California Apparel News

Recent reforms in California’s workers’ compensation insurance program will do little to help people like Jimmy Macias, a longtime Los Angeles apparel contractor with 41 employees.

This summer, Macias had to lay off three employees at his Ja-Mar Apparel Manufacturing Co. when his workers’ compensation insurance rates more than doubled in late July.

The six new state Assembly and Senate bills signed into law by Gov. Gray Davis on Sept. 30 won’t bring those employees back. And they won’t significantly reduce Ja-Mar’s insurance premiums.

“We just need lower premiums—that will affect us right away so we can hire new people, or buy equipment or upgrade our equipment,” said the veteran contractor, whose company has been manufacturing women’s pull-on pants for Sears, Roebuck and Co. for 12 years.

Last year, Ja-Mar had 48 employees. But when four of them quit this year, Macias decided not to replace them. Still, with 41 employees his insurance premiums will total $55,000 this year, or $8.88 per $100 in payroll. That is up from $3.54 per $100 last year.

The package of six bills that go into effect Jan. 1, 2004, was aimed at controlling the skyrocketing cost of workers’ compensation claims. By law, employers are required to provide workers’ compensation insurance coverage for their employees who might be injured on the job.

Here are some changes that will occur with the new reforms: bull;Chiropractic and physical therapy visits will be limited to 24 per claim.

bull; Doctors will not be able to refer patients to outpatient surgery clinics where doctors have a financial interest.

bull; Prescriptions will require greater use of generic drugs.

bull; Fee schedules will be set for medical procedures and be modeled after Medicare, the federal program for senior citizens, and Medi-Cal, the state program for the indigent.

bull;T here will be increased penalties for fraud.

Davis and his supporters believe the legislation will save California businesses as much as $5.7 billion a year. However, the insurance industry projects a $4 billion annual savings.

State Insurance Commissioner John Garamendi projects that insurance premiums will be rolled back 4 percent. But the nonprofit Workers’ Compensation Insurance Rating Bureau of California foresees a 2.9 percent rate rollback.

More changes needed

Many apparel manufacturers believe all this is too little too late.

“What a disappointment,” said Susan Crank, president of swimwear manufacturer Lunada Bay Corp., based in Anaheim, Calif. “I am actually hoping that with more attention being given to the situation, these issues will continue to be addressed and something more substantive can take place.”

Insurance premiums for her 80 employees now total about $130,000 but are projected to go as high as $400,000 next year.

“We don’t have any heavy machinery here,” she said, noting the company has had one claim in the last year. “We believe the [workers’ compensation] system is so incredibly abused and unmonitored.”

Because premiums are not expected to taper off significantly, Crank is wondering whether she will have to whittle away at some of the benefits the company provides.

“We have a wonderful pension benefits program where we put aside 10 percent of everyone’s salary—this is on the company alone,” she said. “And we help pay for the college education of our employees’ kids. But when you face expenses of that magnitude for workers’ compensation, you have to reevaluate.”

Lonnie Kane, president of contemporary women’s clothing company Karen Kane Inc., was a little more upbeat.

“It’s a small step in the right direction,” he said. “I think they estimate it is going to save $4 billion to $6 billion in cost to the system. And what they really need to cut out is something closer to $18 billion.”

Alternate plans

The new legislation won’t alter the selfinsurance plan initiated earlier this year by the Korean American Garment Industry Association in Los Angeles.

“We are still going to get about the same rate,” said Sam Kim, the association’s president. “But we can use all the help we can get at the moment.”

Kim said about 4,000 apparel and textile companies in California have indicated they are interested in signing up for the group plan being organized under the auspices of CNA Financial Corp., a Chicago firm that has several insurance companies.

“Our group plan will get us a rate of about $8 for every $100 in payroll,” Kim said. “That is better than the industry standard for apparel manufacturing, which is $12 to $13 per $100.”

California’s workers’ compensation woes go back to the early 1990s, when the state deregulated the industry and allowed companies to charge anything they wished. Premiums dropped drastically as carriers competed for business.

But that changed in 2000. Competition forced nearly two dozen companies to close while rates remained low and claims high. The remaining companies began increasing their rates to recuperate their losses. The result is that insurance rates have skyrocketed during the past three years.