Workers' comp climbing again

As if California’s economy didn’t have enough problems, the cost to businesses of workers’ compensation could go up as much as 29.6 percent for what’s called the “pure premium” rate; that’s the rate companies pay their insurance companies for coverage. The rate hike is being recommended by the Workers Compensation Insurance Rating Bureau. The nonprofit bureau is made up of the more than 400 companies that sell workers’ comp insurance in California. Its recommendation must be approved by Insurance Commissioner Steve Poizner. The increase would take effect Jan. 1.

Wasn’t this problem fixed in 2004, with Gov. Arnold Schwarzenegger’s reforms after complaints by businesses about sharply rising costs? An essential part of the reform was to adopt American Medical Association guidelines used in other states to judge the severity of an injury. In 2010, average pure-premium rates are $1.76 per $100 of payroll. That’s much less than the $4.80 per $100 of payroll before the 2004 reform. The 29.6 percent increase would push the current number to $2.28 – still below 2004 levels, but if the state isn’t careful, it could get back into difficulty.

There’s another way to look at it. In 2007, the rate was $1.68 per $100 of payroll. If the WCIRB’s new recommendation is fully accepted, the rate would increase 36 percent (to $2.28) in 2011 from 2007. Why the high number?

The increase results from three factors, our sources told us. First is the higher cost of medical care generally. According to data provided by the California Healthcare Foundation, U.S. health care spending (for all areas, not just workers’ comp) rose to $8,290 per person in 2010 from $7,071 in 2006. That’s a 17 percent increase during a roughly equivalent, four-year period – about half the bump in rates for workers’ comp that would result from the WCIRB action.

Second is “the economy,” Dan Weintraub told us; a former Register and Sacramento Bee writer on state government, he recently started HealthyCal.org, a new Web source on health care.

A third reason is legal costs, Jerry Azevedo told us; he’s a spokesman for the Workers Compensation Action Network, an employers’ group.

The bottom line for us: These are early warning signs of workers’ comp costs on the march back up, and businesses should beware. Finally, it’s just sad that we have to revisit this issue again after it supposedly was fixed. California needs to start making the tough decisions to get our state in shape for competing in a tough global economy.