For businesses in California, one of the sustaining achievements of the Schwarzenegger Administration has been the Workers' Compensation Reform of 2004. It is estimated that the reforms in that package of laws are responsible for saving businesses an estimated 64 percent in insurance premium costs which equates to tens of thousands of dollars for many businesses.
However, the savings and reforms in the workers' compensation package are being threatened in a number of ways. The threats come from judicial decisions, administrative actions, and legislative proposals.
Courts
The most significant reform of 2004 involved the Permanent Partial Disability Rating Schedule which is the formula used to award compensation for worker injuries resulting in Permanent Partial Disability (PD). PD litigation cases were far more frequent and costly in California than other states and were counted as a significant factor in the high premium costs in the state. The 2004 reforms required doctors to use guidelines established by the American Medical Association to rate workers' impairment, thereby establishing consistency and eliminating disputes, which leads to litigation.
In February 2009, the state Workers' Compensation Appeals Board (WCAB), a quasi-judicial government body, consolidated two cases that are now referenced as the Alamarez/Guzman decision. This decision essentially holds that a rating based on the AMA guidelines can be disqualified as long as an alternative rating is based on the "judgment and experience" of a rating physician. If upheld, this decision would remove all the certainty in a PD rating, which in turn will create the need for higher reserves and higher insurance premiums. In short, the decision would gut the 2004 reforms. The WCAB decision is being challenged at the WCAB and at the Court of Appeal.
In a separate case, referenced as the Ogilivie decision, the WCAB ruled that an injured worker can rebut the Diminished Future Earnings Capacity (FEC) adjustment factor of the 2005 Schedule by applying facts about their own specific wage loss to the existing range of FEC adjustment factors set forth in the Schedule. The Ogilvie decision is on appeal.
More information on these decisions can be found at: http://www.fixworkerscompnow.com/pdf/FactSheetAlmarazGuzmanOgilvie.pdf
Administrative Threats
As discussed above, these quasi-judicial decisions affect insurance premiums. Following these decisions, the Worker's Compensation Insurance Rating Board (WCIRB) recommended a 24.4 percent increase in workers' compensation premiums to the state Department of Insurance. Some of the recommended premium increase is attributable to the decisions mentioned above. However, other factors including increased health care costs from pharmacy and durable medical equipment and insurer litigation are also cited as reasons for the recommended premium increases.
Business, labor unions, and the Governor oppose the WCIRB recommendations. A copy of the Governor's letter to the Insurance Commissioner is attached and can be found at the following link:
http://gov.ca.gov/index.php?/print-version/press-release/11765. The Insurance Commissioner must consider the recommendations of the WCIRB, but is free to make an independent advisory to insurance companies by July 1.
Legislative
Ever since the 2004 reforms were enacted, there have been a series of bills introduced and acted upon to threaten the savings to businesses. So far, the Governor has vetoed those bills. This year, the threat is from SB 773 by Senator Darrell Steinberg, who is the leader of the California State Senate.
SB 773, at this point, simply states legislative intent to adjust permanent partial disability benefits to be fair and equitable to workers and similar to other states. The details of this bill will be worked out as the legislative session progresses and will likely be based upon the outcome of the court decisions. It is a bill that the staffing industry and others will need to keep a close eye on throughout the year.
