The ruling represents ongoing savings of $5.5 billion from the broken workers' compensation system offering hope of relief to employers from skyrocketing premiums.
Garamendi's ruling, based upon recommendations from experts, as well as the evidence of the significant savings that can result from the reform legislation signed in September, said California's employers must have relief from rising rates, and his advisory ruling is a big step in that direction."Our businesses cannot continue to operate under the crushing weight of this dysfunctional system," he said. "There are substantial savings to be realized from the reform legislation, and I intend to do everything in my power to ensure that those savings are passed on to employers."
After taking office in January, Garamendi signed an advisory pure premium increase of 7.2% that became effective on July 1. This followed a previous 10.5% increase in pure premium rates that had gone into effect six months earlier. Garamendi's decision on Thursday eliminates those increases, as well as a proposed 12% increase that if approved would have gone into effect January 1, 2004.
Rate decrease advisory only
Although insurers use his advisory rate as a benchmark, the Commissioner does not have the power to set the rates charged to employers. However, the reform legislation includes a provision that requires insurers to file rates that reflect the savings that the Commissioner determines are due to the reforms.
Garamendi said that although his ruling is a significant step toward addressing the workers' compensation crisis, more must be done. He has already begun working to address problems with the permanent disability rating system, which is too subjective and too inconsistent; to eliminate fraud, which costs the system an estimated $1 billion to $3 billion annually; extending the Medicare fee schedule to the entire medical portion of the system; and eliminating administrative inefficiencies.
"We have reined in much of the explosive growth in costs from the medical portion of workers' compensation, but our job is not over," Garamendi said.
Commissioner Garamendi emphasized that the savings from the reforms that are reflected in his pure premium order will only be realized if the law is enacted fully and immediately. He outlined several things that must occur:
First, the insurance industry must enforce all provisions of the new law, including utilization controls on medical treatment. Beginning in January, they must adequately train their adjusters to use the new treatment guidelines and in April, begin paying medical providers based only on those new guidelines.
Next, medical providers must learn and adhere to the new treatment guidelines consistent with the law's intent.
The Legislature, in the special session that Governor Schwarzenegger has indicated he will call, must enact cleanup legislation that deals with ambiguities and technical errors in the new law. This is essential for the new legislation to be carried out effectively, and to eliminate potential litigation.
And finally, the Division of Workers' Compensation must be adequately funded so that workers' compensation appeals judges can address claims issues expeditiously.
"As I said, there are very significant savings within this legislation that can be passed on to businesses," Garamendi said. "It is now up to all who are involved to fully enact this new law so that our employers will see some relief."