California Regulators Investigate American Indian Workers’ Compensation Insurers
The Department of Insurance has begun to investigate American Indian tribes that establish workers' compensation insurance businesses on reservations that are not licensed or regulated by the state and sell less-expensive coverage to businesses "hundreds of miles away," the Los Angeles Times reports. The department currently is investigating the 74-member Fort Independence Tribe in Inyo County and its Sonoma County consulting firm for selling potentially "bogus workers' compensation coverage to employers desperate for relief from skyrocketing premiums," the Times reports. The tribe has set up the reservation-based Independent Staffing Solutions through which it "leases" workers to small businesses, according to the Times. Leasing employees allows businesses to save money because the staffing company must handle workers' compensation claims, and the premiums that Independent Staffing Solutions charges companies for the leased workers are 20% to 50% lower than those charged by traditional insurers or State Compensation Insurance Fund. Officials for Independent Staffing said that the company has 125 clients that employ 3,000 to 4,000 workers statewide in hard-to-insure businesses, such as construction-related trades. Two other American Indian-backed workers' compensation programs were started in the last year, one of which was shut down by Insurance Commissioner John Garamendi (D) and the other of which is suing the state over violations of the tribe's sovereign immunity, the Times reports.
State regulators say that:
- Workers' compensation coverage provided by American Indian tribes "clearly violates" laws requiring employers to have proof of coverage from a state-licensed insurance company or to provide a certificate stating that they meet state financial requirements to be self-insured, the Times reports;
- Tribes' workers' compensation insurance programs do not participate in a state-backed pool that ensures that enough funding is available to pay injured workers if their employers' insurance company becomes insolvent; and
- Workers covered by American Indian plans do not receive the same rights to legal representation or to take denied appeals to the Workers' Compensation Appeals Board.
Linda Peters, an attorney for the Department of Industrial Relations, which enforces the state's workplace laws, said that with workers' compensation insurance costs "going through the roof ... [c]ertain people who are not tribal members see this as a loophole in the state's workers' compensation law." However, she added that employers who are not using state-sanctioned workers' compensation insurance policies could be "hit with heavy fines or could be shut down by the state," the Times reports.
"We wouldn't be doing this if it wasn't legal," John Bracken, vice chair of the Fort Independence Tribe and CEO of Independent Staffing, said, adding, "We're just exercising our sovereign rights laid out under the Constitution of the United States." In addition, tribal leaders, who are "anxious to protect a lucrative new business," have hired lawyers, lobbyists and public relations workers to convince Gov. Arnold Schwarzenegger (R) that they have developed "a practical alternative" to the current workers' compensation insurance system, the Times reports. The Fort Independence Tribe says that their workers' compensation insurance system can save employers money on premiums and still provide workers with "first-class benefits" by reducing fraud and paperwork and removing lawyers from the claims-appeal process. "Frankly, we think we can provide a viable model," John Peebles, a lawyer for the tribe, said (Lifsher, Los Angeles Times, 2/17).
Summaries of a recent opinion piece and editorials are provided below.
- Sen. Charles Poochigian (R-Fresno), Fresno Bee: State lawmakers should "come together and forge a timely agreement" on legislation to reduce employers' workers' compensation insurance costs because "the legislative process is the best forum to decide the fate of such a complex issue and ensure that the final product will benefit all Californians," Poochigian writes in a Bee opinion piece. "Every day that the Legislature delays drives costs even higher and drives more jobs out of California," Poochigian writes, adding, "It is our duty to pass a bold reform package that yields substantial cost savings for California employers while ensuring that truly injured workers receive the care they need and deserve" (Poochigian, Fresno Bee, 2/16).
San Jose Mercury News: Reforms to the state's "bloated workers' compensation system" must take effect by March 31, which would provide enough time for insurance companies to lower rates this summer, a Mercury News editorial states. While Garamendi's workers' compensation reform proposal "works best for California," it should not call for minimum rates insurers can charge and putting State Fund under more control of the insurance commissioner, the editorial states. The editorial concludes that "[w]ith all interested parties committed to trying to avoid a November ballot initiative fight and reasonable proposals on the table, the prospects for success have never been better" (San Jose Mercury News, 2/13).
- San Diego Union-Tribune: Garamendi's reform proposal "could help avert a showdown between business and labor interests by providing a middle ground that benefits both sides," a Union-Tribune editorial says. Garamendi "has presented a practical framework that could ultimately prompt an accord between business and labor," the editorial states, concluding, "Getting there won't be easy, but it's preferable to the governor having to place a measure on the November ballot to rein in a runaway workers' compensation system" (San Diego Union-Tribune, 2/14).