Governor Brown Signs Workers' Compensation Reform to Cut Hundreds of Millions in Waste, Protect Injured Workers and Reduce Costs to Business

Press Release

By:  John Pérez Jerry Brown, Jr. Darrell Steinberg
Date: Sept. 18, 2012
Location: San Diego, CA

Governor Edmund G. Brown Jr. today signed landmark legislation -- backed by both Democrats and Republicans -- to reduce costs to businesses and protect workers by cutting out hundreds of millions of dollars in waste from California's workers' compensation system.

The bill, SB 863 (De León), reverses a four-year trend of rate increases. Without reform, these costs would continue to escalate, which would mean higher costs for businesses and smaller payments for injured workers.

"These significant reforms save hundreds of millions of dollars for California's employers while preventing an imminent crisis of skyrocketing rates that would have hurt both injured workers and businesses," said Governor Brown. "It's extraordinary to see Republicans and Democrats come together to solve a problem before it becomes a crisis."

"This reform law will create greater efficiencies and accountability in the system, save major employers money that can be used to hire new workers and help our economic recovery and protect workers who have been injured on the job," said Assembly Speaker John A. Pérez. "This is a major victory for the people of California, and I am proud to have worked with the Governor, my colleagues in both parties and both houses of the Legislature and finally the stakeholders who came together in a spirit of good faith and cooperation to make this reform proposal a reality."

"Not only does this compromise provide business with lower rates and injured workers with increased benefits, it also addresses the plight of those workers who suffer the most serious injuries on the job," said Senate President Pro Tem Darrell Steinberg. "We can't forget those construction workers and other skilled employees whose injuries will end their careers. By annually setting aside $120 million in other cost savings to provide those workers their lost earning power, this reform ensures that no one is left out in our workers' compensation system."

Last month, Governor Brown led the effort to pass SB 863, which was approved by an overwhelming majority of lawmakers on both sides of the aisle. Representatives from both business and labor groups hailed the bill's passage as a "win-win" for employers and employees alike.

"California businesses support this important reform led by Governor Brown which represents a balanced approach to issues within California's workers' compensation system," said Allan Zaremberg, CEO of the California Chamber of Commerce. "SB 863 provides employers with cost-saving proposals that will reduce frictional costs while providing injured workers with needed benefit increases. The reforms also have the potential to reduce costs to the underlying system that will benefit employers. We appreciate the Governor's commitment to an expeditious regulatory process that will help achieve the full extent of projected savings."

"We commend the Governor for his leadership in providing a comprehensive solution to the growing workers' compensation crisis," said Art Pulaski, Executive Secretary-Treasurer and Chief Officer of the California Labor Federation. "This landmark reform provides injured workers with an increase of $860 million in benefits, while eliminating waste and inefficiencies in the system. This new law achieves a true rarity in Sacramento. It finds a way to increase benefits to those in need while reducing costs across the board."

In the past two years, the costs of workers' compensation insurance have risen from $14.8 billion to $19 billion, with an estimated 12.6% increase projected in the near future. By reducing systemic inefficiencies and unnecessary expenses, Senate Bill 863 will save businesses $1 billion in 2013, increase payments to disabled workers by 30% and improve the delivery of medical treatment, retraining and other benefits.

As an employer, under Senate Bill 863 the State of California is projected to save $40 million per year in insurance costs alone, as well as untold millions in litigation, claims adjustment and other frictional costs. Savings to local government, including schools, cities and counties, are estimated at $170 million annually.

Workers' compensation insurance is designed to help all California employers and the state's 14.4 million workers by pooling risk of workplace injury and providing predictable payments to avoid costly litigation. Today's historic reform to this system achieves the following benefits and efficiencies:

* For workers:
- SB 863 will increase permanent disability benefits by 30 percent, with faster payment of awards;
- Provide faster, higher-quality medical treatment; and
- Improve retraining and increase awards for those with career-ending injuries.

* For business:
- SB 863 will reduce the costs of workers' compensation losses by close to $1 billion;
- Reduce litigation, claims adjustment costs, and other frictional costs; and
- Provide a more predictable and more objective benefit delivery system.

* For California:
- SB 863 will reduce workers' compensation rates through the allowance of a state alternative dispute resolution program;
- Save the state $40 million annually in insurance costs; and
- Help support California's economic recovery.

The average workers' compensation rate per $100 of payroll is currently $2.39, down from a peak of $6.29 in 2003, but rates have been slowly climbing over the past four years and were projected to skyrocket in the near future. Today's law enacts sweeping reforms to workers' compensation to prevent a crisis situation. This historic reform enjoyed strong bipartisan support in the Legislature and backing from workers and employers across California.

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