Reform = Questions, Anticipation, Speculation

The California Workers' Compensation and Risk Conference, which started yesterday, could not have been more fortuitously scheduled with the opening presentation occurring just 19 days after the Legislature shut its doors for the season and the Governor's signing of Senate Bill 863 just the day before.

As one might expect, most of the buzz at the conference is about SB 863 and my public sentiment thermometer gauged that most everyone believes that there are good provisions, bad provisions, and elements that could go either way depending upon how the regulations implementing the changes are drafted ... and how the courts interpret both the new law and regulations.

My "on the ground" observation is that nearly everyone was happy to see the permanent disability 15% up/down provision eliminated. Ronnie Caplane, chairwoman of the Workers' Compensation Appeals Board, described that provision as "a well-intentioned statute, but in practice it went completely awry."

Nearly everyone also seems happy with the new Independent Medical Treatment/Bill Review processes - albeit most of the attendees at the conference represent business and employers. Nevertheless, most see these provisions as eliminating a lot of unnecessary friction in system administration, though there are questions about implementation that are raising some concern.

Another favorite of attendees is the change to the timing of permanent disability indemnity payments. Under current law, permanent disability benefits must begin within 14 days of the last temporary disability payment based on its estimate of the worker's degree of disability. This causes friction because of disagreements in estimated PD, overpayments and claims of credit, etc.

SB 863 provides that for injuries on or after Jan. 1, 2013, an employer doesn't have to pay permanent disability benefits until an award is issued, provided the employer has offered the injured worker a position at 85% of his pre-injury wages, or the injured worker was hired by another company at 100% of his pre-injury wages. The thought is that this will expedite claim resolution because there will be fewer disputes about what is actually owed, and if the injured worker is employed the need for the PD indemnity money is not so great.

Concerns about the IMR process center on the provision that makes the reviewer anonymous. An IMR decision can be overturned only for fraud, conflict of interest or a material mistake of fact. But if the identity of the reviewer remains anonymous there is virtually no way to prove these contingencies. 

Still, SB 863 contains a provision relative to the IMR process that if any element of that statute is struck for any reason then the remaining provisions will stay in force. I'm quite certain we will see sooner than later a case go up where an injured worker didn't like the IMR decision, attempts to prove fraud, conflict of interest or a material mistake of fact, but can't without being able to interrogate the reviewer.

Another big question mark is the late addition to SB 863 of the $120 million fund that is intended to compensate injured workers for a "disproportionate" loss of earnings following a "catastrophic injury." None of the key terms are defined in the new law so its implementation is completely reliant on what the DIR comes up with.

Lacking in the general discussions though has been any careful analysis of the changes to self-insured administration. SB 863 has many, many pages devoted to changing the funding requirements, the reserve settings, the qualifications and reporting of self-insured employers. I have yet to see any quantification of system impact due to these changes. I have no doubt that self-insured employers are going to see relief, and I believe it will be quite a bit of relief.

But self-insurance remains a small subset of the overall workers' compensation picture in California, and may have a disproportionately large impact on overall system costs. Cost estimates have been all over the board, but I haven't seen any that deal with the self-insurance provisions. And if self-insurance proves to be much more efficient and cost effective than traditional plans will we see more large employers migrating to self-insurance? And if so, how will that impact system costs?

So many questions. So much speculation. With a bill this big, this sweeping, it will take years for the full impact of SB863 to be known, and for all of the consequences, intended and unintended, to materialize.

The architects of SB 863 gave us the plans. The contractor, DIR/DWC, will build the framework. Its up to the industry to apply the finishing touches.