On May 13, 2004, the California Applicant Attorneys Association (CAAA) called for an immediate 25 percent reduction in insurance rates. Only two weeks later, on May 28, 2004, that number had risen to 30 percent. On June 18, Senator Richard Alarcon expressed his disappointment that rates were not being reduced by at least 20 percent, according to a quote in the Sacramento Bee. Senator Alarcon, like many others in the Legislature, apparently has failed to notice that the Commissioner’s rate reduction order called for a 20.9 percent reduction in rates from July 1, 2003, a call answered by several major insurance carriers. Many other large carriers have filed rate reductions very close to that called for by the Commissioner. Still others filed lower but significant decreases

But CAAA also is engaged in a rhetorical sleight of hand that befits its self-anointed label as protector of injured workers. Decrying the reforms of the past two years — being careful to blame all the bad effects on Governor Schwarzenegger even though some of the problems they have are with laws signed by Governor Davis without the benefit of Republican support — CAAA says it is shameful that insurers do not have their rates regulated when injured workers are suffering at the hands of such draconian changes in the law. By tying harsh outcomes to insurance rate regulation, CAAA has raised a provocative question: If there were insurance rate regulation, would the reforms in SB 899 (Poochigian), particularly those that affect applicants’ attorneys’ incomes, be more palatable? If AB x4 16 (Levine) were signed into law, would the protests stop?

Are the new apportionment and causation laws acceptable if small business sees its insurance rates drop by 20 percent? The answer to these questions would appear to be “yes.” Furthermore, given that proponents of rate regulation love to embrace the idea that self-insureds are seeing immediate reductions in the 20 percent range — a number that has yet to materialize for large self-insured employers and public agencies — it also would seem that the new laws are fine for self-insureds both public and private.

Well, certainly such a conclusion is just plain childish if not blatantly inane. It is equally silly to assume that CAAA wants rate regulation anymore than does the insurance industry. This is not an issue that is supposed to be resolved in 2004. If it were, there would not be such a flap over a relatively benign bill like AB x4 16 or such a truly preposterous proposal like SB x4 16 (Alarcon), CAAA-drafted legislation that stands for the proposition that if you don’t like what one politician does to insurance rates, just wait until you see what three do. This proposal would have rates set by a Commission made up of the Governor, Attorney General, and Insurance Commissioner. It also would exempt the State Compensation Insurance Fund from the requirements of Risk-Based Capital, a move the Legislature thinks will allow State Fund to reduce rates even more because, well, because nobody could tell them not to. Don’t misunderstand. We think State Fund should be exempt from RBC statutes, but to tie “this with that” in this case doesn’t work at all.

Then, in July, the debate over insurance rate regulation took an even more preposterous turn when the Workers’ Compensation Insurance Rating Bureau announced it would recommend a 3.5% pure premium increase for January 2005. It was not the best timing in political reality. The outrage from Democratic lawmakers was immediate and profound. Well, perhaps if anyone on that side of the aisle had taken the time to read AB 749 a few years back they would have noticed that 749 was a gift that kept on giving, not only in 2005 but in 2006 and, for some claims, literally forever.

Can you say “COLA” and “indexing,” Senator Alarcon? We know you can, everyone has heard you. Sometimes it even has been heard while you were enjoying an expensive dinner at one of those spots in Sacramento where one goes to be seen. One goes to those places to be seen with one’s — shall we say cronies or benefactors, or shall we use the more meaningful term: supporters? John Garamendi’s famous quote referring to the insurance industry as “pigs at the trough” does not come even close to what it appears you’re doing, does it, Senator? Oh, yes. While you were chair of the Senate Labor and Industrial Relations Committee, you passed AB 749 as a “spot” bill, didn’t you? Of course, as long as the blank check was being filled out by organized labor and CAAA, you really didn’t care what happened to employers’ rates, did you?

Assembly Speaker Fabian Nuñez gets a pass because he wasn’t even in the Legislature when AB 749 was passed. His comments can be attributed to bad — or perhaps it might be better to say ignorant but wide-eyed idealistic — staff work. But given the way the state budget negotiations worked out, it is easy to see that legislative leadership (and the Governor) have a fundamental problem with numbers. Let’s make this simple — SB 899 (Poochigian) did not take back the benefit increases in AB 749. (Although in fairness to Senator Poochigian, he tried to in other legislation.)

The benefit increases in AB 749 will continue through 2006. WCIRB told that to legislators in 2002 and it is still telling the world that benefit increases are cost increases. When put in those terms, I can see why the Democrats are appalled — cost increases equal price increases? Sounds like a conspiracy to me.

Twenty-five percent of the United States workers’ compensation insurance marketplace is in California. The State Compensation Insurance Fund is the largest writer of workers’ compensation insurance in the country. Putting this system in the hands of a CAAA-crafted price control scheme will cause the total collapse of the system in relative short order. CAAA knows that. And CAAA knows that Governor Schwarzenegger knows that CAAA knows that. That is why the rhetoric is so hollow. That is why there is no intention to get either of these bills signed into law. After all, what would CAAA complain about then? Perhaps it would the real CAAA agenda, which of course involves fees in the pockets of its members.

The most cost-effective systems in the country are those that have severely limited lawyers’ involvement. Injured workers still have mechanisms to work through medical and other issues, but they don’t have lawyers to help them find doctors who will teach them how to malinger in the hopes of some large settlement far less than what they might have earned from working. Far less, of course, for everyone except the lawyers and the doctors who profit most from Senator Alarcon’s version of the California system. So we say let’s end the time-wasting, publicity-seeking rhetoric and get to work on meaningful cost reductions. Such action might actually help put more people in jobs.