Orange County Register , July 24, 2005

Workers' compensation insurance companies are sending policy renewals to customers across the state this month. By and large, the message is good news for employers. After years of punishing increases, premiums are finally coming down.

Despite these positive developments, opponents are working tirelessly to rollback the reforms. If successful, their efforts could undermine years of progress and severely damage California's recovering market.

Responding to skyrocketing workers' comp costs, the Legislature passed a series of reforms beginning with AB 227 and SB 228, signed by former Governor Gray Davis days before the 2003 recall. Governor Arnold Schwarzenegger then led the effort for a sweeping workers' comp overhaul, SB 899, which comprehensively reformed the system. The bill passed with only six "No" votes in the 120-member Legislature, and was signed in April 2004.

Detractors railed against SB 899 because it did not include price controls that would force insurance companies to lower premiums. Government rate regulation, they argued, was the only way that any savings generated would be passed on to employers. This reveals a lack of understanding of how markets work.

In a free market, sellers keep their costs in line if they want to stay competitive. Recent workers' comp trends prove that this market approach is working. Average rates fell 16 percent from the fourth quarter of 2003 to the third quarter of 2004. Premiums should fall another 15 percent in the second half of 2005. Despite this 31-percent decline, opponents won't let facts get in their way.

In spite of overwhelming evidence from insured private businesses, public agencies, self-insured companies and others, opponents argue that the reforms are not benefiting California employers. They are sounding a drumbeat for yet another round of rate regulation legislation.

A bill to cap workers' comp premiums was introduced in the Legislature once again this year. Not only would the bill do nothing to help self-insured employers (about 20 percent of California businesses), it also sends the wrong signal to insurance carriers who are contemplating a return to California. The measure was defeated this session, though proponents have vowed to bring it back.

New guidelines have brought California's standards closer in line with those used by the rest of the nation and are helping to restore competition. In the past eight months numerous carriers have started writing new workers' comp policies here, and many others are waiting for licenses to enter the market.

Price controls would thwart the influx of new carriers seeking to enter the Golden State. Only six states impose price controls on workers' comp because most states have learned that they do not help consumers in the long term. Another development that doesn't help is the spate of lawsuits attacking the reforms.

Opponents have filed lawsuits to invalidate the new medical provider networks, apportionment guidelines, and the new permanent disability rating schedule - some of the most significant cost saving reforms. If left intact, these provisions are projected to cut premiums up to $1 billion annually.

Interests that benefited greatly under the old system, at the expense of injured workers and employers, are seeking to derail these reforms, which threaten their pocketbooks. If detractors of reform were to be successful on all fronts, California businesses could see recent cost reduction trends reversed and experience skyrocketing costs once again.

Fortunately, Governor Schwarzenegger has shown no inclination to rollback workers' compensation reforms or regulate rates. Lawmakers must continue to monitor developments in the system to guard against unintended consequences and make sure that reforms are benefiting those whom the system is designed to protect - employers and truly injured workers. The good news is that absent court action weakening reforms, employers should continue to experience relief, and employees should benefit from a more streamlined and predictable system.

Legislators with a philosophical distrust of market forces should rethink their dated views. Real market competition works. As workers' compensation reforms have been implemented, many employers have experienced dramatically lowered rates.

State actuaries would have recommended substantial increases if not for the reforms. Instead, employers are expected to enjoy a 31 percent rate cut by the end of 2005, freeing money for new hires and better employee benefits. To avert a return to the days of a fully dysfunctional workers' compensation market in California, lawmakers must reject price controls and let recent reforms continue to improve our business climate.

Chuck Poochigian, State Senator, R-Fresno, is the author of SB 899, The 2004 Workers' Comp Reform Bill. This was co-authored by Lawrence J. McQuillan, Director of Business and Economic Studies at the Pacific Research Institute in San Francisco.