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Workers’ Compensation Reform 2012
 

Summary


LABOR - MANAGEMENT AGREEMENT ON WORKERS’ COMPENSATION REFORM

Injured workers suffered a world of hurt under the reforms enacted in 2004 by Arnold Schwarzenegger.  The changes brought about by SB 899 resulted in delayed and denied medical treatment, slashed injured worker benefits, and more friction and inefficiencies in the system.  Workers’ compensation costs have come down by over half since their peak in 2003, and now, as friction grows, insurance costs are projected to increase by 18-25% in 2012 alone.

Labor and management began negotiating from three basic principles:

  • Empirical data showed that injured workers require increased permanent disability benefits;

  • Delay costs everyone;  removing friction benefits everyone in the system; and

  • Benefit increases had to be offset by more than their equivalent in savings.

It’s been 8 years and the time has come to restore benefits to injured workers.  Labor and management have reached agreement on a comprehensive workers’ compensation reform package.


IMPROVED MEDICAL TREATMENT

  • Independence in handling disputes and decisions over medical treatment.  Additional safeguards from insurance company controlled utilization review are provided by Independent Medical Review (IMR), modeled after health insurance process.   This process has a 30 day turnaround for IMR response, based on evidence based treatment guidelines.  The goal is to minimize delays in medical treatment.  

  • Expanded right to predesignate and see your own doctor for all who have health insurance (expanded from group health insurance to capture those covered in the Exchange and other programs).  Your own doctor would direct your care and make your referrals.

  • Protecting the right for any and all referrals to be outside the MPN, if the employee was not given notice of MPN and that resulted in a denial of care.

  • Creation of new medical access assistants provided by each Medical Provider Network (MPN) to help get doctor’s appointments, referrals, etc.

  • More stringent quality reviews of MPNs – more regular and random audits of MPNs.  

  • Better disclosure of doctors in MPNs - requires MPNs to list doctors on their website and the DWC to link to all MPN doctors. Requires doctor’s affirmative acknowledgement that s/he is in the MPN.

  • Disputed medical issues will be addressed by doctors, with clearer standards for approving treatment.

INCREASE IN PERMANENT DISABILITY BENEFITS AND PREDICTABILITY

  • An increase in benefits, across the board, for workers rated with a permanent disability.  Total increase of over $860 million in new money for PD benefits.

  • Benefits will be increased over a two year phase-in by paying more dollars per week and raising every injured worker’s impairment rating by 40%.  

  • $120 million of new benefits will be distributed to workers with PD awards that don’t adequately reflect earnings loss.

  • Make the PD schedule more predictable and with less litigation by eliminating adjustment factors for future earning capacity (FEC) and certain “add-ons.”  Workers may have slightly lower ratings in terms of the percentage of permanent disability due to these changes, but they will get more dollars for their ratings.  

  • The supplemental job displacement benefit will be made available for workers to obtain retraining at a state approved training program, like union apprenticeship programs.  The SJDB will be a flat $6000 amount for workers to pay for training and other essential items to find new employment.

DECREASE FRICTION AND INEFFICIENCIES THROUGHOUT THE SYSTEM

  • Lien process significantly reformed. Improves standards for lien filing; imposes lien filing fee; creates process to adjudicate old liens; independent bill review process to adjudicate bill disputes; helps clear up court system clogged with liens.

  • Doctors’ fees regularly updated to reflect resources needed for care.  Current fees are outdated and inaccurate.  

  • Fair fee schedules established to advance predictability in system for interpreters, copy services, durable medical equipment.

  • New requirement to disclose, and in some cases prohibit, conflicts of interest throughout the system.

STABILIZE INSURANCE MARKET

  • Faster claim resolution, greater predictability and stability throughout the system.

  • Lien reforms, IMR, clarity on in network vs. out of network treatment will eliminate many of the most common medical dispute expenses.

  • Reduction in costs associated with administration and settlement of claims.

  • Simplified PD benefit schedule enhances insurers’ ability to accurately reserve for future claims.

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Q&A in response to criticisms of workers’ comp reform
 

Q:  Do injured workers actually lose benefits under this proposal?

A: NO.  The proposed schedule for permanent disability benefits guarantees that EVERYONE GETS A RAISE, regardless of their wages, severity of disability, age, or occupation. 

By providing an increase in the weekly benefit amount, a 40% increase in impairment ratings (AMA Guides), and $120 million in new benefits for disabled workers with especially severe earnings loss, it is clear – EVERYONE GETS A RAISE.


Q: Do injured workers lose their right to litigate over the loss of their ability to work in the future?

A: Workers’ compensation is a no-fault system in which injured workers gave up our right to sue in exchange for adequate benefits and timely medical treatment.  The state constitution calls on the workers’ comp system to “accomplish substantial justice in all cases expeditiously, inexpensively, and without incumbrance…”

As a system, it must be predictable.  Some attorneys have been able to litigate some cases so that they compensate workers based on their individual earnings losses.  These types of cases, while important to individuals, are not sustainable for the overall workers’ comp system.  As a mandatory product for all employers, the costs must be predictable and scheduled.

