Thursday, June 13, 2013

Work Comp Is Like the Weather

A friend of mine quipped the other day that workers' compensation is like the weather - everyone complains about it but no one does anything about it.

At dinner last night another workers' compensation acquaintance commented that workers' compensation is such a dysfunctional system that one really need not go far at all to find some element of abuse, failure or leakage.

Then this morning I read the latest edition of the Workers' Compensation Executive and the lead story that State Compensation Insurance Fund's downsizing was so dramatic that claims administration services incurred 300,000 penalties last year for a total of $21,858,570.

That's a lot of claims adjuster positions...

According to the story, most of the penalties were late payments to providers.

I hear and read complaints all of the time about late payments, and underpayments, to providers so this news is not surprising.

Worse is that there were 7,849 instances of penalties for failure to properly compensate injured workers, resulting in $1,989,629 in penalties last year.

The cycle continued into this year with the carrier reporting that for the first four months of 2013 it had incurred another 2,122 penalties for late payments to injured workers.

And those are only the ones that were caught or reported.

Observers note that the issue is the downsizing of the claims departments at SCIF. Last year the carrier famously announced a sharp consolidation of its offices, reduction in work force and liquidation of properties or termination of leases.

As a consequence the carrier, according to the report, has increased the work loads of remaining adjusters who are still tackling with computing systems that require more labor and effort beyond the adjusting of claims.

Unfortunately I don't see what SCIF is doing as anything that any other business in a similar situation wouldn't do. In grand truth, it makes better business sense to incur these penalties because it is cheaper than fully staffing across the state in multiple offices. It may not be in keeping with the carrier's mandate, but, as they say, "business is business."

The real shame is the complete ineffectiveness of the penalty system that has become the primary enforcement tool against carriers since Labor Code 5814 was eviscerated in 2004.

LC 5814 was gutted in response to the perception that applicant attorneys were using the section to unfairly, and unreasonably, gain profit against carriers for simple mistakes.

Before the section was amended the penalty enforcement section was interpreted as being applicable to every single instance of error, and thus there was the potential of a compounding effect on penalties. The complaint by the payer sector was that simple mistakes that would normally cost a dollar would get pumped up by the use of this section and cost five dollars, or more.

The legislature was persuaded that there was sufficient enforcement capabilities within the Division of Workers' Compensation Audit Unit to keep carriers on the straight and narrow.

But this has not turned out to be the case. The fact is that the Audit Unit itself is understaffed, and inadequately armed, to be of any threat to a payer.

I'm not saying that carriers see Audit Unit penalties as just a cost of doing business - but certainly the risk of an audit and penalty order isn't as threatening as a huge, compounding penalty under the pre-2004 section 5814.

The tendency in workers' compensation reform is to over-reform, to swing so far from the middle in a reaction to a perceived injustice that the exact opposite occurs.

Workers' compensation may be like the weather in that everyone complains about it. But unlike the weather, people have the power to do something about it.

Reform will cycle through again - this seems to be an immutable fact about workers' compensation. And in the next cycle you can bet that there will be a push to build stronger private-based penalties into the Labor Code.


  1. Very well written analysis of the current state of penalties. Thank you

    1. Thank you Charles. There needs to be some balance. So often the reaction to a problem is worse than the problem itself and in the case of penalties it seems to me that the system has completely lost focus on its main purpose - to take care of injured workers.

  2. The original purpose of WC was to help the injured worker. Now a days, all of the legislation is written by insurance carriers and self insured. SB 863 is a great example of this. Injured worker representatives we locked out of the negotiations. The pendulum is now weighted heavily toward the parties with the lobbyist money.