BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           677 (Yee)
          
          Hearing Date:  5/26/2009        Amended: 5/19/2009
          Consultant:  Bob Franzoia       Policy Vote: Labor 4-2
          _________________________________________________________________ 
          ____
          BILL SUMMARY: SB 677 would, until January 1, 2013, exclude any  
          person employed by his or her parent, child, spouse, or  
          registered domestic partner in a farming operation, as defined,  
          from having to secure the payment of workers' compensation,  
          including medical treatment for injuries incurred by their  
          employees that arise out of, or in the course of, employment if  
          they meet certain conditions.  This bill would require the owner  
          or owners of the farming operation to submit specified  
          information when registering with the Department of Industrial  
          Relations (DIR) for the exclusion.  This bill would specify that  
          a violation of the conditions shall constitute good cause for  
          DIR to cancel the farming operation's registration.  This bill  
          would limit registrations within a calendar year to no more than  
          3,000 and would provide that registration shall be in effect for  
          one year, except as specified.  
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2009-10      2010-11       2011-12     Fund
           Administration of workers'        Up to $198  Up to $360Up to  
          $360                   General
          compensation coverage
          exclusion

          Health care coverage   Unknown, potentially major and  
          ongoingGeneral                    costs to state health programs  
          to treat
                                 work related injuries
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense File.
          
          It appears there are conflicting interpretations of statutes and  
          regulations as to whether workers' compensation coverage is  










          required for family members working in a farming operation.  

          Registration for the exclusion proposed by this bill would  
          require the farming operation to provide the following:
          - Proof that any persons that the owner of the farming operation  
          seeks to exclude from being an employee are covered by health  
          insurance.
          - Proof of the amount (up to $10,000) of the owner's taxable  
          state income during the 12 month period preceding registration.
          - A signed affidavit that no occupational injures or illnesses  
          have occurred on the farm during the 12 month period preceding  
          registration.
          - Proof that the owner of the farming operation cannot afford  
          the workers' compensation policy premium that would apply to the  
          operation in the year for which exclusion is sought.

          Page 2
          SB 677 (Yee)

          - A verified quote from a licensed insurer for the workers'  
          compensation policy that the owner of the farming operation  
          cannot afford.

          Staff notes the bill does not specify criteria for determining  
          affordability.  Presumably, DIR would adopt regulations to  
          address this and any other implementation procedures.

          There are 27 agricultural classifications used when determining  
          workers' compensation premiums.  For the purposes of this  
          analysis, it is proposed that the owner of the farming operation  
          is growing strawberry crops or field crops.  The premium rate  
          for strawberry crops is $8.63 per every $100 of payroll and the  
          rate for field crops is $14.01 per every $100 of payroll.  These  
          two classifications provide a range of costs under the following  
          scenarios:

          1) One part time employee, $8.00 an hour, 20 hours a week, year  
          round.

          2) One full time employee, $8.00 an hour, 40 hours a week, year  
          round

          3) Two full time employees, $8.00 an hour, 40 hours a week, year  
          round.

          These estimates should be typical of the number of employees the  










          owner of the farming operation would use since the acreage  
          farmed is small.

          The yearly premiums for these scenarios are:

          1) Strawberry crops = $718 - field crops = $1,165

          2) Strawberry crops = $1,436 - field crops = $1,630

          3) Strawberry crops = $2,872 - field crops = $3,260

          These estimates are based on current rates and will change in  
          July 2009.  The coverage and benefits are the same for all  
          workers' compensation, that is, there are no deductibles, etc.   
          (In contrast to Medi-Cal and private health insurance, workers'  
          compensation pays for medical care, temporary disability  
          benefits, permanent disability payments, supplemental job  
          displacement benefits or vocational rehabilitation and death  
          benefits.)

          Under the exclusion proposed by this bill, if the owner of the  
          farm seeks to exclude any person from being an employee, and  
          thus, not subject to the requirement that they obtain workers'  
          compensation coverage, proof must be provided that person is  
          covered by health insurance.


          Preliminary information indicates a person may be able to obtain  
          an individual health insurance policy at a monthly cost of $220  
          to $300, subject to medical underwriting.  If the person's  
          spouse was employed full time in the farming operation, small  
          group market coverage (a group of two) would be available on a  
          guaranteed issue basis at a monthly cost per person of $350 to  
          $380.  These amounts can vary by up to ten percent ($315 to  
          $418) and can vary by age, geography and family status and by  
          level of 


          Page 3


          SB 677 (Yee)


          benefits, that is, high deductable coverage is less costly,  
          comprehensive coverage is more expensive.












          Comparing minimum individual health insurance coverage ($220 x  
          12 = $2,640) to the equivalent workers' compensation premiums  
          ($1,630) and minimum small group market coverage ($315 x 2 x 12  
          = $7,560) to the equivalent workers' compensation premiums  
          ($3,260), it does not appear at this time that a person or  
          persons could readily obtain private health insurance for less  
          than the cost of equivalent workers' compensation coverage.  


          However, for employees under age 18 and for employees over age  
          18 whose income is less than 250 percent of the federal poverty  
          level, these persons may have health insurance under state  
          programs such as Healthy Families, the Medical Risk Medical  
          Insurance Program (out-of-pocket maximum per calendar year is  
          $2,500 for individuals and $4,000 for an entire household), or  
          Medi-Cal.


          Based on the above comparison of the costs of private health  
          insurance and workers' compensation, the number of owners of  
          farming operations applying for the exclusion is likely to be  
          low.  However, if eligibility for a state health insurance  
          program can be proof of health insurance, the number of owners  
          of farming operations applying is likely to be high.  The  
          impacts on state health insurance programs under that scenario  
          are unknown, but would be major and ongoing.


          Based on data from the 2007 US Department of Agriculture's  
          agricultural census, there are approximately 7,000 limited  
          income family farms in the state.  Under this bill, up to 3,000  
          would be eligible to apply for the exemption.  DIR staff would  
          need to process applications and verify information such as  
          health insurance coverage, workers' compensation quotes, and  
          ensure that all necessary documentation has been provided.  If  
          2,500 owners of farming operations applied for the exemption, up  
          to five personnel years would needed, at a cost of up to  
          $394,500 for 2009-10, and $360,000 for 2010-11, and thereafter.


          There are potential costs to the Labor Commissioner for  
          violations of limitations on the exclusion and potential and  
          unknown costs to the Uninsured Employers Benefits Trust Fund for  
          claims that are filed when the conditions for the workers'  










          compensation exclusion are not met.  It is unclear if DIR's  
          Division of Labor Standards Enforcement would continue to visit  
          or inspect these farms which may result in workload reduction  
          savings.