That’s why this reform creates an additional $120 million fund for workers with “PD awards disproportionately low in comparison to their earnings loss.” Rather than subject workers to months or years of litigation and delay, this fund will achieve the twin goals of predictability for employers and fair compensation for workers.


Q: Is this proposal worse than Schwarzenegger’s SB 899?

A: NO!  SB 899 reduced the number of weeks of benefits for injured workers with PD ratings below 50%.  This proposal actually adds $740 million in benefits for all injured workers.  It is surprising opponents to the Schwarzenegger reform would call this proposal worse.


Q: Does the proposal eliminate injured workers right to an interpreter?

A: NO.  This proposal, as proposed to be amended, retains an injured worker’s right to an interpreter. Instead, it does require interpreters to be licensed and certified and allows for an outside organization to certify the interpreters.  This language is adopted from AB 2493 (Hernandez), legislation currently pending in the legislature.


Q: Does the proposal deny access to medical treatment?

A: NO.  Opponents claim that the bill provides only insurance company doctors.  In fact, current law now requires injured workers to seek treatment in an employer/insurer selected network.  Under current law, insurance companies get to review the treatment decisions of these doctors through an insurance company controlled “utilization review” process.  Disputes over medical treatment are decided by judges, not doctors, clogging up the court system for worker justice.

This proposal would REPLACE utilization review with INDEPENDENT MEDICAL REVIEW (IMR), the way medical treatment is decided in the group health system.  IMR would allow doctors, not judges, to review and determine the best course of medical treatment.  IMR would be based on all evidence based medical treatment evidence, not just the existing, narrower, treatment guidelines (ACOEM).


Q: Does the proposal take away compensation for psychological injuries?

A: NO. The proposal explicitly allows for compensation for a psychiatric injury and preserves the psychiatric “add-on” for workers who suffer from catastrophic injuries or are victims of or witness to violent acts.  Injured workers may also seek medical treatment for their psychological injuries.

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Top 5 Benefits for Workers


Major permanent disability (PD) benefit increase, quicker payment of awards

  • On average, a 29% increase in the amount paid to permanently disabled members

  • An $860 million benefit increase for all workers

  • All workers, by category, get an increase, workers with higher wages will see a larger increase

    • Weekly minimum benefit, which affects low wage workers, raised from $130 - $160

    • Weekly maximum benefit, which affects high wage workers, raised from $230 - $290

  • $120 million of new benefits for disabled workers with especially severe earnings loss

  • Benefits adjusted based on occupation and larger awards for highly skilled workers with an injury that specifically affects their craft

Faster, higher quality medical treatment

  • Independent Medical Review (IMR) process means treatment disputes will be handled by INDEPENDENT medical experts, not judges

  • Medical treatment guidelines expanded to include all treatment to provide a benefit to a patient

  • IMR is only allowed 30 days to return decisions, compared to months—or even years—to get necessary medical treatment under the current process

  • Numerous new quality controls and audits on medical provider networks (MPN’s), the physician groups that treat injured workers

  • Right to predesignate and see your own doctor expanded to all workers with health insurance

Improved retraining & higher awards for those with career-ending injuries

  • Workers who can’t return to their job of injury receive a $6,000 training voucher

  • This voucher will be awarded faster than under the current system, and can be applied to approved training providers on the state approved Eligible Training Provider List (ETPL)—many of which are union apprenticeship programs

More equitable dispute resolution with fewer delays

  • Current system is clogged with all kinds of doctor bill-related liens and lingering legal disputes, new system will eliminate most of these—freeing up workers’ comp courts to handle legitimate issues affecting injured members

  • Lien reforms also free up hundreds of millions of dollars for increased benefits

System solvency is protected, lower rate increases for employers

  • System savings will reduce the need for workers’ comp insurance rate hikes on employers

  • More predictability will help prevent insurance cost spikes that could threaten insurance market stability

  • Lower insurance rates on employers means more money for wages, benefits and improvements in working conditions

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Workers’ Compensation Reform White Paper:

Undoing the Damage of Schwarzenegger’s Rules

 

Click here to download the PDF version

 

EXECUTIVE SUMMARY

Over ten years ago, California’s employers began to report a substantial rise in the cost of workers’ compensation premiums. Insurers, citing a variety of cost drivers, simply responded with additional increases. The volume of complaints eventually attracted legislative attention and in 2002 and 2003, former Governor Gray Davis signed two sweeping reform packages that forced new rules for medical treatment of injured workers.

Despite these measures, insurance companies clung to artificially high rates while employer cries for cost containment crescendoed—creating the backdrop for Arnold Schwarzenegger, then candidate for Governor, to call for further reforms. Schwarzenegger campaigned vigorously on the workers’ compensation issue and, once elected, actively supported signature-gathering efforts to place a draconian, employer-funded initiative on the ballot. Employers raised over $5 million to back the measure, further pressuring the Legislature to act again in 2004.

