The Return to Work Fund and the RAND Study: Inching Our Way to Eligibility Standards

By Robert G. Rassp, Esq.

© Copyright 2013 LexisNexis. All rights reserved. Excerpted from the upcoming 2014 Edition of The Lawyer’s Guide to the AMA Guides and California Workers’ Compensation.

As part of the comprehensive workers’ compensation reform in SB 863 that was signed into law by Governor Edmund G. Brown on September 18, 2012, the legislature passed a provision in the Labor Code, section 139.48, that provides an annual fund of $120,000,000.00 from which eligible injured workers may receive money that compensates them in cases where there is a disproportional difference between their permanent disability ratings and their loss of future earning capacity. How is this fund going to be established, who pays for it, who administers it, how will it be implemented, and what role, if any, will attorneys have in representing or defending claims for these benefits? In 2013, the legislature passed and Governor Edmund G. Brown signed into law SB 71, which amended Labor Code Section 138.48 to indicate that the provisions of the Return to Work Fund apply to dates of injury on or after 1/1/13.

In order to understand the new law, you must deconstruct the new section and determine the “clear meaning” of the statute. Benefits under section 139.48 will be called the “Return To Work Fund,” or “RTWF benefits,” or “RTWF supplemental payments.” Here is what the statute actually says:

139.48. There shall be in the department a return-to-work program administered by the director, funded by one hundred twenty million dollars ($120,000,000) annually derived from non-General Funds of the Workers' Compensation Administration Revolving Fund, Eligibility for payments and the amount of payments shall be determined by regulations adopted by the director, based on findings from studies conducted by the director in consultation with the Commission on Health and Safety and Workers' Compensation. Determinations of the director shall be subject to review at the trial level of the appeals board upon the same grounds as prescribed for petitions for reconsideration.

Let’s look at each meaningful sentence in the statute and deconstruct it:

There shall be in the department a return-to-work program administered by the director, funded by one hundred twenty million dollars ($120,000,000) annually derived from non-General Funds of the Workers' Compensation Administration Revolving Fund…

What is known is that the statute’s reference to the phrase “administered by the director” means the Director of the Department of Industrial Relations (DIR), Christine Baker, and not the Administrative Director (AD) of the Division of Workers’ Compensation (DWC), who has an Acting AD, Destie Overpeck.

The Workers’ Compensation Administration Revolving Fund is the formal reference to the fact that the administration of the state’s workers’ compensation system is 100% user funded, i.e., paid for by annual surcharges on workers’ compensation insurance premiums from employers. The Return To Work Fund will be a segregated account from the general funds that are earmarked for running the rest of the workers’ compensation system under the DWC. However, the RTWF will also be funded by employer premiums but the benefits will not be paid by insurance companies to injured workers.

Eligibility for payments and the amount of payments shall be determined by regulations adopted by the director…

Eligibility for RTWF benefits will be determined under the auspices of Christine Baker, the Director of the Department of Industrial Relations (DIR), and not the Administrative Director of the Division of Workers’ Compensation. This is not a distinction without a difference—the DIR is the umbrella agency that is under the cabinet level Department of Labor and Workforce Development. The Division of Workers’ Compensation is under the DIR as one of the sub-agencies of the DIR.

A very important point is necessary—the claims examiner for the claims administrator for the employer will have nothing to do with determining eligibility for Return To Work Fund benefits. These claims will be solely between the injured worker and the State of California DIR claims administrator. Attorneys who represent injured workers must make it clear to the injured worker that eligibility for these benefits are determined by a state agency and have nothing to do with the insurance company or claims adjuster in the workers’ compensation case in chief against the employer. In fact, depending on the regulations for implementation, applicant’s attorneys may not be involved in the initial process for applying for RTWF benefits but only on appeals of denials of those benefits in accordance with the statute.

It was originally thought that the claims examiners who adjust claims for the Uninsured Employer Benefits Trust Fund and Subsequent Injuries Benefits Trust Fund would have the additional duties to adjust Return To Work Fund benefits. However, that turns out not to be true. Eligibility for Return To Work Fund benefits are under the direction and control of the DIR and not the UEBTF/SIBTF, which is part of the DWC.

Regulations to implement section 139.48 will be developed in late 2013, at the earliest. However, other provisions of SB 863 take priority for the DIR, DWC, and WCAB to write proposed regulations, obtain public hearings on them, submit them to the Office of Administrative Law, and obtain approval from that agency so that SB 863 can be implemented on time. Proposed regulations for implementing the Return To Work Fund benefits program will be issued in late 2013 or early 2014.

