Workers’ Comp Heading for ‘Collapse,’ Garamendi Warns

State Insurance Commissioner John Garamendi warned legislators Wednesday that unless major reforms cutting costs are adopted this year, the state’s workers’ compensation insurance system “faces total collapse.”

The program has been beset with financial problems in recent years, with many carriers dropping out of the business because it’s not profitable. That has left a state-run fund responsible for at least half of the policies held by California employees.

Officials said litigation and high fraud costs have contributed to a situation in which California has among the highest premiums but pays among the lowest benefits of any state.

Testifying before the Assembly Insurance Committee, Garamendi urged setting medical payments to hospitals at no higher than the levels permitted for Medicare and pegging outpatient surgery payments at 120% of the Medicare level.

He added that prescription drug fees ought to be limited to what is paid by Medi-Cal.

The commissioner criticized insurers for not cracking down harder on fraud within the system, and he said, “I see very little evidence of any serious effort by companies to control medical costs, litigation costs, administrative costs ... and a host of similar expenses.”

Without reform, Garamendi said, “the current system guarantees a [financial] crash, and it is not far off.”