California Workers’ Compensation Reform SB 863 Analysis: Self-Insurance Provisions

California Workers’ Compensation Reform SB 863 Analysis: Self-Insurance Provisions

***WARNING: The following analysis is based on the 8/24/2012 version of SB 863. On 8/31/2012, the Legislature passed SB 863. Be sure to check the final version of SB 863 posted on the Legislature website.***

The proposed amendments in SB 863 to Labor Code Section 3700 et seq. would significantly alter several provisions applicable to self-insurance. Existing law requires an employer to secure the payment of workers’ compensation by obtaining from the Director of Industrial Relations a certificate to self-insure either as an individual employer or as part of a group of employers. Currently, what is required is that the self-insured employer makes a showing satisfactory to the director of the operational ability to self-insure as well as the financial ability to pay future compensation claims that may become due.

The amendments would change the method of calculating and increase the amount of the required security deposit and would delete a related audit requirement. The amendments would also prohibit, beginning January 1, 2013, certain employers, including professional employer organizations (PEO’s), leasing employers, and temporary service employers, from obtaining a certificate of self-insurance.

The bill would also require public self-insured employers to provide certain information to the director and would require the Commission on Health and Safety and Workers’ Compensation to conduct an examination of the public self-insurance program.

Additionally, the proposed amendments would change the cost of the public self-insurance program from being a General Fund item to a cost borne by the Workers’ Compensation Administration Revolving Fund.

Finally, existing law establishes a Self-Insurer’s Security Fund for purposes of the payment of workers’ compensation benefits owed by a defaulted private self-insured employer. The amendments would revise the composition of the Board of Trustees of the Self-Insurers’ Security Fund and would modestly revise the duties of the Self-Insurers’ Security Fund. Other related changes to the Self-Insurer’s Security Fund would also be made.

The prohibition of certain employers, specifically the PEO’s and staffing agencies from obtaining a certificate of self-insurance has drawn criticism. Some feel that to preclude all of these employers from obtaining self-insurance is to “paint with too broad of a brush”. These opponents argue that staffing agencies should not be grouped with PEO’s for purposes of self-insurance.

It would appear that some of the proposed changes emanate from concerns related to the financial stability and/or solvency of many of the self-insurers. There have been two PEO’s that have defaulted since 2011. There have also been several public self-insurers that have encountered severe financial problems, including bankruptcy, in recent years. Whether the amendments should exclude staffing agencies from self-insurance is hard to say. What is clear, however, is that a review of the self-insurers role in the present system over the past several years is of interest and the proposed amendments attempt to address these issues.

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LexisNexis Series on California Workers' Comp Reform SB 863:

***WARNING: The following analyses are based on the 8/24/2012 and/or 8/27/2012 version of SB 863. On 8/31/2012, the Legislature passed SB 863. Be sure to check the final version of SB 863 posted on the Legislature website.***