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CA Unions Hope to Use Carve-Outs
to Sweeten Health Plans

CALIFORNIA LABOR UNIONS ARE planning a major push into workers' compensation alternative-dispute resolutions programs, commonly known as "carve-outs," as a bargaining chip to limit employee contributions to group health plans, union officials told WorkCompCentral Monday.
Dan Rush, political director for the United Food and Commercial Workers Local No. 120, said the UFCW is working with the Service Employees International Union and the Communications Workers of America to gather information about carve-outs. The labor unions hope to persuade employers that they will be able to save enough on workers' compensation to pay a bigger share of their employees' health-insurance coverage costs.
"Increasingly the issues that we are facing at the bargaining table are health-care costs," Rush said. "The employers come in the door looking for $200 or $300 a month co-pays from our members, and sometimes those increases are as high as 20% a year."
Rush said his union plans to submit an application to the Division of Workers' Compensation before Christmas to officially begin the collective-bargaining process with meat cutters in Northern California wholesale packinghouses. He said he hopes the carve-out initiative eventually will spread into retail grocery stores whose employees are represented by the UFCW.
Rush said the Service Employees International Union Local No. 616 already has spared an application to the DWC to negotiate a carve-out program with 7,000 employees of the Alameda County Medical Center. He said a Orange County chapters of UFCW and the Teamsters in Orange County are working on similar proposals.
What's more, the Communications Workers of America is planning to submit a carve-out proposal that could include up to 70,000 employees of AT&T and other companies, said Bill Harvey, secretary-treasurer of UCWA Local No. 9415. Harvey said even though the union's collective-bargaining agreement does not expire until 2009, labor organizers hope to negotiate a midterm contract change because of the potential savings.
"We believe there is significant savings there and we believe there are significant reductions and hassles, if you will," Harvey said. "In many cases workers' comp is one of those things where there can be some degree of rationing."
California lawmakers first authorized carve-outs in 1994, but that program was limited exclusively to unionized construction workers. In 2002 the Legislature passed a bill that allowed carve-outs for union workers in the aerospace and timber industries. A law passed in 2004 allowed carve-outs in any unionized industry.
Under Labor Code sections 3201.5 and 3201.7, only a union may request a carve-out. Employees must be guaranteed access to an attorney throughout the dispute-resolution process. Otherwise, unions and their employers can design the programs as they see fit. Often, ombudsmen are used to settle disputes, which can reduce litigation.
Rush said he sees carve-outs not only as a way to reduce employers' costs and increase employee benefits, but as a way out of a "divisive and antagonistic" workers' comp system that makes injured workers' angry and afraid.
"Then they go talk to a lawyer and they don't understand that that lawyer gets money strictly on how big of a permanent disability rating they can get," Rush said. "They get hooked on drugs, or lose their home, or divorced. The list of tragedies is tremendous."
So far, only two non-construction carve-out programs have been approved since the Legislature allowed other industries to participate in 2004. The Division of Workers' Compensation approved the Basic Crafts Workers' Compensation Benefits Trust Fund in February 2005 and a program for Mainstay Business Solutions in September 2005, according to a report on the DWC's Web site.
The DWC has approved 33 carve-out programs in the construction industry since 1994.
With so little experience outside of construction, one of the main obstacles to creating new carve-outs will be persuading employers that they can save money, Rush said. He said his union is spending a lot of time on data collection and may hire a consultant to work up an estimate on potential savings once negotiations begin in earnest.
Information is hard to find because the DWC has not been completing annual reports on the existing carve-out programs, despite a statute that requires them, said Christine Baker, executive director of the Commission on Health and Safety and Workers' Compensation. She said CHSWC has hired Frank Neuhauser, a professor for the University of California, Berkeley, to study the existing programs, but his report is not expected until January or February.
However, Baker said the State Compensation Insurance Fund offers a discount of 10% of premium reduction for participants in the Basic Crafts carve-out program and a 5% premium reduction for construction industry carve-outs.
Chuck Cake, who administers existing carve-out programs for Intercare Insurance Services in Sacramento, said a properly designed program can save employers 30% of their workers' comp costs, even after cost-saving reforms passed by the Legislature in 2003 and 2004. He said early this decade, when workers' comp costs were soaring and before lawmakers passed back-to-back reform bills, employers were saving up to 60% of workers' comp costs through carve-outs.
Cake said both public and private employers are gaining interest in carve-outs. He said Raley's, which owns some 300 grocery stores in Northern California, Nevada and New Mexico, plans to issue a request for proposals soon to design a pilot carve-out program for some of its employees.
Cake said several state agencies are also interested in creating carve-out programs for their workers, but currently state law does not allow the state government to participate in alternative dispute-resolution programs. He said Intercare is working with union representatives to introduce a bill that would change that. The California Correctional Peace Officers Association and Service Employees International Union are major proponents of the legislation, he said.
"The state agencies are on the unions' side because they believe they can save a minimum of 30% out of their (workers' comp) budget," Cake said. "That's a lot of money."
Jason Schmelzer, a lobbyist for the California Manufacturers and Technology Assocation, said carve-outs do show potential to create costs, but the "devil is in the details." He said he understands why labor unions would be offering them up as a means of retaining group-health benefits. "I think more than anything, it's an indication of how much a problem group health is turning out to be for everybody," Schmelzer said. "It is getting hard for employers to maintain these huge premium increases every year."

--By Jim Sams, WorkCompCentral Senior Editor jim@workcompcentral.com

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