California Apparel News

In the last three years, Janet Wells has seen workers’ compensation insurance premiums grow fourfold at her mid-size company.

Her insurance woes were compounded two years ago when a worker hurt his thumb. It was an injury Wells thought would cost $5,000. To date, the claim has mounted to $100,000, she said, and could climb even more. The worker is still on disability.

With that, she called a company-wide meeting to talk to her 120 employees about safety. She also notified them she would have to cut employee benefits to pay for her rising workers’ compensation costs, which now total 6 percent of payroll.

“I’m angry that I have to cut benefits,” said the president of Insta Graphics Systems, a 45-year-old company in Cerritos, Calif., that makes heat-transfer equipment to create logos and labels on apparel.

In search of a remedy for her workers’ compensation problems, Wells is encouraging her employees to write to their state representatives to get a workers’ compensation reform bill passed this year in Sacramento.

Wells was one of about two dozen apparelindustry members who showed up for the California Fashion Association’s workers’ compensation workshop on July 24 at the California Market Center.

Ilse Metchek, CFA’s executive director, said the workers’ compensation issue is a growing problem that is not going away. The region’s apparel industry cannot improve until there is an economic rebound, she said. But a rebound will be slow to materialize if high workers’ compensation premiums keep local businesses from hiring new employees.

“Instead of new permanent hiring, firms would rather hire temps or ask their existing employees to put in overtime, both of which do not add to their benefit costs,” she noted.

Rising workers’ compensation costs are putting apparel companies out of business or driving them out of state, according to attorney Nicholas Roxborough, a partner with Roxborough, Pomerance & Nye in Los Angeles and one of the workshop panelists. At the same time, the high workers’ compensation costs of California’s insurers are giving out-of-state suppliers a competitive price advantage.

State legislation in the early 1990s deregulated the industry, allowing insurers to charge anything they wanted. Premiums dropped drastically as insurance carriers competed for business.

But that changed in 2000. Competition forced nearly two dozen insurance companies to close. Those remaining started increasing rates to cover their losses. The result was that California employers found their workers’ compensation insurance premiums skyrocketing as much as 100 percent in three years.

California employers now pay the highest premiums rates in the country, an average of $5.23 for each $100 on payroll, according to research by the Oregon Department of Consumer and Business Services.

Because workers’ compensation insurance premiums are tied to a percentage of payroll, some employers are not hiring workers or are laying off employees.

Some in the industry have taken matters into their own hands. The Korean American Garment Industry Association in Los Angeles formed its own captive insurance plan, which has extended beyond its 700 members to 3,000 garment manufacturers, contractors and cutters in the area.

(A captive insurance program is one in which a company—typically a non-insurance firm—forms a subsidiary company to insure the risks of the parent organization.)

However, it’s going to be a tough fight for the state’s contractors, whose payroll average is between 10 to 40 workers.

Captive insurance programs are only feasible for companies with a large work force, said Apparel Resources Inc. Chief Executive Officer Randy Youngblood, another member of the workshop panel.

Assessing plans

Representatives from Arthur J. Gallagher & Co., one of the country’s largest insurance brokers, discussed various insurance policy options at the CFA workshop.

Noreen Graham, area senior vice president at Arthur J. Gallagher, discussed a variety of insurance that allow companies to capitalize their own insurance coverage in conjunction with an insurance carrier.

Doug Simons, area vice president at Arthur J. Gallagher, noted there are several ways companies can make their workplaces safer and reduce accidents to keep insurance premiums lower.

He suggested that companies:

bull; Report claims within 24 hours. That helps claims adjusters get injured workers to specialists and back to work quickly.

bull; Communicate with the medical clinics that handle employee injuries. Have representatives from clinics visit the workplace to understand the type of work being done.

bull; Communicate frequently with claims adjusters— whether by phone, computer or fax—when an injury has occurred. Companies can never ask enough questions.

bull; After an injury, get a thorough accident investigation as soon as possible.

bull; Regularly conduct file reviews of claims to see where they are going and how they are being resolved.

bull; Provide injured workers with transitional work programs that require little physical exertion. Even a workday that is two to four hours long reduces what workers’ compensation pays out.

bull; Have owners make sure safe work habits and regulations are followed.

bull; Keep workplaces clean and safe. Fix or replace broken equipment or office furniture before workers get hurt.

bull; Make sure materials are handled correctly. Have demonstrations on good ergonomics and proper lifting techniques.

bull; Create a safety incentive program that rewards employees for work periods without injuries or accidents.

bull; Start a committee of managers and workers who make the workplace safer and periodically inspect working conditions.

bull; Gather as much information as possible during an accident investigation. Find the cause and make the necessary corrections so the same injury does not happen again.

