Labor says workers’ comp reform doesn’t work for permanently disabled

California Governor, Arnold Schwarzenegger won’t be making major workers’ compensation movements this year regarding permanent disability, according to an industry lobbyist. “[Schwarzenegger’s] administration reiterated its original position recently that it would reexamine the permanent disability schedule after 18 months worth of maturity. By adhering to that position, they are implicitly saying they won’t look to any changes in permanent disability this year,” said Jason Schmelzer, lobbyist for the California Manufacturers and Technology Association.

Despite the Governor’s position, labor is driving efforts to change certain permanent disability aspects of SB 899.

The controversy
In 2004, Schwarzenegger signed SB 899 into law, overhauling the state’s workers’ compensation system. Prior to that, workers’ comp rates were two and a half times greater than the national average, and there was little market competition, according to state analysts.

There is general agreement that workers’ comp reform worked in attracting more insurers to enter or re-enter the marketplace and in lowering premiums. Several sources — including a recent Bickmore study released by the California Division of Workers’ Compensation on the effects of the 2003 and 2004 legislative reforms on workers’ comp rates in California — have shown significant cost saving resulting from the reforms and are indicating that the reforms are restoring health to the state’s workers compensation insurance market.

Today, employer groups and the insurance industry believe the bill is working and are opposed to additional significant changes until more information is collected to determine how the reform is faring. Yet some labor representatives and attorneys question whether the cuts went too deep, and whether injured workers are provided the benefits they deserve.

More study needed
The Commission on Health Safety and Workers Compensation recently released information from a study based on six months of data under the new law. It showed the new permanent disability schedule had inadequate compensation for seriously injured workers and inconsistent amounts of compensation between injuries. Certain injuries resulted in disproportionately high or low grades of distillation, affecting corresponding awards, it said.

But insurers say it is impossible to determine claim types in just six months because the true cost cannot be revealed until claims mature, which takes much longer.

The Senate Labor and Industrial Relations Committee, in the meantime, recently held an informational hearing at which Sen. Alarcon, D-San Fernando Valley, announced he believed the current permanent disability rating schedule is inadequate and inconsistent with SB 899. “While we are pleased that workers’ comp rates have declined, it seems clear that there are some serious flaws in the new system,” Alarcon said. “Truly injured workers are seeing their meager benefits slashed.”

Such discussions could be the impetus for more workers’ comp changes.

“Both the chair of the committee and the Senate Assembly Democratic leaders expressed interest in pursuing legislation to change the permanent disability schedule,” said Nicole Mahrt, public affairs director for the western region of the American Insurance Association. “So I expect that while we won’t have an initiative battle, we possibly will see a legislative battle.”

There have been reports that spot bills have been introduced as well, to move through the legislative process at a later time. “The legislation can do things like that, but we haven’t seen any language as yet,” Mahrt said.

Schmelzer affirmed Mahrt’s suspicions that legislation would tackle permanent disability, “There is not a bill yet, but we hear there is going to be one.”

A stalemate
Discussion of potential legislation does not bode well, said Vince Sollitto, vice president of media relations and external affairs for the California Chamber of Commerce. Initiatives seeking to reverse aspects of SB 899 “would in essence gut the reform that has saved California employers more than $15 billion since it was passed and has brought rates down by nearly half.”

“The workers’ comp reform has been a huge success,” Sollitto added. “It has reversed the double–digit [rate] increases Californian employers were facing year after year. It has slashed premiums for employers by nearly half since the laws were first passed, and it has saved employers billions of dollars, making California competitive again by allowing job growth and job expansion. In fact, I think since the reforms, we’ve seen about a half-million new jobs in California.”

Nevertheless, Schmelzer said most of CMTA’s concerns stem from the information used in evaluating the permanent disability schedule. “We don’t feel as though the appropriate types of data were used, and we don’t feel sufficient amounts of data were used,” he testified at the Senate hearing.

To that end, the division of workers compensation plans to study the permanent disability aspects of the workers compensation system. “Once there have been 18 months of experience under the new schedule, an in-depth analysis will begin, and we support that process,” Schmelzer said.

Despite the disagreements about permanent disability claims, Sam Sorich, president of the Association of California Insurance Companies, said SB 899 is one of the most significant enactments in workers’ comp in the past 20 years. “It really revolutionized the workers comp system in California. The Bickmore study is a start to determining how effective the bill is at reducing costs and providing benefits to injured workers,” he said.

Mahrt agreed. “Now we are kind of in a defensive mode legislatively and politically to defend those reforms,” she said.