Senator Chuck Poochigian has released a report on the status of Workers Compensation in California. The report is as follows:
As the Legislature continues to grapple with the policy and political issues surrounding workers’ compensation, as the author of Senate Bill 899 I wanted to offer some thoughts.
Remember Why Reform Was Needed
When analyzing proposals in the legislature to rollback or alter workers’ compensation reform effort, it is important to remember why reform was overwhelming supported by members of both parties. In 2003, California had the highest workers’ compensation costs in the nation, at $6.46 per $100 of payroll. Some industries, such as the construction industry, saw premiums that reached $110 per $100 of payroll. Many businesses reported triple-digit premium increases as a reason for fleeing the state. More than 20 private insurers filed for bankruptcy while the “insurer of last resort,” the State Compensation Insurance Fund (SCIF), saw its market share balloon to 53 percent. California’s broken workers’ compensation system had chilled the state’s business climate.
California’s Workers’ Compensation System Today Is Still Costly
Insurers are reporting that costs have fallen to $4.42 per $100 of payroll, and “pure premium rates ” are down to pre-1996 levels, with a cumulative 55 percent rate reduction reflected in policies renewing this July. In January, rates are expected to drop another 6.3% to 9.5% percent for policies renewing after January. These savings have been a welcome relief in light of skyrocketing premium increases.
And while California no longer has the highest workers’ compensation rates in the country — as of January 1, four states had overtaken us, 45 other states still have lower costs and a more competitive business climate.
California is ranked 49 out of 50 for small business friendliness in the recently published Small Business Survival Index. Workers’ compensation costs are a key component to a competitive healthy business climate. It is my hope that we are not satisfied with having one of the nation’s most expensive systems but focus instead on building on the reforms adopted in 2003 in a manner which improves the quality of care to injured workers’ but continues to reduce overall costs.
Challenge the Numbers
The number of workers’ compensation claims filed have dropped 28%. This is perhaps the primary reason costs have been reduced so dramatically in California. Many groups that have consistently opposed comprehensive reform have ignored this vital statistic and, for political purposes, have claimed that the savings are primarily attributed to changes in the Permanent Disability (PD) schedule. They have advocated for a 100% increase in PD payouts. When analyzing the facts surrounding workers’ compensation, challenge the numbers on all sides to ensure that any changes to the underlying reform law are based on fact and not political maneuvering.
Commission on Health, Safety and Workers’ Compensation (CHSWC) Must Be Reformed.
To bolster their calls to roll back the reforms, opponents have relied on work done by the Commission on Health, Safety and Workers’ Compensation (CHSWC). CHSWC was designed to be a labor and employer joint committee. Unfortunately, some representatives on the commission who are charged with representing the business community actually represent other interests. This commission should serve as an important neutral forum for labor and businesses to jointly address needed changes. Unfortunately, in light of the politicization of the commission, all reports from the commission should be viewed with skepticism until real business representation is restored.
Denial of Care Concerns
The number one complaint received by the Division of Workers’ Compensation is that insurers are denying or delaying necessary medical treatment. The scope and validity of such claims should be carefully examined. No one involved in reforming the system supports denial of legitimate claims.
Background on Medical Treatment Issues:
California ’s medical costs rose 111 percent between 1997 and 2002, and were more than double the national average in 2002. Studies showed that Californians had far higher medical utilization rates than other states, while having the lowest return-to-work ratios in the nation. In response, in 2003 Governor Gray Davis signed SB 228 by Senator Richard Alarcon ( D-San Fernando Valley). The bill required the state to establish medical guidelines, required insurers to use a utilization review system, and also limited chiropractic and physical therapy visits.
Tools to Address Medical Care Issues:
Administrative Penalties: Senate Bill 899 (Poochigian) addressed the denial of care issue by providing for a new administrative penalty of up to $400,000 for insurers or employers that were systematically withholding appropriate treatment. Regulations allowing the Division of Workers’ Compensation to levy fines are close to being finalized.
Independent Medical Review (IMR): If the administrative penalties are not sufficient to deal with a documented denial of care problem, the state should consider adopting an independent medical review system for medical care disputes. My original bill had an independent medical review component similar to the system used by the most medical plans today. Unfortunately, that provision was stricken during negotiations. An effective IMR could expedite medical review and eliminate many of the legal medical claims pending in the system today.
Permanent Disability (PD) System
During the 2006 legislative session, the Legislature passed SB 815 (Perata) which would have increased the PD schedule on a partisan vote. Despite the Governor’s veto, legislative efforts to alter the PD schedule are expected to continue.
Background on PD System:
Prior to April 2004, California’s disability system was arbitrary and subjective, resulting in workers with similar injuries being granted vastly different awards. SB 899 standardized impairment ratings by requiring the use of the American Medical Association impairment guidelines. In addition, the bill ensured that employers only paid for work-related injuries. The new PD rating schedule generally applies to injuries occurring on or after January 1, 2005, or earlier injuries if there was no medical report indicating permanent disability issued before that date.
Opponents of reform continue to argue that the PD schedules need to be increased because of claims that the most seriously injured workers’ have been hurt by the reform. However, SB 815 would have increased all PD payouts, not just those for the most seriously injured.
The bottom line is that there is no need for legislative changes to the PD system since SB 899 provides for an ongoing review of the system and gave the Division of Workers’ Compensation the authority to make adjustments to the PD schedule as necessary.
Alternative Dispute Resolution
In 2002, SB 228 (Alarcon) authorized all unionized employers to negotiate with their unions to establish an Alternative Dispute Resolution (ADR) system to resolve medical and other disputes in the system without resorting to litigation. By all accounts this has been an effective system at reducing costs and limiting conflicts. The State of California has the largest unionized workforce in the state but was not included in the Alarcon bill. This is a simple, common sense change that should be available to the State of California workforce as well.
In 2003, the Legislature, business interests and labor organizations put aside their differences and rationally addressed a broken workers’ compensation system. Political wins were irrelevant since it was clear the system was hurting employers and employees alike. I hope that any effort to make adjustments to the underlying reforms recognizes the harm from politicization of such a vital part of our economic system. Any changes should respect the underlying principles of the reform movement and preserve the cost savings to our job creators, while ensuring adequate medical care for injured workers.