Why Are California’s Workers’ Compensation Rates So High?

At $3.24 per $100 of payroll, workers’ compensation rates in the California are roughly twice the national average and the highest ones in the country.

Overall, rates are essentially unchanged from a year ago; the national average dropped from $1.85 in 2015 to $1.84 in 2016. In California, rates have actually declined rather sharply from a high of almost $3.50 per $100, largely because lawmakers adopted anti-fraud measures in 2012.

California’s Department of Industrial Relations Director Christine Baker said the $3.24 figure is inflated because of the metrics used in the study, since the Workers’ Compensation Insurance Rating Bureau recently set 2017 rates at $2.22. Furthermore, “California [is] focused on providing the best, evidence-based medical treatment to injured workers while controlling employers’ costs,” she added.

New Jersey ($2.92) and New York ($2.83) rounded out the top three; North Dakota ($0.89), Indiana ($1.05), and Arkansas ($1.06) have the lowest rates in the Union, according to the study.

Workers’ Compensation Fraud May Be The Culprit

California’s two most recent reform measures, Assembly Bill 1244 and Senate Bill 1160, focused on medical provider fraud, and prosecutors have been very active in this area. In fact, some doctors say they have been caught up in a witch hunt, because officials target those physicians who press aggressive treatment regimens for their patients and the insurance companies are hesitant to pay the claims.

For example, in 2014, officers arrested Richmond Dr. Gary Martinovsky and charged him with a wide range of violations. Supposedly, they threatened to take away his medical license because you “basically use people as sheep and charge the insurance industry for services you never gave.” A judge ultimately dismissed the first case against Dr. Martinovsky; a subsequent prosecution ended when officials realized they had insufficient evidence and allowed Dr. Martinovsky to enter a pretrial diversion program which did not involve a conviction or finding of guilt.

Yet despite all the sound and fury, the program has a conviction rate that’s slightly below the average in criminal cases and has recovered only about $8 million a year since 2011, which may be barely enough to pay the program’s costs.

Employer fraud is the elephant in the room, since it may be the real reason that costs are so high. For the most part, these cases are not prosecuted nearly as aggressively as medical provider and employee fraud, and even if the companies are caught, the penalty is typically only a fine that’s little more than the amount of money saved. The problem is widespread; one insurance study found that employer fraud was almost twenty times greater than worker fraud. Some common employer schemes include:

  • Misclassification: The Department of Labor says that about a third of companies intentionally misclassify at least some of their workers. There are two types of misclassification, and they are particularly commonplace in the construction industry. There are some rather large companies that have no legal employees, because all workers are classified as “independent contractors;” by law, workers’ compensation dose not cover independent contractors and therefore such workers are not included in premium payment calculations. Job misclassification is an issue as well, because some bosses claim that high-risk workers perform low-risk tasks, so their premium payments are artificially low.
  • Illegal Payments: Sometimes, bosses and supervisors promise to pay medical expenses under the table if the victims agree not to file comp claims. If the employer reneges on this promise, which nearly always happens, the time deadline has passed and the victim receives nothing.

Both these schemes result in less money going into the system, which means that there is less money available for injured workers.

What Worker’s Comp is Supposed to Cover

A little over a century ago, employers agreed to provide a no-fault insurance system for workplace injuries if victims agreed not to pursue their claims in court. Although the so-called “grand bargain” is now being criticized by many because benefits have been slashed in recent decades, workers’ compensation is still the law of the land in California and in most all other states.

Workers’ compensation covers sudden trauma injuries, such as falls, electrocutions, and motor vehicle crashes. The Occupational Safety and Health Administration says that eliminating just four common workplace accidents could cut the death rate by more than 60 percent.

The system also covers occupational diseases, such as hearing problems, respiratory issues, and repetitive stress disorder. In most cases, the law covers aggravation of previous injuries, so if workers develop breathing problems away from work and their occupation makes the condition worse, the entire injury is a “new” condition for workers’ compensation purposes. Injured workers in California can choose their own doctors, in most cases.

Workers’ compensation also pays lost wages. Victims who can recover and return to work usually get two-thirds of their average weekly wage for the duration of their disabilities; permanently disabled victims usually receive lump sum payouts.Workers’ compensation pays for other economic losses as well, such as prescription drugs and medical devices. In a few cases, injured workers can sue outside the system and obtain additional damages for their pain and suffering and other noneconomic losses.

About the Author: Curtis Quay is a personal injury attorney at Injury Trial Lawyers, APC, in San Diego, CA. Mr. Quay and his team have over 35 years of combined experience helping injury victims collect from the negligent party.


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