[B]ased on findings from studies conducted by the director in consultation with the Commission on Health and Safety and Workers' Compensation.

This very interesting provision in section 139.48 sounds like the legislature has codified Methods 1 and 3 of the Ogilvie decision [Ogilvie v. Workers’ Compensation Appeals Board (2011) 197 Cal. App. 4th 1262 , 129 Cal. Rptr. 3d 704, 76 Cal. Comp. Cases 624], where the DFEC adjustment factor is rebuttable in cases where the permanent disability rating is disproportional to the loss of earnings after an industrial injury, or where medical complications from an industrial injury cause a disproportional loss of earnings since the permanent disability rating is based on average WPI ratings to proportional wage loss for the same or similar employees. Future earnings of injured workers can be tracked through the EDD if injured workers stay and work within California. Average earnings of workers similarly situated as an injured worker can also continue to be tracked by the EDD.

The Commission On Health, Safety And Workers’ Compensation (CHS&WC) through studies it commissions with the RAND Corporation has the requisite data that shows WPI average ratings to proportional wage loss for injuries that have occurred since 1/1/05. This data, which the CHS&WC has had for years, is constantly being updated. In fact, in 2007 RAND provided enough average WPI to proportional wage loss data to support revision of the 2005 PDRS to a proposed 2009 PDRS that did account for average WPI to wage loss data. That 2009 PDRS was never adopted by a prior DWC Administrative Director for political reasons. But the data is still there and has been updated. However, wage loss calculations are not based on the same database as is being developed for eligibility criteria for RTWF supplemental payments. For further discussion, see [2], below.

2013 RAND Study of Permanent Disability to Disproportional Wage Loss

Working Paper

Preliminary data necessary to implement the RTWF benefits were published by RAND and released to the public in August 2013. The RAND Center for Health and Safety In The Workplace issued its “Working Paper” report “Identifying Permanently Disabled Workers With Disproportionate Earnings Losses for Supplemental Payments” authored by Seth A. Seabury and Ethan Scherer. The study is being funded by the State of California (CHS&WC).

A “working paper” is from the research community and refers to a researcher’s latest findings and solicits informal peer review. Working papers are citable as authority prior to a formal peer-reviewed publication but must be referred to in any citation as a “working paper.” The Return to Work Fund Benefits mandated by Labor Code Section 139.48 is referred to in the 2013 RAND study as “supplemental payments.”

Research Challenges

The RAND researchers and Division of Industrial Relations (DIR) need to resolve what the legislature intended for the meaning of when permanent disability benefits are “disproportionately low in comparison to [injured worker’s] earnings loss.” Specifically, how does one define the term “disproportionate?” Which injured workers are entitled to supplemental payments from the DIR? How are pre- and post-injury earnings established? How can the program be implemented so that injured workers are still motivated to work? Most importantly, how much money should be received by an injured worker who has a PD rating disproportionately low in comparison to his high loss of earnings post injury without bankrupting the Return To Work Fund?

An injured worker who seeks RTWF benefits will have the burden of proving a disproportionate permanent disability award to wage loss in order to qualify for supplemental payments under the RTWF program. The authors of the RAND study caution that supplemental payments under the RTWF program should not act as a disincentive for injured workers to return to some kind of work.

Post-Injury Earnings

The authors of the RAND working paper state on page 4 of their research summary: “The term ‘earnings loss’ as it has been used in prior RAND research refers to the difference between what someone would have earned in the absence of an injury and the actual, post-injury earnings. The term ‘potential earnings’ has often been used to refer to the earnings an injured worker would have earned had no injury occurred.” This means that potential earnings cannot be actually measured; it has to be estimated.

The authors also state on page 4: “Past RAND work has estimated potential earnings using the measured earnings of uninjured, matched ‘control’ workers, and subtracted the injured workers’ measured post-injury earnings to estimate earnings loss. However, this approach is only valid statistically when applied to large samples of injured workers—there is no practical method to estimate the true earnings losses for any individual person.”

