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The San Diego Union-Tribune
Mar 25, 2004 - 01:00 AM

by Bill Ainsworth, STAFF WRITER

Governor shifts stance on workers' comp debate;

Schwarzenegger open to insurance rate regulation
SACRAMENTO -- Gov. Arnold Schwarzenegger said yesterday for the first time that he would consider regulating workers' compensation insurance rates to make sure savings approved by the Legislature are reflected in lower premiums to businesses.

His comments indicated a legislative solution is near on a problem that has saddled business owners with escalating premiums for years and helped fuel the recall election that put Schwarzenegger in office.

For weeks, regulating rates has been a sticking point in negotiations between the Republican governor and the Democratic-controlled Legislature.

Until yesterday, Schwarzenegger has opposed regulation, saying it would discourage insurance companies from entering the market. Democrats have insisted some form of regulation is needed to ensure savings are reflected in lower premiums, rather than increased insurance company profits.

In front of a Costco in Roseville, a suburb of Sacramento, Schwarzenegger said he and legislative leaders "are talking about how the costs that are saved go and get passed on to the customers. That is a very important part."

Schwarzenegger said he expects the Legislature to have a conceptual deal soon.

"We are chipping away. We are getting closer and closer, but we are not there yet," he said.

The governor's appearance was another reminder of the dual track he has pursued: negotiating with the Legislature and teaming up with business allies to support a ballot measure.

If legislative negotiations fail, Schwarzenegger will seek approval from voters.

Yesterday, Schwarzenegger sought signatures from voters for the ballot measure.

He waded into the crowded store, created a traffic jam and gathered signatures. He joked about exchanging an autograph for a petition signing.

Afterward, he told reporters that the warm reception from shoppers showed voters want reform.

"It sends a clear message," he said.

But many analysts say a ballot measure fight over workers' comp would be far more difficult for him to win than his March 2 triumphs on two budget ballot measures.

For one thing, those measures had no organized opposition. Labor and attorney groups would have a large budget to fight against a workers' compensation measure.

Legislators and their staff members say agreements have been reached in many areas of workers' compensation, including medical cost controls, permanent disability payments and a system for returning workers to the job faster.

Assembly Speaker Fabian Nunez, D-Los Angeles, also expressed optimism a deal could be reached quickly.

"I think in the next two days we can have an agreement," he said, in remarks in front of the Sacramento Press Club.

Not everyone was so optimistic.

"I still think it has a ways to go," said Allan Zaremberg, president of the California Chamber of Commerce.

Despite the willingness to compromise on rate regulation, many questions remain about the form it would take.

Schwarzenegger is floating a plan that would require insurance companies to pass on all savings approved by the Legislature for one year.

Insurance Commissioner John Garamendi, who had also opposed insurance rate regulation until early this week, has proposed a regulation period of three years.

By contrast, a group of consumer advocates and state Sen. Richard Alarcon, D-Los Angeles, want more stringent, permanent regulation.

They want to require workers' compensation carriers to win approval for rate increases from the insurance commissioner. Under Proposition 103, the 1988 ballot measure, the commissioner must give prior approval to companies seeking rate changes in other lines of insurance, including motor vehicles.

Alarcon said the workers' compensation insurance industry needs regulation because it didn't lower rates this year to reflect the full decrease in costs approved by the Legislature in last year's package of bills.

Last year, the insurance commissioner suggested the changes in medical treatment payments and other areas would merit a 15 percent rate cut. But the industry cut rates by an average of 3 percent.

Any changes approved this year, he said, might run into similar problems. "If we're going to cut the benefits, it's imperative that we do so in a way that employers will see reduced costs," Alarcon said.

State law requires businesses to have some form of workers' compensation insurance.

Doug Heller, an advocate from the Foundation for Taxpayer and Consumer Rights, said 25 states regulate workers' compensation rates, including some that have avoided a crisis.

California's rates were regulated until 1993. After deregulation, rates dropped while carriers competed for business. Later, many carriers became insolvent and rates skyrocketed.

During the past four years, rates have increased an average of 136 percent, which has burdened employers throughout the state, including school districts, manufacturers and nursery schools.

Insurance industry leaders defended their conduct, saying they didn't cut rates this year because legislative leaders have in the past overstated the savings from system changes.

"We are skeptical based on reality," said Nicole Mahrt, a spokeswoman for the American Insurance Association.

Samuel Sorich, president of the Association of California Insurance Companies, said rate regulation would discourage competition when the state needs it most.

"It's the wrong answer," he said.

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