Relief distant in workers' comp crisis.

Jim Ball knew that workers' compensation rates were on the rise, but when he opened his quote during Christmas week, the 60 percent increase in his company's premium, effective the following week, sent him into panic mode.

Ball, president of South Gate-based Sure-Grip International, which makes inline and roller skates, now faces the prospect of laying off 10 of his 45 employees or dropping all medical coverage--just to pay the $40,000 annual workers' camp bill.

What especially galls him is that Sure-Grip has been a model citizen when it comes to workers' compensation, instituting the required safety programs and not having a single claim filed against it in the last four years.

Yet in that time, Sure-Grip has seen its workers' comp rates go up more than 150 percent.

"It's just unbelievable' Ball said. "There just isn't anything I can do about it!'

All over L.A. and throughout California, employers are getting hammered with staggering increases in workers' compensation bills averaging between 30 percent and 60 percent over last year. These jumps far outstrip previous premium hikes and have resulted in the average workers' compensation premiums more than doubling over the past four years.

More rate hikes are in the offing as cost savings that were supposed to offset last year's benefit hikes have not been realized. Furthermore, because of state budget cuts, employers are being asked to subsidize the state agency that operates the workers compensation system.

"Rates are going up dramatically," said Dave Bellusci, senior vice president and chief actuary of the Workers' Compensation Insurance Rating Bureau. "By next year or the year after, we could see premiums totaling $20 billion." In 2001, the last full year for which figures are available, total workers' compensation premiums in California reached $12 billion.

All this while the actual number of claims has stayed relatively constant and even declined slightly.

The average premium per $100 payroll the most common objective measurement of workers' compensation rates--has shot up 122 percent since 1999. In the third quarter of 2002, it topped $5 for the first time ever, eclipsing the previous record of $4.40 per $100 payroll set at the peak of the last workers' comp crisis 10 years ago.

These figures don't take into account the most recent round of increases taking effect with Jan. 1 renewals.

Impact of increases

The latest jump is the result of a pair of recommended rate hikes from former state Insurance Commissioner Harry Low totaling 21 percent--as well as substantial benefit increases passed last year, the first round of which took effect on Jan. 1.

Those increases were hastily enacted last February as Gov. Gray Davis tried to shore up the labor vote for his re-election campaign. Among other things, they nearly double the maximum weekly benefit for temporarily disabled workers from $490 for injuries occurring through last Dec. 31, to $602 for injuries occurring this year, $728 for injuries that occur next year and $840 for injuries occurring in 2005.

The benefit increases were supposed to be offset by cost savings to the workers' compensation system. But those savings have yet to materialize, thanks in part to state budget cuts. So insurers are writing in the anticipated costs of the benefits into their premium renewals--though not the savings.

"When the funding to implement the savings has been cut, it's hard to price premiums to factor in those savings," said Jeanne Cain, western region vice president for the American Insurance Association.

Among the key reforms being held up by the budget crisis are plans to both encourage and lower the cost of outpatient care through the establishment of a schedule of fees for services, such as for knee or shoulder surgery.

That care should be cheaper than receiving the same service in a hospital, with its higher overhead, but that has not necessarily been the case since there are no set fees, said Dick Gannon, director of the state Division of Workers Compensation.

Another key reform slow in getting started is an effort to promote the use of generic brand drugs, as well as to lower prescription costs in general by establishing a dispensing schedule for pharmacists. The reforms mandate that pharmacists must prescribe generic drugs if brand name drugs are not required. by the prescription, but the department has not been able to mount an education campaign, Gannon said.

In order to see other cost-saving reforms, businesses are now being asked to pick up the tab for the state agency that operates the workers' compensation system. That's because the state's financial crisis prompted Davis last year to cut 10 percent out of the budget of the Division of Workers Compensation, which trimmed 90 of its nearly 1,000 positions.

The loss of manpower made it impossible, state officials claim, for the division to move ahead with many of the money-saving reforms since they require various administrative actions, such as the establishment of new fee schedules for medical care.

In response, the governor has proposed funding the system's $100 million costs through an assessment on every business in the state that has employees.

Currently, businesses pay 20 percent of the cost, which amounts to about $1 per employee per year. That could rise to nearly $7 per employee per year since the division would spend $6 million in additional funds annually to implement the reforms.

"This would be another increase on top of all the other increases," said Willie Washington, a lobbyist for the California Manufacturers and Technology Association, an industry trade group.

Richard Wooley, president of the California Applicants' Attorneys Association, a trade group for attorneys who represen injured workers, said that the money is relatively minimal. "If this will help fund a large portion of the $1.5 billion to $1.6 billion in savings you are getting a good return on your dollar' he said.

Nils Wright, editor of the newsletter Workers' Comp Executive, said he is surprised there hasn't been more outrage over the fee and reform delays. "I thought there would be a grassroots campaign," Wright said. "I haven't seen anything like that."

Part of the answer may be that the costs associated with the fee are minimal compared to the increases being faced from skyrocketing premiums.

Employers trapped

North Hollywood-based Woodworking By Degree saw its premiums double from $45,000 to $90,000 for the policy year that began last Oct. 1. With 38 employees, the proposed hike in the per-employee fee to fund the state Division of Workers' Compensation would amount to an increase of $200.

Woodworking By Degree did get hit with one claim last year; even though the company's insurer ultimately deemed the claim fraudulent, it still helped drive up the premium.

"We've already reduced our staff by 20 percent as a result of this increase, and we may have to cut back even more," said company vice president Gary Pietruszka.

The company has explored other options, like leasing its employees or trying to self-insure, bet neither has proven feasible. And trying to find better rates with other insurers proved fruitless.

"In years past, we could shop around to find better rates," Pietruszka said. "Not now. There simply aren't any other carriers that will insure anybody in the woodworking industry."

The ranks of workers' comp insurance carriers has thinned out dramatically over the last four years, thanks to years of insurers pricing their premiums below cost to grab market share. Several carriers became insolvent and had to be taken over by the state Department of Insurance.

And the market is likely to get worse. Two more rounds of benefit increases loom in each of the next two years - and other costs, including medical treatment, litigation fees and worker retraining, show no signs of easing their upward spiral.

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