Calif. Tackles Workers Comp System (Even Costco can't afford California anymore)

Reuters ^ | Sun, Sep 07, 2003 | Michael Kahn

[A_Niceguy_in_CA]

Calif. Tackles Workers Comp System

By Michael Kahn

SAN FRANCISCO (Reuters) - Even Costco can't afford California anymore.

Costco Wholesale Corp. (Nasdaq:COST - news), the largest wholesale club operator in the United States, traces its bargain-hunting corporate beginnings in part to a high-volume, steep-discount warehouse opened in San Diego more than 25 years ago.

But now, Costco says it could cut jobs in the state where it got its start because of California's skyrocketing worker's compensation costs.

The total bill for workers compensation in California has soared to an estimated $29 billion in 2003 from $9 billion in 1995, prompting Costco and other businesses to consider moving operations out unless the troubled insurance system is fixed.

"For the first time in the history of our company we are considering whether we should take support facilities and put them in other states," Costco Chief Executive Jim Sinegal told Reuters.

Even though California lawmakers are on the brink of passing reforms, business leaders question whether they will go far enough to keep companies from moving jobs to other states.

The issue has emerged as a hot-button topic in the Oct. 7 vote on whether to recall Gov. Gray Davis (news - web sites) and elect a successor as candidates debate what can be done to reduce the high jobless rate in the nation's most populous state.

"I see consensus on both sides of the aisle to reform but the question is how much it will be," said Charles Bacchi, a spokesman for the California Chamber of Commerce (news - web sites). "I'm not sure they are going to come up with the kind of massive reforms that will have real impact."

The 90-year-old state system, which provides benefits to injured workers, is in trouble due to rising medical costs and liberal rules governing the treatment of injuries. Employers pay premiums to insurers who in turn cover injured workers.

But few private insurers remain in the market and a quasi-public agency writes 60 percent of the policies, a situation that could leave taxpayers footing the bill if the system collapses.

"California has some of the most liberal rules in the nation in determining where an injury occurred, how severe it is and how much disability benefits a worker should get," Bacchi said.

A recent report from California's Bureau of State Audits said state officials shoulder much of the blame by having ignored repeated warnings from experts that the system was troubled.

It cited a study showing that injured workers in California have 49 percent more visits with physicians and twice as many chiropractor visits than those in other states.

Sen. Richard Alarcon, chairman of a joint legislative committee working to reform the system, said a key goal is to cut billions of dollars in costs and avoid a 12 percent premium hike set to take effect in January.

"This is the biggest problem right now facing the legislature," the Democrat said.

California officials and business leaders warn that a failure to take immediate action could drive more businesses out of the state, causing layoffs and putting at risk an economy that ranks as one of the largest in the world.

Already, a slack economy and the high cost of business in California have sparked some 300,000 layoffs in manufacturing since December 2000 when the slump began, according to the California Manufacturers and Technology Association.

Sinegal said while only one-third of his employees are in California, 70 percent of Costco's workers compensation costs are in the state.

This added expense forced the warehouse club operator in March to reserve an additional $26 million against earnings.

"We are not going to tolerate it anymore," Sinegal told a recent news conference on efforts to reform the system.

On Friday, Costco delivered 30 boxes containing 150,000 signatures to Davis and state legislators urging that the system be reformed.

It's not just big companies that are hurting. Officials, lawmakers and business leaders say the huge jump in premiums has caused many small business owners to curb spending, lay off employees and in some cases even close their doors.

California Insurance Commissioner John Garamendi cautioned that fixing such a huge problem will not happen overnight but said lawmakers need to aid employers struggling "to stay afloat under the weight of crushing premiums."

"It is absolutely essential this legislature passes a comprehensive reform of this system," Garamendi told a recent news conference. "This is a race to save California jobs and the California economy."

[anniegetyourgun]

Sinegal said while only one-third of his employees are in California, 70 percent of Costco's workers compensation costs are in the state.

That says it all.

[templar]

The probem with workers comp systems (everywhere) is that way too many people make a full time living from the system other than the injured workers who make a temporary living while recuperating. Fraud costs are also a signficant factor in many areas (and not just fraud by 'injured' workers).

