California Governor Signs Workers’ Comp Reform Package

Governor Arnold Schwarzenegger signed a bill on April 19 designed to overhaul California’s costly workers’ compensation system and save employers billions of dollars. The compromise legislation will limit injured workers’ ability to choose their own doctor and will emphasize medical objectivity in determining who can receive permanent disability benefits.

The California state Assembly overwhelmingly passed the bill by a 77-03 vote, while the state Senate passed the measure by a 33-03 vote, according to Reuters. After weeks of negotiations, the governor and top legislative leaders agreed at the last minute on the reforms contained in SB 899, carried by Sen. Chuck Poochigian (R-Fresno). Legislators were able to avert a costly November ballot initiative by voting on the bill April 16, the deadline for the Committee for Workers’ Comp Reform and Accountability to turn in more than one million signatures to qualify the workers’ comp measure for the ballot. Sponsors of the initiative did not submit the signatures after quickly evaluating the reform package.

The emergency legislation will take effect immediately.

The compromise marked a victory for the governor, who has made workers’ comp reform a top priority under his administration, vowing to lower costs for employers across the state.

Governor Schwarzenegger said in a statement, “Today we have another victory for California. I promised in my campaign that we would reform our state’s broken workers’ compensation system and today we have the results. After many weeks of difficult negotiations, the Legislature was able to put aside the special interests and join with me to deliver meaningful workers’ compensation reform. Just as we did with Propositions 57 and 58, both sides came together and rose above partisan politics to reach a bipartisan consensus.

“Working together, we have produced a huge win for California. Our bill provides strong reform that will save jobs, reduce costs for our employers and improve care for injured workers. Our state can now become once again the job-creating machine it once was. With meaningful workers’ compensation reform, California is open for business.”

Insurance companies welcomed the new legislation.

“Our association is positive on the changes,” said Sam Sorich, president of the Association of California Insurance Companies (ACIC). “I think that there are several concepts in the reform bill that have great potential to make our workers’ compensation system more predictable, remove some of the subjectivity from the current system and also to hold down the rising costs of the workers’ compensation system. We view this as a positive step. We’re happy also that the matter was handled in the Legislature and that the governor and the Legislature were able to come to an accord on this; that’s the right way to make public policy.”

Sorich stressed that there are still many unknowns that will need to be worked out, however.

“Several of these components of the bill are new concepts, they’re novel and present some questions on how they’re going to be implemented,” he said. According to Sorich, specific unknowns include the provisions concerning medical provider networks, a new permanent partial disability rating system, immediate medical treatment for the injured worker and the cap on temporary disability benefits. “It’s going to take some time to actually determine how [these provisions] are going to be implemented,” Sorich said.

Agents were generally positive about the new reforms.

“I’m excited about it,” said Gene Brouillette, vice president of Brouillette Insurance Services in San Diego. “Now my real hope is that the politicians will give it a chance to work its way out. They’ve put up false hopes that because of the new legislation that savings are immediate, and they aren’t. The rate reduction can only happen when the pool of money gets healthier, and it’s not there yet. It will work its way out [eventually].”

David R. Doig, a producer at KIA Insurance Associates in Bakersfield, Calif., felt that the new bill was a step in the right direction.

“It’s going to bring additional insurance companies into the marketplace perhaps within the next 90-120 days, and certainly beginning in January 2005,” he said. “Employers [feel] that the state of California has finally done something to bring them meaningful relief from the tremendously high cost of this insurance. I think it also has the secondary effect of giving the impression that medical cost containment will be a reality under the legislative changes that have just been enacted.”

Sorich and Brouillette agreed that the reforms would eventually allow more insurance companies to enter the California workers’ comp market.

“It really should make it easier for agents and brokers to find coverage for their clients,” Sorich said. “I think there’s some very hopeful signs for agents and brokers here.”

The California Workers’ Compensation Institute (CWCI) issued a statement outlining the key provisions of the bill:

First-Day Medical Treatment: Employers must authorize all necessary medical treatment within one working day of the claim being filed and until the claim is accepted or rejected. Employers still have 90 days to investigate the claim, but they must authorize up to $10,000 in medical fees consistent with American College of Occupational and Environmental Medicine (ACOEM) utilization guidelines and the Administrative Director of the state Division of Workers’ Compensation treatment utilization schedule.

Strengthening of Utilization Review Guidelines: The bill makes the Labor Code’s threshold for what constitutes “medically necessary” treatment consistent with the ACOEM and Administrative Director’s treatment utilization review guidelines.

Medical Control/Independent Medical Review: Employers and insurers can establish or adjust medical provider networks for treatment on or after January 1, 2005. Employers with a provider network will be able to set up the injured workers’ first visit to a physician. If the worker is unhappy with the first provider, the employee must obtain a second and third opinion from doctors in the network. After that, the employee can appeal to an Independent Medical Reviewer who is appointed by the Administrative Director.

Medical Disputes: The bill creates new medical-legal processes for resolving disputed medical issues. Either party may request a med-legal exam. Unrepresented workers will be sent a list of three Qualified Medical Evaluators (QMEs) and will be able to choose one within 10 days. For represented workers, if there is disagreement on the QME, either party can request a QME panel.

Temporary Disability Caps: Duration of temporary disability payments will be reduced to two years except for certain injuries that may take longer to heal (capped at 240 weeks).

Return-to-Work Incentives: Employers with less than 50 full-time employees will be reimbursed for workplace modifications that allow workers injured on or after 7/1/04 to return to work. Employers also can pay 15 percent less in permanent disability payments if they offer the injured worker their original job at the same pay or another job that pays 85 percent of their wage prior to their injury. Those injured workers who do not receive an appropriate offer will receive a 15 percent increase in their permanent disability payments.

Permanent Disability Determination: A new, objective, uniform permanent disability Rating Schedule will be adopted by January 1, 2005. Determinations of injury must be based on American Medical Association guidelines.

Permanent Disability Benefits: Permanent disability benefits to severely injured workers will increase while benefits to minorly injured workers will decrease.

Apportionment: The employer’s liability will be limited to the percentage of permanent disability directly caused by the work injury.