For Immediate Release: July 10, 2003

SAN FRANCISCO – The Pacific Research Institute (PRI) has chosen California’s workers’ compensation system as the newest recipient of the California Golden Fleece Award. The award, presented quarterly by PRI’s Business and Economic Studies, identifies state and local spending programs or regulations that fleece California taxpayers, businesses, or consumers.

“California’s workers’ compensation system threatens to do more damage to the state’s business climate than the budget crisis, electricity crisis, water crisis, or recall crisis,” said Dr. Lawrence J. McQuillan, director of PRI’s Business and Economic Studies.

A 7.2-percent increase in workers’ comp premiums took effect on July 1, compliments of California Insurance Commissioner John Garamendi. According to a state bureau, an astronomical 22 percent increase may eventually be required to cover rising medical costs.

“This is terrible news for California employers,” said McQuillan. “Many employers have already seen their workers’ comp costs triple since 1997, prompting firms like 3Com, Countrywide Financial, and Fidelity to seek greener pastures outside the state.”

According to Garamendi, “Fraud is just one more skyrocketing workers’ comp cost driver that must be brought under control.” In fiscal 2001, district attorneys spent $17 million to get 367 fraud convictions, stopping $174 million in fraud.

“This is not a bad cost/benefit payback,” said McQuillan, “but the savings are a drop in the bucket compared to total costs.”

Businesses will pay $20 billion in premiums this year, the highest in the nation. Yet, injured-worker benefits rank almost last.

McQuillan argues that the major cost driver in California’s workers’ comp system is abuse, not fraud. Doctors, lawyers, and unscrupulous workers and employers use the rules to legitimately bilk the system of billions of dollars.

“Commissioner Garamendi, Governor Davis, and state lawmakers should target abuse,” said McQuillan. “Without massive reforms, abuse will thrive, premiums soar, businesses flee, and California will suffer.”

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About PRI
For more than two decades, the Pacific Research Institute for Public Policy (PRI) has championed individual liberty through free markets. PRI is a non-profit, non-partisan organization dedicated to promoting the principles of limited government, individual freedom, and personal responsibility.