As is usually the case with statistics, (a statistics professor once said: “There are five kinds of lies—fibs, excuses, lies, damn lies, and statistics”) each individual is different from the average. The authors of the RAND study caution on page 5: “On average, comparing the earnings of a randomly selected person who is working today to their earnings several years later will show they have higher earnings today (because factors such as retirement, unemployment, or dropping out of the labor force tend to dominate an average). Thus we expect that comparing pre-injury and post-injury earnings will tend to overestimate earnings losses on average.” This finding may help the DIR decide whether payments of permanent disability from a Findings and Award, Stipulated Award or a compromise and release would count towards “potential future earnings”, which would reduce the number of eligible injured workers to receive supplemental payments. The authors do not comment on the issue of whether social security disability or retirement benefits count towards future earnings either. Both factors (a workers’ compensation case settlement or receipt of social security benefits) would reduce eligibility numbers, which may free more money from the RTWF resources.

Post Injury Time Period and Supplemental Job Displacement Benefits

The authors of the RAND working paper point out that in other RAND studies, it takes between 3-5 years after the date of injury for earnings losses to stabilize. The authors conclude that a useful eligibility requirement will be to peg eligibility to the offer of return to work by the at-injury employer, as is required under the existing Supplemental Job Displacement Benefits pursuant to Labor Code Section 4658.

Prior RAND studies have shown that replacement of lost earnings in California is lowest for workers with the lowest permanent disability ratings. In other words, people with low PD ratings lose the most earnings three years after a date of injury. Basing the RTWF supplemental payments according to the difference between actual earnings loss and expected earnings loss could help address the inequity between a low PD rating and high actual loss of earnings. So the size of the supplemental payment would on average be inversely proportional to the PD rating. The authors point out that the number of eligible beneficiaries for the RTWF is totally unknown and unpredictable. They strongly recommend that supplemental payments under the RTWF program be contingent on injured workers getting an SJDB voucher.

For example, from the RAND research described below, injured workers with a 4% permanent disability rating loses an average of 31% of his or her earnings over a four-year period after the date of injury. If a specific injured worker has a greater than 31% loss of earnings over the four years after a date of injury, then he or she would be entitled to RTWF supplemental payments.

Study Methods

The authors of the RAND working paper used DEU permanent disability ratings and EDD wage data for injured workers who had earnings information for 4 years from the date of injury and for injured workers age 18 to 64. The PD ratings were adjusted for age, occupation, and apportionment but not with DFEC adjustments. This is because since the RTWF program only applies to dates of injury on or after 1/1/13, the DFEC adjustment no longer exists. The authors also used WCIRB data to track injured workers who had no PD but were paid some TTD benefits. Remember, WCIRB data does not include public entity or self-insured employers.

The data was adjusted to account for situations where an injured worker’s pre-injury earnings and injury severity by PD ratings were for workers who were in lower paying jobs and who generally have more severe injuries on average. The authors adjusted such factors as age, occupation, employer size, industry, region of the state, part of body injured, multiple parts of body injured and adjusted earnings so that one can imagine the same person applying across PD ratings. Also, the authors assumed that all dollar values for the pre- and post-injury earnings are based on 2011 dollars in accordance with CPI and US Bureau of Labor Statistics standards.

The authors made the following assumptions in order to model program eligibility and cost:

> Fixed annual program budget of $120 million per statute.

> All $120 million of the remaining amount will be spent.

> Approximately 60,000 permanent partial disability cases per year.

Preliminary Findings

The authors of the RAND working paper made these preliminary findings:

> Total number of injured workers studied was 19,709.

> The vast majority of those studied had PD ratings of under 34%.

> Only 284 injured workers out of 19,709 studied had PD ratings between 70% and 99% (life pension cases).

> 57.3% of the total number of injured workers were not working at the at-injury employer 9 quarters (two years, three months) from the dates of injury.

> 20.2% of the total number of injured workers studied received SJDB.

> 48% of injured workers studied had less than 15% adjusted permanent disability ratings.

> 57% of injured workers are not employed by the 3rd year after the date of injury.

> But 23% of uninjured matched control workers are also not employed with the at-injury employers after 3 years!

> 20% of permanent partially disabled workers receive the SJDB with lower percentages for low PD ratings and 40-50% of workers with severe injuries.

> Vocational rehabilitation had a 40% utilization rate, which is double of those who receive SJDB because injured workers were paid to participate in VR.

> Authors predict up to 40% of injured workers who qualify for SJDB will be eligible for RTWF supplemental payments.

> 45% of injured workers who have PD ratings of under 9% are not working at the at-injury employer 9 quarters (2 years and three months) after the date of injury.

