Business Groups Evaluate California Governor’s 2011 Legislative Performance, Foresee Difficult Times Ahead for State’s Workers’ Comp System

Business Groups Evaluate California Governor’s 2011 Legislative Performance, Foresee Difficult Times Ahead for State’s Workers’ Comp System

Representatives of two pro-business Sacramento lobbyists expressed great satisfaction with Governor Brown’s 2011 performance in signing and vetoing workers’ compensation bills, but they foresaw difficult times for the state’s workers’ compensation system in 2012.

“Governor Brown was perfect on workers’ compensation this year,” said Jason Schmelzer, lobbyist for California Coalition on Workers’ Compensation (CCWC) at an October 18th webinar.  “He signed what needed to be signed and vetoed what needed to be vetoed.”  Added Jerry Azevedo, representing Workers’ Compensation Action Network (WCAN), the governor’s actions indicate that “he wants to look at changes to . . . workers’ compensation in a balanced fashion.  He wants to do it in a way that balances costs and benefits.”

Among the bills signed by the governor were:

  • A.B. 228, allowing State Compensation Insurance Fund to write policies covering employees working outside California as long as their employer’s principal place of business and the majority of its employees are in California and SCIF insures the employer’s California employees
  • A.B. 335, providing for new and streamlined benefit notices to employees
  • A.B. 378, governing maximum reimbursements for specified pharmacy services and compounded drug products
  • A.B. 1168, requiring a fee schedule for vocational experts

Commenting that, when it came to vetoes, the governor “batted 1000,” Jason Schmelzer drew attention to the following bills in particular:

  • A.B. 211, regarding delivery of job vouchers for injured employees, opposed by employers on the ground that it was confusingly drafted
  • A.B. 584, requiring that utilization review physicians be licensed in California, opposed by employers who rely on “centers of excellence” for treatment plans in cases of severe industrial injuries on the ground that the bill would interfere with their ability to do this
  • A.B. 947, would have permitted post-surgery temporary disability indemnity in addition to maximum of 104 weeks of such indemnity currently allowed
  • A.B. 1155, would have prohibited considering percentage of permanent disability caused by race, religious creed, color, national origin, age, gender, marital status, sex, sexual orientation, or genetic characteristics when apportioning permanent disability to non-industrial factors

Looking to the future, the webinar presenters emphasized that costs, while lowered by the 2004 reforms of S.B. 899, have continued to rise over the last few years and, unless action is taken to contain them, are likely to do so in the foreseeable future.

These rising costs are reflections of the facts that: (1) the average cost of a workers’ compensation claim has risen; and (2) the average length of a workers’ compensation claim has increased.  This latter development reflects, in turn, the fact that more claims are being disputed and litigated.

Above all else, medical costs have driven the increase, having risen by 2010 approximately 40 percent above their 2005 level.

Secondly, the costs of temporary and permanent disability benefits have risen 30 percent, to “well above” their pre-reform levels.  The length of time for which temporary disability benefits are paid has risen by about 100 percent.  Moreover, the rise in temporary disability benefits is “due to direct statutory increases and automatic increases that occur every year associated with the average weekly wage.”  By the same token, permanent disability benefits “are going up because of court cases that are allowing for disputes over the AMA based ratings.”  Later in the webinar, the presenters specified that the court cases to which they referred are Almaraz/Guzman and Ogilvie.

At present, California workers’ compensation insurers are operating with an average ratio of 126 percent, paying out more than they take in, and making the California system among the most expensive in the country.  According to Azevedo, “It is way up there with the most inefficient in the nation in terms of how much money it costs to get a dollar of workers’ comp benefit to an injured worker in the state.”

Schmelzer pointed out that “broad reform is coming, . . . probably . . . next year.”  For example, he acknowledged that a permanent disability benefit adjustment is warranted.  He added, however, that “the cost of any benefit increase has to be financed through a reduction in frictional costs” and said that signals and statements from the Acting Director of the Department of Industrial Relations and the Administrative Director of the Division of Workers’ Compensation indicate that they agree that any increase in the cost of benefits needs to be offset with cost savings.

Finally, the presenters discussed areas within the workers’ compensation system where significant cost savings should be achieved: (1) medical costs; (2) excessive lien filings; (3) opiates and compounded drugs; (4) the medical-legal process, including friction-driven litigation, especially the uncertainties created by Almaraz/Guzman and Ogilvie; (5) fraud and other abuse in the system; and (6) administration efficiency.

© Copyright 2011 LexisNexis. All rights reserved.