CyberSure®

Products & Services

Workers' Compensation

What's Happening with Workers' Compensation

AB 749 - Workers' Compensation Reform

WORKERS' COMPENSATION REFORM

(SIGNED BY THE GOVERNOR 2/5/02; EFFECTIVE 1/1/03)

Categories of Reform:

A) Claim Process Changes

B) Benefit Increases

C) Early Return To Work Subsidies

D) Fraud Intiative

E) Medical Cost Containment

F) Administrative and procedural changes

Preface

Effective January 1, 2003 California work comp claims will be handled differently. We will enter a claim-processing environment not so dissimilar from 1989. True, there should be less fraud and psyche claims. But now adjusters will be saddled with the task of dealing with essentially two laws; one that governs their existing caseload, and one that will govern their new files. For those of us who felt that they struggled to meet even marginal standards under only one set of rules, alas there is now more to fear than just benefit increases.

At least in pre-1993 law, adjusters unabashedly fraternized with doctors and lawyers. This had the positive outcome of familiarizing the claim team in personal terms with the defense folks who could help them in what was an extremely litigious circumstance. After 1993 this situation was altered through corporate mergers between carriers and PPO networks, and due to law changes (cf. LC 3219 & 4609g).

These bygone relationships will be all the more important now that PD rates (1997) and benefit levels have risen so dramatically. There will now be an escalation in the number and size of deals to be made in order to lighten a caseload, and our carriers less able to “do” them than ever. Imagine a claim world where the unrepresented QME process can be disrupted after it has been completed, by an applicant’s medical. A world with (thankfully) fewer AME’s and potentially more QME’s because baseball arbitration is gone, and there is no longer a presumption of correctness for the treating physician. Even the new rehab provisions will have to be handled in a strategic manner in order for the employer to gain any benefit.

Not since the late 1970’s and early 1980’s have we found ourselves with such liberal legislation within the context of such a hard insurance market. Many employers in those days turned to self-insurance and unbundled risk transfer programs. These measures had the effect of stabilizing the cyclical insurance market while allowing employers to exert more control over their claims. These are still feasible alternatives, but we should consider the practical principles upon which their success rests and apply them to our own perspective immediately.

	Maintain tighter control of our clinics in order to maintain a positive rapport with our legitimately injured associates, and to distinguish them from problematic cases that should be directed to a specialist. This approach differs from our current focus on a P&S report from the treater within the first 30 days.
	Maintain tighter controls on our specialty referrals. It will now be essential to establish a network of defense doctors who can schedule appointments for us quickly, and who will present well under scrutiny. We will now be inclined to file our DOR as soon as we have our defense medical.
	Establish a network of attorneys who are familiar with our corporate culture and whose loyalty is directed toward us. We are entering an era of proliferating litigation. Adjusters and hearing reps have never been able to carry the weight of effective negotiation with the applicant’s bar. Hence, we need to be pro-active in evaluating the direction and resolution our claims while remaining sensitive to our personnel demands.
	Review your corporate benefit delivery system to ensure that it is appropriately integrated and takes into consideration FMLA and such decisions as the recent Navarro v. A&A Farming.
	Reconsideration of HCO’s.


The Major Provisions

1.	Employer Access to Medical Information: what was formerly “diagnosis affecting premium” as accessible now reads: “Medical information limited to the diagnosis of the mental or physical condition for which workers’ compensation is claimed and the treatment provided for this condition.”

	Although language governing employer access to medical information has been broadened to benefit employer’s inquiries, it will in large part still be subject to the carrier’s discretion, but has not seemed to be a problem for employers in the last couple of years.

2.	Treating Physician Presumption: the rebuttable presumption the treating physician is correct remains if the employee has pre-designated a physician or chiropractor; otherwise the presumption is eliminated.

	The presumption of correctness of the treating physician was usually turned on the employer after their 30 days of medical control expired. The applicant’s treater then ruled on issues of treatment, ttd, pd, and voc rehab. This will now, as it was in the not so distant past, be fought out with competing medical legal reports. The preponderance of evidence and credibility of the doctors will be considered by the WCAB. However, an applicant who was not found to be P&S, and who has acquired counsel will undoubtedly argue for the presumption of correctness for their PTP.