In 2004, Governor Schwarzenegger introduced a harsh “reform” measure (SB 899 Poochigian) that was modified and improved in negotiations with then President Pro Tem John Burton. Organized labor took a neutral stance on SB 899, which ultimately passed both houses of the Legislature with overwhelming bipartisan support. Schwarzenegger had publicly stated that his goal was not to cut benefits for injured workers, but rather to create more objectivity, more uniformity, more consistency, less friction, and less litigation in the system. For example, permanent disability (PD) benefits based on empirical wage loss were expected to ease litigation over PD ratings. Employer-chosen doctors were supposed to decrease the disputes over appropriate medical care, and incentives to return injured workers to work were meant to create more harmonious transitions back to work. This is the brokered deal that the Legislature overwhelmingly passed in 2004 and on which labor stood neutral.

Yet, despite the Governor’s stated intentions, the regulations implementing SB 899 slashed indemnity benefits for injured workers, delayed and denied medical treatment, and complicated injured workers’ ability to successfully return to work. The deal was broken and injured workers are suffering. Schwarzenegger reneged on his promise to protect the injured, employers enjoyed significantly reduced workers’ compensation costs, and insurers, until very recently, collected historic profits. In short, injured workers were forced to foot the bill for this windfall.


KEY FACTS

  • The frequency of workers’ compensation claims has dropped almost continuously over the last 15 years, with a 14% drop since 2006. Workers’ compensation changes that have made it harder for injured workers to access benefits have pushed claims frequency even lower.

  • Deregulation of the insurance market caused the crisis in workers’ compensation. The Legislature repealed the minimum rate law in 1993, triggering predatory pricing and the insolvency of 32 insurance companies. This deregulation also encouraged insurers to adopt undercutting pricing structures that, beginning in 2000, spiked costs for employers.

  • Permanently disabled workers face 40% cuts in permanent disability (PD) benefits. Total PD compensation has been slashed by 2/3rds.

  • Temporary disabled workers face strict time limits on their benefits. Many are being forced to rely on group health insurance and state disability insurance (SDI) – a benefit they pay for themselves.

  • Medical treatment is being delayed and denied by insurance companies applying utilization review and strict interpretations of medical treatment guidelines. These reviews of employer chosen doctors are creating more friction and costs for the system while delaying care for workers.

  • A cottage industry of profiteering doctors, pharmacies, bill reviewers and debt collectors have exploited loopholes in the system and driven up costs– with no benefit to injured workers.

  • Incentives to return injured workers back to work are inadequate and ineffective. The law desperately needs stronger measures to encourage employers to keep injured workers on the job.

BACKGROUND ON WORKERS’ COMPENSATION

California’s workers’ compensation system provides benefits for injured workers and shields employers from most tort liability. Workers’ compensation is a “no-fault” system in which injured workers must show that their injury is work-related, but they do not have to prove that their employer’s negligence caused the injury. Benefits available to injured workers include medical care, partial wage replacement for work time missed due to injury, PD benefits, supplemental job displacement benefits, and death benefits. 

In exchange for these benefits, workers have relinquished their rights to sue an employer for injuries that occur on the job. Employers that fund the workers’ compensation system, either by purchasing insurance on the market or self-insuring, are shielded from most tort liability for workplace injuries.

In 2009, about 533,600 workers’ compensation claims were filed in California. Most claims (about 70 percent) were for medical care only, with no cash indemnity payments. Around 20 percent of claims are for temporary disabilities. Permanent partial disability claims account for about 11 percent of total claims—10 percent are minor disabilities and 1 percent are major disabilities. Death benefits and permanent total disability benefits each account for less than one percent of total workers’ compensation claims.

The frequency of workers’ compensation claims filed has dropped almost continuously over the past 15 years. Safer worksites, better worker safety programs, and improved worker protections cannot fully explain this dramatic drop in claims frequency. It is no coincidence that some of the sharpest drops have occurred in the years when legislative “reforms” have made it more difficult for injured workers to access medical treatment and survive on pittance benefits. As our system becomes more tattered and difficult to navigate, workers suffering injuries and illnesses are turning elsewhere.

 

DEREGULATION OF INSURANCE MARKET CAUSED THE CRISIS

Total premium costs have fluctuated wildly over the past decade. The 1993 repeal of the minimum rate law—the floor for workers’ comp rates—deregulated the workers’ compensation system, allowing insurers to price products too low to cover losses. Twelve insurers withdrew from the market between 1993 and 1997 while other companies relied on investment returns to make up for underwriting losses. When the investment bubble burst, many companies faced insolvency, and from 2000 through 2006, 32 companies went under.

Beginning in 2000, insurers overcorrected their own underpricing with massive rate hikes. What employers experienced as an astronomical workers’ compensation rate increase reflected the market response to deregulation, rising medical costs, and a crashing investment market. The workers’ comp crisis was caused by insurers making up for their prior losses and augmenting reserves left inadequate by below market pricing in the mid-1990s. These reforms have resulted in California employer costs decreasing from a high in 2003 of $6.47 per $100 of payroll to $2.39 in 2010.

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