California employers are bracing for a state raid on their pocketbooks and worried about market stability after learning that the state Legislature is considering a budget bill that would raise the assessment on workers' compensation premiums by 9.9% to provide stable funding for the state Occupational Safety and Health Division.

Word of the proposed increase came after the Fraud Assessment Commission on Tuesday recommended a 2.5% assessment increase would be needed to fund its 2009-2010 budget.

These two proposed increases come on top of other proposals that, if enacted, would increase employer premiums. 

The Workers’ Compensation Insurance Rating Bureau (WCIRB) is recommending an average 16% pure premium rate hike, which is now under consideration by Insurance Commissioner Steve Poizner.

The Division of Workers' Compensation, in the meantime, has proposed a change to the permanent disability rating schedule that would result in a 16% average increase in benefits if enacted. The rating bureau says the PD benefit increase would add another 3.7% to its proposed pure premium hike.

Scott Lipton of the California Coalition on Workers’ Compensation said his organization was “still investigating” AB 1389, the bill that would add Cal-OSHA funding to the DWC's administrative assessment on employers.

Lipton said it is “disappointing” the money employers agreed to pay to fund the DWC will now be used to help pay for Cal-OSHA's Targeted Inspection and Consultation Fund. The program, which began in 1993, provides consultation services to employers with poor experience modifications to prevent workplace injuries.

State lawmakers added the DWC assessment to employer premiums as part of the 2004 reform bill. A smaller assessment before then covered just 20% of the costs of running the workers' comp system. Now, the assessment covers 100% of the costs.

“This is not what we thought employers were getting into when we supported (reform legislation),” Lipton said.

Scott Hague, president of Small Business California, said he can't speak about the proposed assessment increases because he hadn't yet gotten word of them. He said the proposed increase in the pure premium rate, however, worries him because it could have a significant impact on small businesses.

“What any business is looking for is stability,” Hague said. “Naturally, we’ve been happy with the large decreases, but if we are now looking at large increases I think businesses would prefer something more stable - something that they can plan for. If you’ve got a 20-point swing, coupled with other costs going up, it is really hard to do business.”

AB 1389 was amended into a trailer bill in the Senate Aug. 29. It is not known when the Legislature will act on the bill because the governor has promised to veto the budget.

AB 1389 would also reinstate the Franchise Tax Board authority to collect delinquent assessments and penalties assessed against employers for violation of labor laws and occupational health and safety laws.

AB 1389 would additionally extend the sunset on the employer return-to-work grant program until Jan. 1, 2010. This program reimburses employers up to $2,500 for technology and improvements in the workplace that allow an injured worker to return to work.

Schwarzenegger made the proposal to increase employer premiums to fund the Cal-OSHA program in his January budget proposal. He argued “without a stable, ongoing funding source DOSH would require significant program reductions.” The governor estimated the increase in the average annual assessment was “less than 1% of total workers’ compensation costs.”

Ginni Bella, an analyst in the non-partisan Legislative Analyst's Office, said the DOSH funding would represent a 9.9% increase to the total average annual premiums. The rates would increase, if this were enacted, from $7.01 per $1,000 of premium to $7.70 per $1,000 of premium.

According to a Senate analysis of the bill, the rate increase would allow the Department of Industrial Relations to create an Occupational Safety and Health Fund, supported by a new assessment on workers' compensation premiums that would generate approximately $18.9 million.

With the creation of the fund, the Department of Industrial Relations would be authorized to revise the Targeted Inspection Consultation Fund fee structure to increase revenue by approximately $3.9 million to help pay off a $13 million loan taken in the 2007-08 fiscal year to address a revenue shortfall in the fund.

The Fraud Assessment Commission is adding its own toll to employer premium costs. Chairman Bill Zachary said the commission on Tuesday approved a 2009-2010 aggregate assessment of $21,298,200. The commission also approved a budget of $29,827,500 for district attorney workers’ compensation fraud investigation.

The FAC additionally agreed to fund a $300,000 grant program to allow DAs to buy new software that will allow units to quickly extract and store information from computers confiscated in fraud investigations.

After the budget is adjusted to account for revenues the Fraud Assessment Commission is recommending total collectibles of $50,302,245. This would require a 2.5% increase in employer assessments, he said.

Zachary said he believes this increase will amount to “about 6 cents per $1,000 of premium.”

By Jim McCaffrey, Western Bureau Chief
jmccaffrey@workcompcentral.com