There are more problems facing California than just its massive budget deficit and the impending recall election.

Take, for example, worker's compensation insurance. Perhaps not so surprisingly, California's worker's compensation rules are rather liberal. That means more workers get more aid, which means the total bill is steep, and businesses bear the brunt of the cost.

According to a recent Reuters report, California's Bureau of State Audits has noted that "injured workers in California have 49% more visits with physicians and twice as many chiropractor visits than those in other states." Making matters worse, worker's compensation premiums are scheduled to increase by a significant 12% in January. Many companies, already crippled by these sky-high and soaring costs, are crying Uncle.

One such company has long been admired by many at Fool HQ: warehouse club retail giant Costco (NASDAQ:COST). CEO Jim Sinegal has noted that although only 30% of the firm's employees are in California, fully 70% of its worker's compensation costs are for California. Costco is now considering laying off many Golden State employees and moving much of its operations out of state, unless the system gets a major overhaul. Many other companies have similar plans.

Last week, to help drive home its message, Costco delivered to Gov. Davis and state legislators 30 boxes full of some 150,000 signatures urging that the system be reformed.

California isn't the only state grappling with this issue. Florida businesses are yelping for help, while insurers in Massachusetts are fighting a mandate to cut their rates and the state of Washington is facing a 19% increase in premiums. Yikes.

It seems that reform, in California at least, is unavoidable and sorely needed -- but will enough reform be enacted, and soon enough? Stay tuned -- and keep your fingers crossed for Costco.

Costco was recommended as an investment by Tom Gardner in the May 2002 issue of Motley Fool Stock Advisor .

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