Gov. Arnold Schwarzenegger faces a major test this week on whether he can urge lawmakers to reach bipartisan accord on workers' compensation or whether weeks of negotiations will break down along familiar political lines.

A Senate hearing is scheduled on the issue today, perhaps to consider the first draft of a possible agreement.

But the talks have hit several snags in recent weeks, and it was still unclear whether lawmakers - under heavy pressure from Schwarzenegger - will overcome their sharp disagreements.

If they don't, Schwarzenegger has threatened to bypass the Legislature by placing his workers' compensation proposal on the ballot in November.

Supporters are already gathering signatures for the governor's initiative, and they are scheduled to be submitted on Friday, the next deadline for lawmakers.

"There is a lot of frustration (because) of the ticking of the clock as we approach another deadline," Sen. Chuck Poochigian, R-Fresno. "We're all very concerned about it."

Democrats and Republicans agree that speeding through legislation could lead to serious problems for a massive state-run program already plagued by serious economic woes.

"It's such a complex issue. It's not something we want to rush," said Gabriel Sanchez, spokesman for Democratic Assembly Speaker Fabian Núñez.

While signature gathering continued for the initiative, a small team of negotiators from the Governor's Office and Democratic and Republican leadership met last week to prepare a written proposal that could be considered this week.

Their goal was to slash billions of dollars from the $17.9 billion workers' compensation system. The program to treat job-related injuries is plagued by the highest workers' compensation costs in the nation.

The benefits, though, are among the country's lowest and often strain the finances of injured workers who have been off the job for several years.

Negotiators have kept details of their talks secret, but they say general agreement has been reached on several key topics. The most difficult sticking point left is the regulation of insurance rates, sources said.

Some suggest the issue could be off the table or that negotiators may agree on a short-term cap on rates, such as a three-year plan offered by Insurance Commissioner John Garamendi.

Democrats, though, are pushing for a method to assure that insurance companies pass on future savings to employers by lowering rates.

Sen. Richard Alarcón, D-Sun Valley, a key player in workers' compensation legislation, has been a vocal advocate of imposing a cap on insurance rates.

Alarcón has introduced a regulatory proposal to create a three-member Workers' Compensation Rate Commission. The panel would set rates and hear appeals, much like the California Public Utilities Commission.

His proposal, however, faces opposition from Republicans, and the senator could be forced to bring it up as a separate bill.

"The regulatory flames are being fanned at the moment. There is probably sufficient concern that it may not go anywhere," Poochigian said. "If it does, it will not be helpful in securing Republican support of a deal."

Other key issues and some agreements include:

* Lawmakers want more uniform standards to determine the extent of a worker's injury and the benefits assigned to each injury. They say the lack of standardized decision-making increases the chance for costly litigation. They have agreed to adopt guidelines provided by the American Medical Association for assessing injury.

* Penalties for late medical and disability payments to injured workers are considered to be too high. Currently, employers are levied an assessment of 10 percent of an entire disability award. The goal is to increase penalties, but base them only on the amount of the late payment instead of the whole award. The governor wants the penalty to be up to 15 percent of the delayed payment, or $500, whichever is greater. Unions want a flat 15 percent or $5,000 penalty.

* Negotiators have debated the period in which an injured worker is required to see a company-selected doctor. Now, workers can switch physicians after 30 days. Discussions center on letting employers choose the physician for a year.

Injured workers must be examined by three doctors selected from a small group of qualified providers, much as they do with group health plans. If they're unhappy with the choice, they could ask for an independent medical review to determine if they could see their own doctor.

* One proposal would establish a pilot program for labor-represented companies to buy workers' compensation and health insurance from one carrier. Often described as a single-payer or 24-hour care concept, the experiment would apply to the existing "carve-out" programs in which unions and building trades employers negotiate their own workers' compensation-like system. Typically, participants agree on a list of treating physicians and hire an ombudsman to resolve disputes.

* California has one of the nation's worst return-to-work records for injured employers, significantly raising the costs for the system and the workers. The RAND Institute for Civil Justice reports workers' compensation premiums could drop by $1 billion a year if there is a major improvement to the state's return-to-work rate.

A business-labor compromise is emerging in this area. The governor wants to eliminate workers' compensation benefits to able employees who turn down jobs offered by their employer. Labor leaders want employers to pay higher disability benefits if they don't offer the injured worker a return job. An exemption for small businesses is being worked up, sources say.

"There is broad agreement now that we need to do something to provide incentives to employers and employees to improve that return to work rate," Poochigian said.