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Workers’ Comp Passes Sent to Governor

Late session amendments to Sen. Kevin DeLeon's (D-Los Angeles) SB 863 that earmarked $120 million for catastrophically injured workers proved to be enough to get the workers' comp reform bill through the legislature and on to Gov. Jerry Brown. That SB 863 will be signed is expected as Brown issued a public call on the final day of the legislative session for the bill to be passed.

The bill passed out of the Senate on a vote of 34 to 4.

The final bill includes:

  • New monies for all injured workers
  • Promised to raise permanent disability benefits by $740 million per year
  • Adjusts the formula for adjusting awards to account for future earnings losses while eliminating specific add-ons for sleep and sexual dysfunction.

It also is designed to reduce frictional costs in the system and eliminate unnecessary spending to not only pay for the increased benefits, but also to reduce costs for employers. These changes include

  • Creates a new dispute resolution processes outside of the Workers' Compensation Appeals Board for medical treatments and billing issues,
  • Puts in place new controls on liens,
  • Reforms the medical provider networks to make them ‘more responsive’ to injured workers while less burdensome to administer
  • Calls for new fee schedules for physicians, interpreters, ambulatory surgery centers, copy services and home health care

Department of Industrial Relations director Christine Baker said on Friday that the bill will produce savings of approximately $770 million the first year and then annual savings of $335 million beginning in the second year after the benefit increases have been fully implemented.  She noted that the numbers reflected the amendments introduced Thursday night to create the return-to-work program with employer funding, which increases spending by $40 million over what's currently in the system

Those close to the negotiations say the last minute concession on the $120 million return-to-work program was necessary to get the bill moving, but could ultimately work to employers favor. "In my estimation, this may look worse but I think it will save us money on litigation of the 15% bump up and I think it will keep some cases from going to life pensions," Bill Zachry of Safeway tells Workers' Comp Executive. "That's a huge savings for the system but you can't calculate that."

Comes Now the Litigation

Time will tell if the program is successful, but early indications from the California Applicants’ Attorneys Association is that the bill will spawn new rounds of litigation around permanent disability and the new IMR program. During the limited debates over the bill, Chalk maintained that it rewrites the definition of permanent disability and essentially eviscerates 50 years of Supreme Court case law on the issue. "You want to talk about litigation? We just finished eight years of litigation on 899 and we finally have our hands wrapped around it and you're going to change it with 863 -- the litigation is going to be tremendous," Chalk warned the Assembly Insurance Committee.

Such uncertainty is keeping many observers hopes in check -- at least for the time being. 

"The bill will result in increased administrative costs in the short run with the introduction of independent medical review, the independent bill review and the appointment assistance program [for MPNs]. Lien filings will spike before the imposition of the lien fee as third party billers and other bulk lien filers look through the sofa cushions for old liens," Mark Sektnan, president of the Association of California Insurance Companies, tells Workers' Comp Executive. "The long term savings are going to depend on how quickly the administration can develop the fee schedules called for in the bill and what I like to call the three rules of workers' compensation: 1) things never work the way they were designed; 2) the courts will interpret the language in ways not expected; and 3) the ‘entrepreneurial’ element in workers' compensation will find their way around the law in ways we cannot begin to imagine."

At this point he says it's too early to say what impact the bill will have on the Workers' Compensation Insurance Rating Bureau's filing for January 1 rates and its proposed increase of 11.2%. Its actuarial committee will review the bill and a new quarter of experience data later this week. Stay tuned for additional coverage of these evolving issues.

Click here for the final copy of SB 863 sent to Gov. Brown.

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