California Apparel News

California lawmakers are considering new legislation that will reform workers’ compensation benefits and costs but are facing opposition from state manufacturing and retailing organizations that argue that the cost to employers would be too high.

Opponents also argue that the new legislation does not recognize that workers’ compensation claims have decreased in recent years.

According to Division of Labor Statistics and Research data provided by the Occupational Safety and Health Administration, about 156,500 apparel and other textile product workers in the state reported nonfatal occupational injuries and illnesses in 1996, while 138,200 nonfatal occupational injuries and illnesses were reported in 2000.

The new workers’ compensation legislation, Assembly Bill 749, was co-authored by State Sen. John Burton, D-San Francisco, and Assemblyman Tom Calderon, D-Montebello, who previously backed similar legislation. Under AB749, employers will have to pay $2.5 billion to $4 billion for workers’ compensation benefits. (Some of this cost would be offset if a $1.5 billion reform currently being written by Gov. Gray Davis’ administration is added to the bill.)

At this time, estimating a new price as a result of a possible increase is impossible, according to Nancy Kramer, a spokeswoman for the California Department of Insurance. Currently, people are paying between $3.15 per $100 to $5.50 per $100 payroll.

“It includes a long-overdue benefits increase for injured workers, proposed disability and life pensions, doubles the fraud penalties, reforms and expedites medical information transfer,” Calderon said, adding that California’s benefits rank 49th among the 50 states.

“All told, this workers’ compensation reform bill provides $2.5 billion in benefit increases and $1.5 billion in systemic cost savings,” Calderon continued. “At the end of the day this $1 billion [net] bill is costing employers only 1 penny per employee per hour. This is clearly a win-win for everyone involved.”

However, the legislation is already facing a wave of opposition from California business groups, including the California Chamber of Commerce, the California Manufacturers & Technology Association (CMTA) and the California Retailers Association. They claim the bill could cost up to $4 billion annually if utilization cost is included.

“The business community cannot continue to be burdened with the kinds of excessive costs called for under this new measure, especially when our economy is much weaker,” said California Chamber of Commerce president Allan Zaremberg. “Once again, this bill does not enact the necessary reforms to revitalize a broken system and offset the high costs to employers.”

This is not the first attempt to address workers’ compensation. But sources close to the negotiations say the latest effort is different because of the Davis administration’s $1.5 billion reform, which represents the governor’s intention to “bring a cost-saving solution to the table.”

Davis’ reform package would streamline the state’s workers’ compensation system but still provide adequate benefits to workers, according to Steve Smith, director of the California Department of Industrial Relations.

Those who oppose the costs associated with AB749 point to recent hard times in California, beginning with increased production costs as a result of last year’s energy crisis and, more recently, the state’s minimum-wage hike placing California’s minimum wage as second highest in the country. The combination of these factors and increasing costs for workers’ compensation adds up to a blow to California’s manufacturing industry, according to Zaremberg.

“Employers can only absorb so many cost increases before they have to reduce their cost somewhere else,” he said. “Unfortunately that results in layoffs of their employees. More manufacturers are beginning to compete with a lot of overseas production and don’t have the ability to pass on the higher costs through their customers.”

The current proposals lack “serious reform,” according to Jack Stewart, CMTA president. “California manufacturers are still reeling from last year’s staggering electricity rate increases. The bill is just one more cost that many manufacturers may be unable to absorb and remain competitive,” he said.

CMTA research also points to a decrease in workers’ compensation claims. The Workers’ Compensation Insurance Rating Bureau has reported a 50 percent reduction in the number of workplace injuries over the past decade—from 3.8 to 1.9 per 100 workers statewide—according to Stewart.

Stewart said CMTA would like to see several changes made to workers’ compensation policy, including making sure more money goes to injured workers rather than toward administrative costs, getting fraud out of the system and eliminating medical subjectivity by installing a set of medical standards for qualifying disability to an injured worker.

Retailers also are objecting to the increased costs that will result from AB749.

California is an “expensive state to do business in,” said Bill Dombrowski, president of the California Retailers Association. He added, “The retail industry, which is struggling in this poor economy, is one of the largest employers in the states and will be hit particularly hard by these increases.”

Dombrowski said his association is waiting to see the final proposal before drawing a conclusion. “Many in this industry just don’t feel like there’s recognition on the part of legislature of the problems that the business community sees in the workers’ comp system,” he noted.

Susceptible Industry

Gary Hamilton, an independent broker who represents about 30 workers’ compensation carriers in the state, said the apparel industry is highly susceptible to workplace injuries. He said the majority of the claims he works with involve injuries resulting from lifting heavy objects, cuts and abrasions, and carpal tunnel syndrome developed by sewers.

Hamilton said that despite the overall decrease in workers’ compensation claims in the past five years, the apparel industry is seeing more workplace injuries reported because of the Labor Department’s efforts to clamp down on non-compliant shops.

“After deregulation many carriers didn’t want to raise their prices because they knew other carriers weren’t raising their rates and they would lose market share,” explained Hamilton, who insures some of his apparel clients through Atlantic Mutual and State Fund. “After five years many California insurance companies became insolvent because they were pricing themselves out of business.”

Many brokers say carriers have raised their rates over the past two years, and there may be another rate increase this July depending on the industry’s fourth-quarter loss-results report for 2001. Hamilton said rates have increased about 20 percent over last year.

Also, the pool of insurance resources has shrunk in recent years. Several workers’ compensation insurance companies, including Los Angeles-based Superior National and worldwide carrier Reliance National, have closed their doors as a result of deregulation-related turmoil, while other insurance carriers, including San Francisco-based HIH America Compensation and Liability Insurance Co. and Great States Insurance Co., have been seized by state regulators because their operations were insolvent and didn’t meet the state’s minimum capital requirements.

In cases where an insurance company becomes insolvent, employers rely on the California Insurers Guarantee Association (CIGA), a state-governed fund that is paid for through assessments to insurance companies based on 2 percent of their annual premiums.

“As the rates go up the carriers will most likely want to decrease the amount of commission paid to the agents,” Hamilton explained. “And if rates go to the level where businesses can’t afford it then a lot of manufactures and retailers will leave California for places where they can get some premium relief.”