CALIFORNIA WORKERS' COMP CHANGE WINS MUTED PRAISE, OPEN SCORN

SACRAMENTO, Calif. -- There has long been widespread agreement among supermarket industry insiders that the California workers' compensation insurance system was broken.The question now is whether the law passed by the state legislature earlier this month -- and currently awaiting the promised signature of Gov. Gray Davis -- will fix it.Talking with food retailers and a state association leader last

SACRAMENTO, Calif. -- There has long been widespread agreement among supermarket industry insiders that the California workers' compensation insurance system was broken.

The question now is whether the law passed by the state legislature earlier this month -- and currently awaiting the promised signature of Gov. Gray Davis -- will fix it.

Talking with food retailers and a state association leader last week, SN found at best muted praise -- and at worst open scorn -- for the workers' comp reform.

Richard Galanti, chief financial officer, Costco Wholesale Corp., Issaquah, Wash., gave the new law as positive an assessment as anyone SN spoke with. He said, "We think it's a good step in the right direction."

Costco, which has more than one-third of its workforce based in California, cited the high cost of workers' comp benefits in the state last month when it lowered its guidance for the year.

Voicing a similar opinion, Peter Larkin, president of the California Grocers Association here, emphasized the new law is "a good first step, but a lot more work needs to be done."

Larkin noted that under the old system, California employers paid the highest workers' comp insurance rates in the country, but the state had one of the lowest payout rates to injured workers.

However, others stressed how the amount of work still to be done dwarfs the size of that first step.

Jack Brown, chairman, president and chief executive officer, Stater Bros., Colton, Calif., said, "It's not much of a reform."

He pointed out that Stater Bros. workers' comp insurance costs have gone up 210% in the last five years, and the new law will give employers only a 7% reduction this year and prevent a planned 12% increase from going into effect next January. "I don't see not increasing payments by 12% in 2004 as a reduction," he said.

Also unflattering in his assessment was Bill MacAloney, chairman and CEO, Jax Markets, Anaheim, Calif. "We've just put a Band-Aid on the problem," he told SN.

Probably the most favorable reaction to the legislature's effort came from a continent away. George Strachan, an equity analyst at Goldman Sachs, New York, said Costco could be "a primary beneficiary" of the new law deriving "a benefit of up to 5 cents per share in the current fiscal year."

Costco's Galanti called this estimate "on the aggressive side." He added, "We are going to wait and see how it plays out over the next few months. Whether it amounts to that much, we'll have to see."

In making his estimate, Strachan said he used the forecast by California officials that the new law will result in $6 billion in annual savings. However, that figure has been disputed by some of the reform's critics. MacAloney explained that he expects the annual savings will be closer to only $3 billion. "I don't think we went deep enough," he said.

Larkin, who noted that the law is "a matrix of interests and competing agendas," described two of its key provisions:

The law extends "the carve-out program" to all unionized industries. Previously, only three industries -- construction, aerospace and timber -- had been permitted to go outside the state's workers' comp program and set up their own alternate dispute resolution system. Now, any unionized industry can set up an ADR, as long as the principal union in the industry requests it.

The law limits chiropractic care and physical therapy to 24 visits for the life of a claim. Previously, the California average had been more than 30 visits per claim, while the national average was approximately half of that.