> 52% of injured workers who have PD ratings of between 10% and 14% are no longer working at the at-injury employer after 9 quarters from the date of injury.

> 62% of injured workers who have a PD rating of 20% are not working at the at-injury employer after 9 quarters.

> 67% of injured workers who have a PD rating of 30% are not working at the at-injury employer after 9 quarters.

> Workers with PD ratings from 1% to 4% have average earnings loss of 31% at 4 years after their dates of injury.

> Workers with PD ratings from 5% to 9% have average earnings loss of 34% at 4 years after their dates of injury.

> Workers with PD ratings from 10% to 14% have average earnings loss of 37% at 4 years after their dates of injury.

> Workers with PD ratings from 20% to 24% have average earnings loss of 44%.

> Workers with PD ratings from 25% to 29% have average earnings loss of 47%.

> Workers with PD ratings from 30% to 34% have average earnings loss of 50%.

> Interestingly 15% of the matched control group of uninjured workers had earnings loss of 15% over the 4 years from the same dates of injury as injured workers accounted for by attrition in EDD data on those workers such as retirement or dropping off EDD payroll deductions.

> All workers studied had a 42% average earnings loss during the four years after the date of injury.

What does all of this preliminary data mean? First of all, the sample size for severely injured workers is too low (only 1.44% of the entire sample!). However, it is clear as has been obvious to those of us who represent injured workers is that California has a woefully poor return to work rate for injured workers. As a result, loss of future earnings is a real and fairly quantifiable reality for a large portion of injured workers.

Determination of Eligibility for RTWF Supplemental Payments

The authors of the RAND working paper point out that the DIR has to make policy decisions in how Labor Code Section 139.48 will be implemented. The authors suggest that some of the following considerations prevail in determining eligibility:

Only $120 million is available every year. If there are 60,000 PPD cases per year, and if 40% of those injured workers qualify for SJDB, then up to 24,000 injured workers per year may qualify for RTWF supplemental payments. If that is true, then the average amount of money paid would be about $5,000.00 per injured worker! Here is what the authors conclude on page 16 of the Working Paper: “Given the fixed budget, there is an obvious tradeoff between more generous eligibility criteria that provides benefits to more people, or more restrictive eligibility criteria that leads to higher benefits per person. In the table [Table 5 of the study], the number of expected recipients ranges from 10,290 to 24,240, while the average payment [of RTWF supplemental payments] ranges from $4,950.00 to $11,662.00.”

As you can see, $120 million does not go that far when up to 24,000 people may qualify for a portion of that amount per year. It is clear that the DIR will have to cap RWTF supplemental payments to under a threshold amount while increasing the definition of earnings loss to probably include consideration of PD payments, work income, social security disability payments, and possibly other sources of income over a 4 year post-injury period. The authors remain silent on whether the DIR will require injured workers to prove actual earnings for each year of 4 years post injury or whether a statistical estimate of earnings loss based on this type of data from RAND will suffice.

For RTWF program eligibility, based on this preliminary RAND study, it is predicted that the DIR will require an injured worker to prove:

> He or she has received a SJDB voucher

> He or she has used a SJDB voucher

> His or her actual earnings for each of 4 years post injury (Form W-2, Form 1099, Schedule C Self-employment Profit/Loss of a Federal tax return, etc.).

> A copy of the PD award or C&R and the amounts thereof

> A proof of disproportional earnings loss to PD rating that is greater than the percentage of predicted loss of earnings from the data in Table 2

E.G. #1: PD is between 1% and 4%, injured worker’s actual decline in post-injury earnings is above 31% since the average loss of earnings is 31% for those PD ratings). This would apply to 78% of all sampled injured workers who have ratings between 1% and 4% PD. See Table 4.

E.G. #2: PD is between 10% and 14%, injured worker’s actual decline in post-injury earnings is greater than 37% since the average loss of earnings is 37% for those PD ratings. This would apply to 84% of all sampled injured workers who have ratings between 10% and 14% PD. See Table 4.

E.G. #3: PD is between 30% and 34%, injured worker’s actual decline in post-injury earnings is greater than 50% since the average loss of earnings is 50% for those PD ratings. This would apply to 88% of all sampled injured workers who have ratings between 30% and 34% PD. See Table 4.

