Premium position: having bowed out of the recall race, California Insurance Commissioner John Garamendi now focuses on the tough task of fixing the state's troubled workers' compensation system as a Sept. 12 deadline for legislation looms.

IT'S a busy time for State Insurance Commissioner John Garamendi. Last month, he briefly entered the recall race to replace Gov. Gray Davis but ended up quickly bowing out, calling the whole process a "circus." It was his third try for the governor's" office having run unsuccessfully in both the 1982 and 1994 gubernatorial primaries.

Garamendi insists his interest in the governor's job in no way detracts from his current post and his commitment to fixing one of the state's biggest problems--its badly broken workers' compensation system.

Although the number of workers' comp claims has actually declined in recent years, medical costs have skyrocketed from roughly $14,000 to $32,000 per claim since 1999.

To bring California in line with other states, a new law that took effect in January boosted weekly benefits paid by insurers from $490 to $602, per claim. By 2006, the amount is expected to rise to $840 per week. Insurers must pass those increases on to employers and the impact has been devastating, particularly for small business and those who provide high-risk services, such as roofing and construction firms.

Meanwhile, deregulation of the industry in the 1990s resulted in fewer insurers willing to carry the insurance, so the State Compensation Insurance Fund has been forced to take over more than 50 percent of California's policies and there is concern it could go bankrupt if reforms are not implemented soon.

More than 50 bills aimed at fixing the workers' comp system are making their way through the state Legislature and all face a Sept. 12 deadline for passage. One bill would establish a uniform fee schedule for workers" comp treatment; another would beef up funding for expansion of fraud detection units across the state. Both measures are key elements of Garamendi's own plan for reforms. He's banking on lawmakers to pass these and other bills in the next few weeks and says he remains optimistic the state will enter 2004 with mandates for getting the beleaguered system back on track.

Question: With so many bills on the table aimed at reforming workers' comp, and now the likely disruptions from a gubernatorial recall election, many of our local lawmakers are finding it hard to believe any serious changes will come soon. What do you think is going to happen?

Answer: There is no choice but to have reforms; serious, comprehensive reforms are absolutely essentially for California. So the Legislature has to act, and it's my opinion that serious, quantifiable reforms must take place and will probably happen in the next couple of weeks.

Q: You've said you support a measure that would index workers' comp care costs to the fee schedules in place for Medicare and MediCal. But those systems are fraught with abuse as well. Why and how could it work for workers' comp?

A: There is no fraud in the tee schedules for Medicare and MediCal. It's found among the medical community. The fee schedules are cost-based systems and are regionally adjusted to take each state's unique factors into account. There are nine regional variations across California and the fee schedules for (workers' comp) would define payments for specific services, in specific regions, including costs for prescription drugs.

Q: You also support establishing guidelines based on the American College of Occupational and Environmental Medicine to stem over-utilization of the system. Would insurers be forced to use these guidelines when approving a claim, or just treating physicians?

A: All parties would be required to use those guidelines, including provider groups. There would be a statistical gathering system established to collect data from the medical providers on their adherence to those guidelines, and the same would go for the insurers themselves.

Q: You've suggested expanding investigation units to crack down on fraud. Does that require legislative approval? If not, what's the plan for doing so?

A: No. We have a major effort underway to focus on fraud. We are also working with district attorneys and other federal units, to focus on and address workers' comp fraud. Of particular concern to us are the organized rings of gangs, or fraud mills that include the doctors, the providers, the employers and the workers themselves. The other part of it is that we do have additional recommendations for law changes that would allow for gathering of statistics, which would help us identify those providers who are engaged in fraud. Secondly, the new laws would allow state agencies to share information with each other to better track fraud, and the third component is to change the penalty structures so that there are more serious penalties for fraud in place.

Q: The Department of Insurance's State Fraud Assessment Commission recently allocated $4.3 million to the L.A. County district attorney's office to help fight fraud across our five-county region, but it's said to be far less than other counties across the state received. Why did Los Angeles get so much less?

A: Actually, Los Angeles got more this year than it did last year. (workers' comp) fraud exists throughout California, so we need to attack it in other counties as well.

Q: You've promised Los Angeles District Attorney Steve Cooley's office an additional $400,000 to target fraud mills here in Los Angeles County. Can his office expect to see that by year's end?

A: Yes. If the department approves it, and I hope they will.

But I have strongly recommended that additional funding for the purposes of establishing a specific unit to deal with the fraud mills in Los Angeles be made available, I've asked Mr. Cooley to present a proposal or application tot this money. And, in that application he's going to have to explain justification for the additional funding. The normal process would be to wait six months for the application to be approved, but I've asked that (Cooley's) application be accepted now.

Q: Chiropractors are widely considered as some of the biggest abusers of the system. How do they factor in your plans for reform?

A: Just like any other provider of care, chiropractors would be subjected to abiding by new fee schedules and subject to enhanced fraud enforcement and penalties.

Q: If reforms are still not in place by 2004, how long do you believe it will be before the State Fund's surplus runs out?

A: I would say that it is absolutely essential for businesses, as well as the state fund, that immediate, comprehensive, substantial reforms take place in the next three weeks.

Q: How optimistic are you that any of these measures now on the table will be passed?

A: I am very optimistic because there is no choice. The legislature has historically acted when they have had no other option but to act. There can be no window dressing here.

Q: You briefly entered the gubernatorial recall race and then backed out again, saying the contest was becoming "a circus." Were you also being pressured by Democrats to bow out in order to give Lt. Gov. Cruz Bustamante more exposure?

A: No.

Q: This was your third run for the office. Although you've clearly helped to restore some degree of confidence in the Department of Insurance, aren't you concerned about being accused of simply using your current position as a stepping stone to the governor's office?

A: No. I am doing the job I was elected to do as commissioner. I am creating once again, the best consumer protection agency in this nation. I am deeply involved in drafting substantive recommendations for reforms and there is no doubt that I am an active participant and dedicated to doing the job I was chosen to do.

Q: Will you attempt to run for governor again in 2006?

A: This is not the place to make such an announcement.

John Garamendi

Title: California Insurance Commissioner 

Birthplace: South Florida, in a World War II Military Camp

Age: 58

Education: Bachelor's degree, economics, University of California, Berkeley; MBA, Harvard Business School.

Career Turning Point: Serving in the U.S. Peace Corps in Ethiopia from 1966-1968

Most Admired Person: Wife, Patricia

Personal: married; six children, seven grandchildren; lives in Walnut Grove