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The Daily News of Los Angeles
Mar 26, 2004 - 01:00 AM

by David M.Drucker, Sacramento Bureau

Governor considers proposal

Insurance industry suggestion could cut workers' compensation costs
Gov. Arnold Schwarzenegger, who gave the Legislature until today to approve his $11 billion workers' compensation reform plan, is looking to an insurance-industry proposal to bridge the gap between Republicans and Democrats, a source familiar with the negotiations said Thursday.

The Republican governor is examining a mechanism to allow the state insurance commissioner to shape the cost of premiums. It would not mandate the price businesses pay for workers' compensation insurance, but purportedly would still ensure that the cost-savings generated by the reform package flows to employers rather than insurers.

"On the continuum of possibilities, it is clearly less severe than what the proponents of strict regulation have been talking about," said state Sen. Charles Poochigian, R-Fresno, a key legislator on the issue of workers' compensation reform. "But the devil is in the details."

Democratic lawmakers, many supported by the trial-lawyer and medical industries accused of driving up the cost of workers' compensation insurance, want any reform plan to allow the state insurance commissioner -- currently Democrat John Garamendi -- to have the authority to set the price of premiums paid by businesses.

In that way, they argue, cost savings would benefit employers, not add to insurance-company profits.

"The commissioner has to have the authority to enforce rate limits. Anything short of that will allow insurers to gouge businesses and reap their own financial rewards," said Jerry Flanagan, a spokesman for the Foundation for Taxpayer and Consumer Rights.

The mechanism being weighed by Schwarzenegger would stop short of that. It would allow the insurance commissioner to set a "pure premium rate" which insurers would use as a base to which they would add their overhead costs. The actual price charged by insurers would be left to their discretion, and those who disagreed with the pure premium rate could appeal it.

The administration declined to comment Thursday on the proposal, saying only that Schwarzenegger is committed to reforming the troubled system and providing relief to employers.

But Republicans and insurance industry officials who adamantly opposed rate-regulation did not reject the new proposal out of hand.

California businesses are required to carry workers' compensation insurance to cover the cost of medical treatment and disability payments for employees injured on the job. Rates have tripled on employers in recent years even as their accident rates have declined or remained stagnant.

Schwarzenegger has made reforming the system and lowering premium costs a key plank of his agenda, and has threatened to take his own plan to the Nov. 2 ballot in the form of an initiative if the Democrat-controlled Legislature does not put a bill on his desk for him to sign by Thursday, when lawmakers are scheduled to begin a 10-day spring recess.

Despite the handful of issues left to be resolved, rate-regulation has emerged as the No. 1 hurdle remaining.

Assembly Speaker Fabian Nunez, D-Los Angeles, who met with Schwarzenegger on Thursday, said a mechanism such as the one being considered by the governor "may or may not" be acceptable. Like Poochigian, he noted that "the devil is in the details." Nunez would not discuss his meeting with the governor.

Schwarzenegger met with the Legislature's top Democrat -- Senate President Pro Tem John Burton of San Francisco -- late Wednesday after gathering signatures for his initiative in suburban Sacramento, and continued talks with legislators Thursday.

"The governor remains optimistic that all sides can come together and provide real relief for Californians," administration spokesman Vince Sollitto said.
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David M. Drucker- (916) 442-5096 or david.drucker@dailybulletin.com




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