Legal Aid

Several pieces of legislation aimed at reforming California’s current workers’ compensation laws are making the rounds in the California Senate and Assembly. Attorney Nicholas P. Roxborough, a partner with Los Angeles–based firm Roxborough, Pomerance & Nye, discussed some of the pending legislation during the California Fashion Association’s panel discussion “Workers’ Compensation—Issues and Solutions,” which drew about two dozen members of the Los Angeles apparel community.

Workers’ compensation rates are increasing by at least 25 percent for some companies and as much as 100 to 200 percent for others, said Roxborough. Costs are increasing because medical care rates are inflating and because injured workers are taking longer to recover. This results in more doctor visits and more disability payouts to workers, according to a statement by California Insurance Commissioner John Garamendi.

To underscore the threat to California’s business community, Roxborough explained to the audience how some companies that have grown their businesses and are used to seeing a tidy profit are considering moving outside the state.

Roxborough recommends that companies write to their local and state representatives to explain how these increases are affecting their businesses.

“Never before, until now, have I believed that e-mails could have a big effect,” he said.

Members of California’s Assembly and Senate have drawn up workers’ compensation bills that focus on medical cost containment, licensing and training for claims adjusters, alternate dispute resolution and fraud prevention. (Note: All of the following bills in their present form are “spot bills” that are awaiting finalization of their legislative language relative to the issue of workers’ compensation.) —Claudia Figueroa

Legislation that affects the reduction of medical costsAB227Author: Assemblyman Juan Vargas, D-San DiegoDescription: Provides an interim outpatient surgery fee schedule.Status: The bill passed the Assembly and went to the Senate, which changed it into a form that was not acceptable to the Assembly. The bill has gone to a Senate-Assembly Conference Committee that will come to an agreement acceptable to both houses. The bill will then be sent to the governor.SB228Author: Sen. Richard Alarcoacute;n, D-Sylmar Description: Places a cap on medical fees at 120 percent of the Medicare schedule and at 100 percent of the pharmaceutical schedule. Status: The bill has gone to the Conference Committee.SB757Author: Sen. Charles Poochigian, R-FresnoDescription: Medical fee schedule for outpatient surgery centers based on a “national standard,” which has yet to be defined. Prohibits compensation for injuries that are not 50 percent work-related.Status: The bill has gone to the Conference Committee.SB354Author: Sen. Jackie Spier, D-Daly CityDescription: Sets a limit of 15 one-hour visits to a chiropractor, absent approval by a medical doctor for more visits. Doubles the maximum fine for fraudulent claims to $100,000 or double the value of the fraud.Status: The bill has gone to the Conference Committee.Legislation that deals with alternative dispute resolution by the Workers’ Compensation Appeals Board (WCAB) AB1434Author: Assemblyman Mark Wyland, R-VistaDescription: Allows for employers to establish a dispute resolution process for workers’ compensation instead of having hearings before the WCAB. The existing law limits this provision only to those engaged in construction, construction maintenance or related heavy-duty jobs.Status: The bill was scheduled for its first hearing in the Assembly, but the hearing was canceled at the request of Wyland, who is seeking more support.Legislation aimed at minimizing employer fraudAB1215Author: Assemblyman Juan Vargas, D-San DiegoDescription: Protects against workers’ compensation fraud caused by employers who underreport payroll, and allows insurers to access Employment Development Department records.Status: The bill has gone to the Conference Committee. Legislation advocating health coverage for the small employerSB229Author: Sen. John Burton, D-San FranciscoDescription: The State Compensation Insurance Fund will not increase premiums for two years on “small employers” (term has yet to be defined) if they are claim-free for five years and provide health coverage to employees. Requires the SCIF to submit its findings to the Legislature by Jan. 1, 2005.Status: The bill has gone to the Conference Committee.