California comp market flirts with chaos.

California's chaotic $29 billion workers' compensation market might finally reach stability, if reforms passed in 2003, and others still under debate by the state Legislature, have their planned effect. But as one of the driving issues behind one of the strangest political events in the history of the state, the chaos swirling about the issue of workers' comp remains as strong at the dawn of 2004 as it had been throughout 2003.

It was a year marked by the return to office of California's first elected insurance commissioner after a nearly decade-long absence; concern over the solvency of the state's workers' comp fund; the recall of an unpopular governor and his replacement by a Hollywood superstar; and passage of a hard-fought $5 billion reform package that, at press time, looked as if it might yet be repealed.

With indemnity claims more than twice the national average and the cost of coverage driving some businesses out of the state altogether, former Gov. Gray Davis' handling of the comp crisis became one of the prime issues in a campaign to recall the two-term Democrat from office. By mid-summer, as momentum turned against Davis and for the recall, fueled by Republican actor Arnold Schwarzenegger's entry into the race, the Democratic-controlled Legislature convened a special bicameral conference committee to craft legislative reforms to control the spiraling costs.

Taking most of its cues from reforms proposed by Insurance Commissioner John Garamendi, the Legislature passed S.B. 228 and A.B. 227, 1007, 1099, 1267 and 1557 in September. Davis signed off on the bills, which Garamendi has estimated will produce $4 billion in one-time savings and more than $5 billion in annual savings, mostly through new Medicare-indexed fee schedules and caps on chiropractic visits.

According to the Workers' Compensation Insurance Rating Bureau, the total cost of workers' comp in California, including both insured and self-insured businesses, grew from $9 billion in 1995 to $29 billion in 2003, despite serving fewer workers.

Opinions on the most pressing cost drivers differ, but among the most obvious were the fact that injured California workers were visiting chiropractors an average of 34 times, twice as many as workers in the other 12 largest states. "If S.B. 228, which capped an individual claimant's chiropractic and physical therapy visits to a maximum of 24, had been in effect all year, the average number of visits would have fallen to 12, and the average chiropractic claims paid would have dropped 45%;' said Alex Swedlow, the executive vice president for research and development at the California Workers Compensation Institute.

Following passage of the reform package, Garamendi recommended a 14.9% cut in the pure premium rate charged by the state's workers' comp writers, scheduled to take effect in January. According to the commissioner, the rate cut should be followed even by the State Compensation Insurance Fund, the quasi-public agency holding 60% of the state market.

Schwarzenegger, in fact, spent his first week in office in late November introducing an even broader, $11 billion reform package, including establishing more uniform standards in determining permanent/partial disability awards and the use of independent medical review to speed up treatment approvals and reduce litigation costs.