Calif. Workers’ Comp Reform Law at ‘Halftime’

Editor’s Note: This is the first in a series of articles to look at California’s workers’ compensation reform law in detail and what must be done to implement that law by Jan. 1, 2013. More articles in the series can be read at www.insurancejournal.com.

When Gov. Jerry Brown last month signed a bill to reform California’s workers’ compensation system, it was far from the final step to revamp an unwieldy system for injured workers that seems to need fixing every seven or so years.

Just what Senate Bill 863 will do, how it will do it, and how well it will be done are all very much open to interpretation: from the courts, from regulators and from those operating within the system. And there are many who say the complexity of the new law makes it even harder to comprehend than Senate Bill 899, which was part of the workers’ comp overhaul passed during Gov. Arnold Schwarzenegger’s administration in 2003 and 2004.

Drawing on an American football reference, one industry expert said the new law is merely at “halftime.”

California Department of Industrial Relations Director Christine Baker, one of the architects of the compromise between labor and a handful of large, self-insured employers, even acknowledges there’s a great deal of work yet to be done. Baker led a team who, at the direction of Brown, worked with the two parties in secret since October to create a workers’ compensation reform package.

“Regulations are needed to actually help the parties implement the bill,” Baker told Insurance Journal.

Those regulations will require public input, and buy-in from workers’ comp stakeholders in a fairly short amount of time, and forums are already underway to get stakeholder input.

DIR has teams outlining regulatory areas in which they will be developing emergency regulations due on Jan. 1 to give the new reform law some teeth.

While she said there will likely be “different tweaks that will happen” during the discussions that will ensue, they will be democratic and in accordance with California’s laws. “We’re going to be following the letter of the law,” she added.

However there are those who were indirectly involved with the bill who want the regulations weighed appropriately, but most importantly, want them drafted expediently.

“Now that SB 863 has been signed into law, we are basically at halftime. The second half of the game will be implementation of the regulations,” said Mark Sektnan, president of the Association of California Insurance Companies, which served as an advisor to both sides in the negotiations that hammered out the bill. “We may be ahead going into the locker room at the half but the game can change quickly and in the wrong direction if the regulatory process does not garner the necessary balances and controls expected from this bill. The Brown Administration understands a timely and effective implementation of the regulations must be a top priority.”

Negotiations and forums aside, there appears to be a large body of people involved in workers’ comp in need of more information, and a great deal of explanation, of what is a highly complex law.

Michael Sullivan, principal of Michael Sullivan & Associates, which provides defense in workers’ comp claims, was at the California Workers’ Compensation & Risk Conference recently to promote his services and a new guide he was giving away, “Sullivan on Comp: Special Report: A First Look at SB 863.”

The 90-page guide briefly explains the nearly 50 statutory provisions that are set to automatically take effect Jan. 1, over a half-dozen more than will take effect through administrative action first and another 16 that take effect after Jan. 1 and the following year.

Sullivan, and others at the conference, said one of the biggest reactions from their clients and colleagues following Brown’s signing of SB 863 has been “what now?” — a common theme at the four-day conference in Dana Point in September.

Attendees at the conference referred to efforts to reform California’s workers’ comp system as part of a cycle.

“This is the seven-year storm,” Sullivan said, using a rough but poignant reference to reforms undertaken in 1990, 1994, 2003 and in 2012.

Sullivan said his clients have been clamoring for more information about SB 863. He’s been conducting a series of webinars to instruct people on the new law, with webinar topics like “Liens & Independent Bill Review,” “Permanent Disability, the Voucher & Death Benefits,” and “It’s Go Time – What to Change Now.” His last webinar had over 1,700 attendees and was rebroadcast to a wider audience via YouTube, he said.

“I’m doing five more in the next two months,” he added.

Another law firm that’s heavily involved in workers’ comp and is promoting its own webinar blasted out an email recently advertising it: “The biggest legislative revolution since SB 899 has hit California. SB 863 creates significant changes in the arenas of permanent disability, psychological/sleep/sexual claims, medical treatment, liens, vouchers, self-insurance, fee schedules and carve out. Do you know how to prepare?”

Don Barthel, with Bradford and Barthel LLP in Sacramento, said minutes after the email was sent out people began signing up.

“Within 10 minutes we had 32 people sign up, and we had 250 within less than 24 hours,” he said.

Barthel said people are clamoring for information “given the fact that, one, most of this goes into effect Jan. 1 2013, and two, we won’t have regulations very long before then that are absolutely essential.”

His advice: start forming a game plan now.

“By the time the emergency regulations come out, if they wait till then it may be too late,” he said.

And even experts like Barthel are struggling to digest specifics of the law, which is more than 100 pages and roughly 60,000 words, and touches several aspects of the workers’ comp system — from liens to medical review to treatment limitations to medical provider networks.

“It’s incredibly overwhelming,” Barthel said. “I put a PowerPoint presentation together and it took me 30 to 40 hours to get through the major sections.”

And for his clients, the law has provisions that if not understood could prove costly. One aspect of SB 863 reforms an independent medical review process that in that past went through several steps, including utilization review and eventually a workers’ comp judge. The process is now expedited, but under the new review process employer failing to authorize treatment within 10 days can get smacked with a fine of $5,000 per day.

“This is complicated stuff,” Barthel said. “This impacts more areas than did SB 899.”

Despite strong bipartisan support for the bill following a personal plea from Brown, not everyone is on board with the new law. Attorneys for injured workers have been dead set against it from the time it was a proposal.

Baker said she has been working with the California Applicants’ Attorneys Association to work through their issues.

“They are concerned about the regulations,” Baker said. “We’ll be working through that.”

However, she called the bill an opportunity for labor and management to come together and come to agreement, and develop the framework and decide on various tings, and certain “tradeoffs” were made, she said.

A representative for CAAA did not return a query requesting a comment for this story.

In a law that remains in parts a mystery as it awaits accompanying regulations, there are questions including just how much the new law will produce in system-wide savings. Some studies have put the number at $1 billion or more, and others have said the savings are likely to be much less.

“I think a good number is up to $1 billion or more we expect to be saved by employers in this first year,” Baker said.

In following years it could be more, however benefits following the first year for injured workers do rise to their full level, she noted.

“It’s hard to predict,” Baker said. “I would say that we expect good savings on an ongoing basis because we’ve closed a lot of loopholes. This is a paradigm shift.”