a national disgrace, a symbol of California's inhospitable business climate. The signing of these reforms, five years ago today, signaled the beginning of the California Comeback, which has produced a powerful economy, generating jobs and tax revenues in record numbers."

"Overall costs paid by employers for this system continue to be in the $8 billion per year range, down substantially from the $11 billion plus that was reached in 1993," he says. "And these savings have occurred in a period of rapid economic improvement marked by substantial increases in employment."

According to statistics from the Workers' Compensation Insurance Rating Bureau, insured employers spent about $6 billion per year on insurance premiums in 1996 and 1997, down from the over $9 billion per year that the mandatory insurance was costing before reform. The average premium per $100 of payroll is back down to about $2.50, the lowest figure in 20 years, Duncan said. In 1993, the state's employers were paying, on the average almost $4.50 per $100 of payroll for workers' compensation insurance.

Injured workers, on the other hand, have seen significant improvements in benefit levels as a result of mandated increases phased in over the first three years of the reform legislation. The maximum weekly benefit for temporary disability, for example, rose from $336 in 1993 to its current level of $490 per week. A recent study by the national Workers' Compensation Research Institute shows that, when measured against the average weekly wage, benefits have risen from 63 percent in 1993 to 85 percent in 1996.

The reform efforts effectively addressed the major factors driving up the costs of the system—excessive cost and frequency of medical-legal evaluations of work injuries; skyrocketing vocational rehabilitation costs; increasing psychiatric stress claims which could not be directly tied to work; and an intolerably large amount of fraud by participants in the system. "The reform measures systematically attacked the various cost drivers," Duncan says.

Also put into place were a number of innovative new programs, including a series of pilot 24-hour health care projects, certifying medical providers as "Health Care Organizations" to provide medical services in a managed care setting; alternative dispute resolution programs in the construction industry; and a variety of educational and outreach programs to help injured workers and other parties and to keep the workers' compensation community informed and trained in the latest developments in the system.

New initiatives currently underway will implement the California Workers' Compensation Information System. The Workers' Compensation Information System will, for the first time, allow monitoring of the system's performance, including the performance of the state agency and those responsible for administering workers' claims, from the time a worker is injured through conclusion of the case. Also, a reorganization of the Division of Workers' Compensation's claims adjudication and claims administration support programs will result in the establishment of regional centers, where professional consultants and support staff with access to the Division's various electronic data bases can provide immediate assistance to those in need and help keep down the incidence of costly and unnecessary litigation.

"We are particularly pleased with the successes that workers' compensation reform has achieved in the past five years," Duncan says, "and we look forward to the further improvements that the initiatives now underway will bring."