[FreedomPoster]

>>Sinegal said while only one-third of his employees are in California, 70 percent of Costco's workers compensation costs are in the state.

Said another way (for the mathematically inclined),

33% of employees represent 70% of the workers comp costs.
66% of employees represent 30% of the workers comp costs.

(.70$ / .33 employee) / (.30$ / .67 employee)

==> A California employee's workers comp overhead is over 4.7 times as much as that of an average employee in the rest of the U.S.

[Voltage]

It seems unlikely to me that given the current Democrat vs Republican make up of the California electorate that anything significant will be done. I believe it will require a crash, the few remaining insurance companies will quit, the state supported insurance fund will be empty, and the state will not be able to borrow money. Workers Comp will be non functioning. It's a poor solution, but possibly the only solution.

[Batrachian]

$29 billion in worker's comp costs in one year. Gee whiz, you don't think there's any fraud there, do you? You don't think the lawyers that have Gray Davis in their pockets have anything to do with this, do you? Or the unions?

There are many nations in the world whose total budgets are less than this.

[ServesURight]

McClintock has a specific and detailed plan to deal with CA Worker's Comp crisis.

I hope Californians come to their senses and vote for this fine man.

[hoot2]

"California Insurance Commissioner John Garamendi cautioned that fixing such a huge problem will not happen overnight..."

demonRATS are "6 feet under"; dirt is being shoveled in on top of them;
n they still don't realize they're DEAD...

[Penner]

When a big corporation complains that its part-time, minimunm wage workforce is too expensive, I get suspicious.
But at least the worker's comp problem is now on the radar.

[Clock King]

Read some of the other articles on this. The problem is that in CA, even if you are "part-time", the company MUST pay near FULL benefits. So imagine a company paying a worker $250/wk in pay, but having to shovel out $150 to $200 per week in benefits. It doesn't make good business sense, and I don't see how you could stay in business for long.

[Noumenon]

Let Atlas shrug.

[Enough is ENOUGH]

The workers comp system is a major disaster but unfortunately, it is not the only problem affecting businesses here.

The state legislature has created anti-business environmental time bombs that have already begun exploding. CAL-OSHA has so many requirements that businesses have to hire outside services to monitor compliance and worse yet, these regulations are becomming more restrictive each month as new laws go into effect. There are fines for noncompliance.

Workers comp has tripled in four years and insurance companies that used to provide w/c coverage are no longer writing these policies or just not doing business in California any more.

Companies are being over-encumbered with still more regulations like family leave policies and now there is talk of a new bill that companies will be forced to provide at their own expense health insurance coverage to all of their employees if they don't already provide it. And there are yet many more regulations that are literally driving once thriving businesses to seek refuge in other states or worse yet creating financial insolvencies leaving in their wake a growing unemployed work force and a still greater costly affect on the state's economy.

The California state legislators have created this over-regulated environment that is destroying free enterprize throughout the state just the same as if they had set time bombs under each business. When the dust settles it will show similar affects on businesses as the aftermath of the 1906 earthquake in San Francisco.

The state legislature has run amuck. There is no quick fix; it needs a major overhaul. Voters are not being told of the dire conditions the remaning businesses are facing today and what their demise will mean for the state's economy. The truth is it's critical and it will get much worse. The damage has already been done the question is can we survive? Let's at least try.

We need a crisis council to intervene. We need a moritorium on further social and business regulatory legislation. Let's assess the damage created by these legislators and enact emergency legislation to roll back these preposterous regulations. Then we must focus on each legislator and hold them responsible for each bill they sponsored and voted for and make this study public. Each bill should be examined and categorized as business, immigration, etc. and their short-term and long-term social and economic effects explained in the most minute detail.

The state legislature does need a major overhaul. The truth is we need a major sea change in Sacramento if we are to survive at all.

[tubebender]

On Friday, Costco delivered 30 boxes containing 150,000 signatures to Davis and state legislators urging that the system be reformed.

My wife and I signed this as business owners (11 employees) a week ago Friday...

The $26 million set aside by Costco sank it's stock price 25 % owned by thousands of Califorians ...

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