3.	Medical-Legal Reports: where the injured worker has a panel QME and then becomes represented and selects another QME, the defense may obtain its QME report.

	This like some other changes takes us back to the post 1989 battle of the medical legal reports. The WCAB will issue rules on this provision by the end of the year, but many think that the employee will benefit from the change in that they will be able to prolong their claim if they are not satisfied with their panel qme. Presently, the panel qme for the unrepresented applicant has been the final word. Soon the claimant can lawyer up after having been through the unrepresented panel qme process and obtain additional med/legal reports which the defense may now rebut. Although, it is not known how many medical reports the employer will be required to pay for, we can assume that they will all be in play to some extent.

4.	“Baseball Arbitration”: eliminated; the WCALJ is not limited to selecting either the applicant’s or defense’s permanent disability finding.

	Baseball arbitration required a judge to select either the defense or applicant’s report on the issue of pd. There will now be opportunity allowed for compromise between the reports. This should diminish the importance of securing an AME in order to avoid baseball arbitration, while at the same time heightening the need for meaningful negotiations between defense and applicant’s counsel to make a deal.

5.	Settlement of Prospective Vocational Rehabilitation: prospective vocational rehabilitation benefits may be settled for a maximum settlement of $10,000.00; settlement is based on the employee’s desire to self-direct his or her vocational rehabilitation; the Rehabilitation Unit must approve the settlement, and can disapprove only if the employee must have VR to return to gainful employment.

	The implementation of voc rehab benefits remains capped at 16k, and rehab plans will still be developed for most of the same sort of cases which went that way in the past. However, now there will be an opportunity for the employer to deftly obtain a settlement of all issues on claims that include a personnel component. It is hoped that the ‘non’ implementation of voc rehab will not become a permanent fixture of future C&Rs, and increase their value up to 10k. For example, part of the reason that we currently settle future medical, is because there will probably not be any, but we do not want to have to defend against future claims. Now rehab may become a routine ‘tack on’ where it would not have been an issue in the past.


6.	Death Benefits: effective 1/1/06, benefits double; from 125K to 250K for one dependent, from 145K to 290K for two dependents, from 160K to 320K for three dependents; effective 1/1/03 where there are no other dependents, parents conclusively presumed total dependents; and where there are no dependents whatsoever, 250K goes to the employee’s estate.

	See Summary of Benefits Proposal below: (there is some talk of a trailer bill, which may impact the implementation of death benefits).


Death Benefits
		Proposed Effective:
		Present	1/1/03	1/1/04	1/1/05	1/1/06
(a) Aggregate Maximum Amount
(i) Single total dependent		$125,000	--	--	--	$250,000
(ii) No total dependent and one or more partial dependents		$125,000	--	--	--	$250,000
(iii) Single total dependent and one or more partial dependents		$145,000	--	--	--	$290,000
(iv) Two total dependents		$145,000	--	--	--	$290,000
(v) Three or more total dependents		$60,000	--	--	--	$320,000
(b) Weekly wage to determine death benefits	Max	$735	$903	$1,092	$1,260	$1,260 x Change in SAWW
(c) Weekly death weekly benefits	Max	$490	$602	$728	$840	$840 x Change in SAWW
¹The aggregate amount subject to the maximum upon which the weekly dependents benefit is based was increased from four to eight times the amount directed to the support of partial dependents.


7.	Temporary Disability Rate Increases: maximum T.D. goes from $490.00 now to $602.00 on 1/1/03, to $728.00 on 1/1/04, to $840.00 on 1/1/05 and thereafter will increase yearly in the same percentage as the state average weekly wage.

	See Summary of Benefits Proposal below:


Temporary Total Disability Benefits
		Proposed Effective:
		Present	1/1/03	1/1/04	1/1/05	1/1/06
(a) Weekly wage to Determine temporary total Benefits	Max	$735	$903	$1,092	$1,260	$1,260 x Change in SAWW
	Min	Lesser of $189 or 1.5 x Actual Wage	$189	--	--	$189 x Change in SAWW
(b) Temporary total weekly benefits	Max	$490	$602	$728	$840	$840 x Change in SAWW
	Min	Lesser of $126 or Actual Wage	$126	--	--	$126 x Change in SAWW


8.	Permanent Disability Rate Increases: maximum P.D. ultimately goes from $170.00 now to $230.00 on 1/1/06 for less than 70% cases, and from $210.00 now to $270.00 on 1/1/06 for 70% and greater cases; and thereafter these rates will increase yearly in the same percentage as the state average weekly wage; also, the number of weeks of P.D. for 20% or less cases will increase.

