Hopes dashed for major reform of state workers' comp this year.

What a difference six months can make.

When the state Legislature reconvened in January, hopes were at an all-time high that this year would finally bring sweeping reforms in the workers' compensation system.

For the first time, it seemed, a consensus had developed that the system needs fixing. What's more, in an election year when the economy has been a dominant issue, lawmakers have been feeling increased pressure from businesses that have made workers' comp reform a top priority.

Even Gov. Pete Wilson lent a sympathetic ear to the concerns of California's businesses, which spent an estimated $11 billion on insurance premiums and related costs last year.

Now, however, it appears unlikely that any significant package of reforms will emerge. And whatever changes are made are likely to fall far short of the reforms endorsed earlier this year by the Council on California Competitiveness, headed by Rebuild L.A. chief Peter Ueberroth.

Instead, what will probably result is a few modifications that will please neither the business community nor the numerous other special interest groups involved in workers' comp. Interviews with several legislative committee aides and lobbyists revealed that the reforms will likely be concentrated in four areas:

* A repeal of a minimum-rate law that virtually guarantees insurers profits.

* Some limitations on stress claims.

* Either a cap on or other reforms to the vocational rehabilitation system.

* Some anti-fraud provisions.

The details of the reforms that do make it to Gov. Wilson's desk are expected to be hammered out in a joint conference committee scheduled to meet next month. Whether the governor signs the legislation is uncertain.

Legislative staffers and lobbyists point to a variety of reasons for the apparent collapse of a major reform drive:

* Partisan bickering. Despite the outward consensus that reforms are needed, there remains a deep ideological split between Democrats and Republicans. The Democrats, led by Assembly Speaker Willie Brown, D-San Francisco, and Senate President David Roberti, D-Los Angeles, have traditionally resisted any weakening of workers' rights. Republicans, like Assemblymen Richard Mountjoy of Arcadia and Jim Brulte of Rancho Cucamonga, have resisted reforms that fail to ease the burden on business.

* The budget crisis. When this year's legislative session opened, few foresaw that the state would have to resort to paying its bills with IOUs. The failure to come up with a budget has put all other issues on the back burner, including workers' comp.

* The special interest morass. Groups like the California Medical Association, the Association of California Trial Lawyers, the Association of California Insurance Companies and the California Chamber of Commerce are polarized on the matter. Each has put forward its own proposals, and they have often been in conflict.

* Lack of high-profile leadership from the governor's office. Although Wilson did introduce his own reform proposals based on the recommendations of the Ueberroth committee in May, the budget crisis and the recent string of disasters around the state have forced his attention elsewhere. The Wilson administration promises a more active role after the budget crisis.

More than 80 workers' comp reform bills were introduced during this legislative session. Almost every legislator sought to get in on the act. And each house has merged a number of these proposals into its own package of bills.

Last month, the state Senate passed a group of four bills, carried by Sens. Bill Lockyer, D-Hayward, Patrick Johnston, D-Stockton, Marian Bergeson, R-Newport Beach, and Bill Leonard, R-Upland. The bills were passed by the Assembly late last month, but with numerous amendments.

The Lockyer and Bergeson bills seek to limit the scope of stress claims, cap vocational rehabilitation benefits and reduce the costs of medical evaluations, among other things. The Johnston bill proposes to allow employers to contract with HMO-type organizations to provide medical care for injured workers. The Leonard bill repeals the minimum rate that insurers charge for workers' compensation insurance.

All four bills must be passed for any to take effect. The Assembly has yet to pass its own reform package. A bill backed by a number of business groups and carried by Assemblyman Brulte failed to pass, as did a bill by Assemblyman Burt Margolin, D-Los Angeles, the powerful chairman of the Assembly Insurance Committee.

In a special marathon session before the Fourth of July, Margolin drew up another reform package. That one is awaiting a hearing in the Assembly Insurance Committee. If it clears the Assembly, it will go to the Senate and then probably on to the special joint conference committee on workers' comp.

The major bill in the Assembly package, AB 51X, would repeal the minimum-rate law, allow employers to obtain consolidated health and workers' compensation insurance, limit medical-legal evaluations to one per side, and cap vocational rehabilitation benefits to $20,000 per employee per injury. It would also increase benefits to injured workers, and enact additional anti-fraud provisions.

"Workers' compensation will be the issue of August. The question is whether the legislators can get together and actually tackle a big problem," said Casey Young, administrative director of the Division of Workers' Compensation and the Wilson administration's point man on workers' compensation issues. In order to gain Wilson's support, any reform package will have to address what Young terms the six main "cost-drivers" of the workers' compensation system: medical-legal costs, litigation, stress claims, vocational rehabilitation, minimum insurance premium rates, and fraud.

"The governor will not sign a facade that does not attack these cost-drivers. The worst thing that can happen is to pass a workers' comp bill and have costs continue to rise," Young said.

Fine is a staff reporter for the Orange County Business Journal