Soaring workers' comp rates hitting businesses hard. (Up Front).

Jan Stine has done everything by the book to keep workers' compensation costs down. He provides extensive safety training for his 100 employees and responds quickly whenever a workplace injury does occur, He's even spent more than $100,000 to install mechanical patient lifts to reduce the risk of back injuries for workers.

As a result, the Ramona Care Convalescent Hospital has had only five workers' compensation claims in 13 years, and one minor claim in the last three years--a notable record in an industry flooded with claims.

Yet in those last three years, Ramona's workers' compensation bill has jumped from $96,000 to $312,000. And next year, he expects premiums to soar another 30 percent to 40 percent, perhaps topping $400,000.

Stine's predicament is not uncommon among California businesses. A shakeout in the workers' comp insurance industry and soaring medical costs are largely to blame for the price hikes.

"It's killing us," Stine said. "When I first started here 13 years ago, workers' comp cost us $700 a month. Now it's $26,000 a month and going up every year. That's S25,000 every month that could be going to expanding patient care or purchasing new equipment. Instead, we're trying to figure out how to cut costs elsewhere just to pay this bill."

The bill could have been much higher. Last year, Ramona Care's previous insurer quoted him a premium of $50,000 per month, or $600,000 a year; shopping around enabled Stine to cut that almost in half.

Triple-digit increases

Many employers in Los Angeles and across the state are seeing double- and triple-digit increases in their workers' comp bills. Those in traditionally high-risk industries, like construction or warehouse distribution, have been hit the hardest, with premiums frequently doubling every year. If a business has had more than its share of workers' comp claims, the premium hikes can be even steeper.

Last month, the State Compensation Insurance Fund, California's dominant workers' comp insurer, raised its premiums an average of 19 percent. Other carriers have raised rates an average of 25 percent to 30 percent.

There's more to come next year as the first benefit increases in more than a decade begin to take hold. In coming weeks, state Insurance Commissioner Harry Low is expected to recommend an average 12 percent rate hike for next year. That will serve as the floor on which insurers add even bigger rate hikes.

The rate increases are being driven by years of underpricing by insurance carriers that led to a wave of failures and consolidation, rising medical treatment costs for workers' comp claimants and a fear of a rising number of claims prompted by the benefit increases.

At Tito's Tacos in Culver City, owner Lynn Davidson has seen the annual workers' comp bill for her 70 employees jump to $93,000 from $56,000 last year.

"We've had no claims in over two years and no workplace accidents in over three years--and our premium still almost doubled' Davidson said.

The restaurant has revamped its return-to-work policy, so that injured workers can get back on the same or equivalent job and be less likely to litigate a claim.

But beyond that and shopping around for the best deal on insurance, "there's really not a whole lot we can do except try to control costs elsewhere," Davidson said. "We don't have a lot of claims, which means we're keeping a safe workplace."

Pooling employees

Other companies--especially those in industries prone to workers' comp claims like construction or roofing--have been forced to be creative to get around soaring costs.

Jim Dunn, president of Al All American Roofing Co. in Los Angeles, has contracted with a professional employer organization, or PEO, in effect, "leasing" his 350 employees.

PEOs, which were popular 10 years ago, pool employees from several companies in different industries to get lower insurance rates than the individual companies could get on their own.

As a result, Dunn saw workers' comp rates only notch up with single-digit increases in 2000 and 2001, while some of his competitors saw their rates more than double. But the workers' comp savings may be over for Dunn. His PEO raised rates 40 percent.

"That's better than the 120 percent increases I've been hearing other roofing companies have been hit with, but it's still a substantial hit to our bottom line' Dunn said.

Like everyone else, PEOs are finding workers' comp insurance harder to come by, especially if they have companies in high-risk industries. Already, Dunn said, one major PEO has become insolvent and he fears others may follow.

"The word on the street is that PEOs will go by the wayside in the next three or four years, he said. "When that happens, we would then lose our pooling advantage and be forced into the open market to face these triple-digit premium increases.

At least Dunn can pass on some of his costs to his customers, since virtually every roofing company is in the same boat. Hospital administrator Stine doesn't have that option because the vast majority of Stine's clients are on Medi-Cal. The state reimburses Ramona Care at fixed levels for the cost of care.

What's more, Stine's ability to cut staff is limited. To keep its license, Ramona Care must maintain minimum staffing levels for nurses and other employees. "We're at those minimums right now," Stine said.

"We're trapped. Our revenues are fixed and our costs are going through the roof," Stine said. "It can't go on like this much longer. Something's got to give, whether it's our ability to stay in business or forcing some changes from Sacramento."