	See Summary of Benefits Proposal #1 and #2 below:


1.Permanent Total Disability Benefits
		Proposed Effective:
		Present	1/1/03	1/1/04	1/1/05	1/1/06
(a) Weekly wage to Determine permanent total benefits	Max Min	$735 $168	$903 $189	$1,092	$1,260	$1,260 x Change in SAWW $189 x Change in SAWW
(b) Permanent total weekly benefits	Max Min	$490 $112	$602 $126	$728	$840	$840 x Change in SAWW $126 x Change in SAWW
¹AB 749 provides that weekly permanent total benefits paid during each calendar year be increased annually by the change in the state average weekly wage. We have assumed these annual increases would commence the year following the year in which permanent total benefit payments began.


2.Permanent Partial Disability Benefits
		Proposed Effective:
		Present	1/1/03	1/1/04	1/1/05	1/1/06
(a) Weekly wage to determine permanent partial benefits
(i) Permanent disability rating 70% or greater	Max Min	$345 $105	-- $150	$375 $157.50	$405 --	-- $195
(ii) Permanent disability rating greater than or equal to 25% but less than 70%	Max Min	$255 $105	$277.50 $150	$300 $157.50	$330 --	$345 $195
(iii) Permanent disability rating greater than or equal to 15% but less than 25%	Max Min	$240 $105	$277.50 $150	$300 $157.50	$330 --	$345 $195
(iv) Permanent disability rating less than 15%	Max Min	$210 $105	$277.50 $150	$300 $157.50	$330 --	$345 $195

(b) Permanent partial weekly benefits
(i) Permanent disability rating 70% or greater	Max Min	$230 $70	-- $100	$250 $105	$270 --	-- $130
(ii) Permanent disability rating greater than or equal to 25% but less than 70%	Max Min	$170 $70	$185 $100	$200 $105	$220 --	$230 $130
(iii) Permanent disability rating greater than or equal to 15% but less than 25%	Max Min	$160 $70	$185 $100	$200 $105	$220 --	$230 $130
(iv) Permanent disability rating less than 15%	Max Min	$140 $70	$185 $100	$200 $105	$220 --	$230 $130
(c) Scheduled number of weeks of permanent partial disability payments


	Number of Weeks Per Percent of Disability
Permanent Disability Rating	Present	1/1/04
Under 10	3.0	4.0
10—19.75	3.0	4.0
Under 10	4.0	5.0
20—24.75	5.0	5.0
25—29.75	6.0	6.0
30 —49.75	7.0	7.0
50—69.75	8.0	8.0
70—99.75	9.0	9.0


9.	Life Pension Benefits: indexed to the state average weekly wage as of 1/1/03 and will increase therefrom.

	See Summary of Benefits Proposal below:

Life Pension Benefits
	Present	1/1/06
(i) Weekly wage to determine maximum life pension benefits	$257.69	$515.38

(ii) Maximum life pension benefits (at 99.75% rating)	$153.65	$307.30 adjusted by the change in SAWW¹
¹AB 749 provides that the life pension benefit paid during each calendar year be increased annually by the change in the state average weekly wage. We have assumed these annual increases would commence the year following the year in which life pension benefit payments commenced.


10.	Early Return-to-Work Program: creates a RTW program to subsidize employers who return injured workers to work; financial inducements to employers for RTW injured workers; up to $2,500.00 for workplace modifications; up to $1,200.00 in wage subsidies; maximum $2,500.00 an employer can receive for each employee; plus premium rebates continue for qualifying RTW.

	Employer subsidy to return injured workers to temporally modified positions while injured worker is still receiving TTD. However, no funding mechanism is currently in place. Applicable for claims occurring after 7/1/04. The Administrative Director to hold public hearing on guidelines. Compare current incentives which were meant to reward employers who return injured workers to modified duty through carrier rebates; however, rebates were miniscule and subject to carrier discretion.


11.	Fraud: failure to obtain workers’ insurance may be fraud; seeks to protect early return-to-work programs from fraud; will audit entities pursuing fraud; Administrative Director (AD) to issue notices each year warning against fraud; civil fraud penalties increased.