The authors caution the DIR that the control group of uninjured workers lost 15% of their earnings after 4 years from the cohort injured workers’ dates of injury for reasons such as retirement, leaving the state, non-work related illnesses etc. What this shows is the fact that even workers without significant PD ratings all display a large decline in post injury earnings and confirms the fact that this method overestimates the effects of PD on loss of earnings on average. This is especially true since the RAND data in the current study was derived primarily during the economic downturn that began in 2008.

It is certain that the data from this preliminary study will continue to be gathered, updated, and refined, hopefully with a better and more accurate reading of PD and earnings losses as we emerge out of the recession that occurred during the data gathering period for the preliminary findings. It is clear that the RTWF supplemental payments program will not be implemented by the DIR for a few more years now that the statute has been amended not to apply to dates of injuries prior to 1/1/13.

The August 2013 RAND study Working Paper is a preliminary draft as stated above and is subject to public commentary prior to its official peer reviewed publication. At the time of the publication deadline for the 2014 edition of this guidebook, the RAND researchers were revising the title of at least one of the five Tables of data due to misleading information conveyed by the title of the table but not of the data within the table. The conclusions by the authors of the study has not been altered due to changes in the title of a table and their recommendations for determining eligibility for supplemental payments will remain the same at least until the actual data base is updated.

Appeals of DIR Determinations on Eligibility

Labor Code Section 139.48 also states in pertinent part:

Determinations of the director shall be subject to review at the trial level of the appeals board upon the same grounds as prescribed for petitions for reconsideration.

This provision looks like at some point, an injured worker may be represented by his or her attorney who appeals a determination of the Director of the DIR before a trial judge of the WCAB. Although the statute does not say the attorney who assists an injured worker in obtaining RTWF benefits is entitled to an award of attorneys fees, the fact that an appeal is taken to a trial judge implies that fees will be allowed.

You might recall under the prior vocational rehabilitation statute, Labor Code section 139.5, attorneys fees were allowed not under that section but under a regulation from Title 8 of the California Code of Regulations. The same process may occur under section 139.48 RTWF benefits that are appealed to a WCJ. It is even possible that attorneys fees will be allowed simply for an attorney assisting an injured worker in applying for RTWF benefits in the first place. This is why close attention has to be made to the regulatory development for RTWF benefits.

Remember, the grounds for an appeal by way of a Petition for Reconsideration are governed by Labor Code section 5903, which states in pertinent part:

(a) That by the order, decision, or award made and filed by the appeals board or the workers' compensation judge, the appeals board acted without or in excess of its powers.

(b) That the order, decision, or award was procured by fraud.

(c) That the evidence does not justify the findings of fact.

(d) That the petitioner has discovered new evidence material to him or her, which he or she could not, with reasonable diligence, have discovered and produced at the hearing.

(e) That the findings of fact do not support the order, decision, or award.

Nothing contained in this section shall limit the grant of continuing jurisdiction contained in Sections 5803 to 5805, inclusive.

It appears that appeals of an “eligibility award” from the DIR to a WCAB trial judge would fall most likely under sub-sections 5903(c), (d), or (e). Hypothetically, an injured worker who appeals a determination of eligibility of RTWF benefits to a WCJ would seem to be entitled to a trial de novo on entitlement if the grounds for an appeal was because the decision, order or the award of the Director of the DIR was not supported by substantial evidence or the evidence did not support her “order, decision or award.”

Other Issues to Resolve

What happens if the injured worker also files a Petition to Reopen his claim against the employer for new and further permanent disability within five years of his date of injury. Can he or she also file a claim for RTWF benefits? Probably not since a new and further permanent disability rating may eliminate any disproportionate loss of future earnings, making application for RTWF benefits moot. Regulations may allow an injured worker to file for RTWF benefits concurrently with a Petition To Reopen with proceedings in the RTWF claim stayed pending the final outcome of the Petition to Reopen.

How will RTWF benefits be paid to the injured worker? Weekly, monthly, or paid in one lump sum?

Who will defend the DIR in legal proceedings if an eligibility determination by a claims examiner for the DIR is appealed by an injured worker to a WCAB trial judge?

Will RTWF benefits be considered to be taxable earnings?

These and many other questions will be answered by the regulatory authority granted in the statute to the DIR. In the coming months all of us must pay attention to that process. Go to www.dir.ca.gov/dwc and click on SB 863, which will lead you to all of the essential aspects of SB 863 including the bill itself and the proposed regulations. The entire workers’ compensation community is encouraged to become part of the process and to participate in the rule making public forums that are announced on the DIR and DWC websites for all proposed regulations that implement SB 863.

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