	See # 8. Employers who return injured workers to modified duty could be compensated. However, employers who fraudulently allege return to work scenarios could be subject to prosecution.


12.	Pharmaceuticals: Workers’ compensation drugs must be dispensed as generic drugs unless the prescribing physician specifies otherwise; medical cost containment contracts are recognized for contract prices with pharmacies; the AD must create a fee schedule for pharmaceuticals


13.	Health Care Organizations (HCO’s): easier to qualify now, no DWC certification; if an HCO is licensed under the Knox-Keene Health Care Service Plan Act, it qualifies; an employer need only offer an employee one HCO, not two as before; unless a physician or chiropractor has been pre-designated, the employee must go to the HCO.

	It has become somewhat easier to implement an HCO arrangement by reducing the number of program alternatives offered to workers form two to one. However, one may wonder if this can revive this much-maligned approach without the presumption of correctness for treating physicians.

14. Outpatient Surgery Facility Fee Schedule: the AD is charged with establishing this fee schedule

15. Medical Cost Study: requires the AD, with assistance from various agencies, to conduct a study of medical cost controls and treatment provided to injured workers.

16.WCJRB:required to develop a weekly premium per employee; to apply classification rate to state average weekly wage; “state average weekly wage” defined as the wage paid by employer to employees covered by unemployment insurance as reported by the U.S. Dept. of Labor.

17. Premium Rate Increase [I.C. sec 11737(f)]: an insurer may increase rates on policies with inception dates prior to 1/1/03 in an amount no greater than the pure premium rate increase approved by the Insurance Commissioner reflecting benefit increases due to the reform act.

18.Collective Bargaining ADR Agreements: the commissioner cannot disapprove the rates or provisions of an alternative dispute resolution agreement allowed via collective bargaining; adds aerospace and timber (to construction) as other industries allowed to enter into these agreements.

There is a trailer bill that may limit aerospace to WCAB.

19. State Fund: adds to ex-officio members to the Board (Speaker of Assembly, President Pro Tern of Senate, or their designees); advertisements must state SCIF not a state agency; allows feasibility study re issuance of bonds and securities

20. Court Administrator: newly created position to administer adjudication at the WCAB; to provide for uniformity in rules and practices at WCAB offices; supervises the Workers’ Compensation Administrative Law Judges; appointed by the Governor.

21. Audits of Claims Functions by DWC: significant overhaul; provides for an initial “Profile Audit Review” (PAR) to be given at least once every five years to each audit site; if PAR failed, move on to a “Compliance” audit; if PAR is successfully completed, only monies due to injured workers to be paid and no audit penalties; failure of compliance audits will incur penalties, including the potential of a penalty of $40,000.00; failure of two compliance audits may result in $100,000.00 civil penalty; AD to establish criteria for the PAR.

22. Negotiable Instrument Delay Excused: checks issued by insurers are required to be immediately negotiable; now delays solely caused by state and/or federal banking laws or regulations will be excused from this requirement.

23. Liens: limits on the filing of liens; lien can’t be filed more than six months from the finalization of a case, five years from the date of injury, or one year from the last provision of services that are the subject of the lien, whichever is later.

24. Loss Control: insurer loss control programs will no longer need DIR certification or fees; insurers will fund the ‘Workers’ Occupational Safety and Health Education Fund”, which is intended to provide for safety and health training and education; DIR will establish an “ombudsman” to help employers with loss control questions and coordinate loss control complaints from employers against insurers; the Labor Commissioner is to identify employers in industries with a high incidence of uninsured employers for purposes of a coverage enforcement program.

While insurers are still required to provide loss control services, they will no longer need certification from the state. There is also some funding for employer education and carrier oversight. These provisions will have little effect on carriers and brokers.

25. Notices: requires CHSWC to periodically issue a report and recommendations on improving and simplifying various notices provided by insurers to injured workers; new notice to new employees requires information as to pre-designating a treating physician or chiropractor; time limits on insurers required to provide claim form to employees when the insurer knows, or isn’t sure, that the employer has not provided the form.

State to review and revise notices to injured workers and timeframes for their filing. One wonders how the form for predesignating a treating physician will now read, and thus effect the process