Title: Vice president of human resources and legal counsel for Grimmway Farms
Schools: McNally earned his law degree from the University of the Pacific, McGeorge School of Law. He graduated from the University of San Francisco with bachelor's degrees in English and theology. Following that, he did graduate studies at Hebrew University in Jerusalem Israel.
Boards: He serves as a trustee for the Self-Insurers’ Security Fund, president of the Kern Adult Literacy Council Board of Directors, member of the Board of Directors of the Golden Empire Gleaners, and member of the Board of Trustees for Garces Memorial High School.
Certifications: McNally is certified by the State Bar of California as a specialist in workers’ comp law. He is also a licensed general contractor.
Favorite Quote: “Life is a slow, reluctant march into enemy territory.” (Henry James)
Mentor: Don Powelson, an attorney with Hanna Brophy. He taught McNally workers’ comp and was, in McNally’s opinion, one of the best mentors anyone could have.

A well-known employer presence at just about every workers’ comp event, McNally is an outspoken advocate of the return-to-work process and how it should be improved. As an employer, he knows firsthand the challenges faced by employers in getting injured workers the right medical treatment, getting them back to work and keeping lawyers out of the process as much as possible. His expertise has resulted in appointments to various commissions and organizations. He’s also a well-known speaker at workers’ comp conferences. He attended the University of San Francisco and McGeorge School of Law at the University of the Pacific.

What are the top three issues in California workers’ comp today?  
I would say the top three issues are, first, medical costs and medical treatment cost management. Second is permanent disability and the decisions that have come out that have the potential to undo the permanent disability system and make it subjective. It could give local judges the ability to define permanent disability on their terms, as opposed to Labor Code section 4660 and as drafted later under SB 899. I would say the third thing is return-to-work issues, especially in this economy. Trying to get people back to work is important now. In return-to-work, workers’ comp intersects with the Department of Fair Employment and Housing [which] mandates an interactive process. [The interactive return-to-work process] is a discussion you need to have with employees with disabilities or medium-term interruptions to their ability to work, like illness. You’re mandated as employer to see if they can return to modified jobs. That system and the workers’ comp system don’t blend together very well right now.

Are we headed for a hard market, and if so, when will it come? How long should we expect it to last? What are the repercussions?  
I do [think we’re headed for a hard market], depending on what happens with the appeals of the Almaraz/Guzman and Ogilvie cases. If they’re overturned on appeal, we’ll be in good shape. [With regards to] medical treatment cost increases, we’re starting to identify what’s driving them and we can do things via regulation to control them. [That and] medical provider networks that are not efficient are things we can fix informally. The short answer is that we’re headed to a hard market if Almaraz/Guzman and Ogilvie stand. If they don’t [stand] I think we’re in good shape. There are other problems that we can address.

Are medical provider networks a help or a hindrance? How should they be improved?  
They have the potential to be a big help, but they have to be managed well and be a manageable size. If they’re too big, they’re of no use. If they’re of manageable size and crafted well to the employers’ community and the employers’ workforce, then they can be very helpful. What is more helpful are the health care organizations and I think those are the best way to manage and to most efficiently provide med treatment and manage costs.

What needs to be done to improve return-to-work?  
That’s a complicated issue. The first thing we need to do is do away with the voucher and workers’ comp system and the 15% bump-up or bump-down. They’re not working and have artificial timelines that don’t take into account the [recovery of the injured worker, litigation that may be going on, or any delays in recovery] with surgeries or protracted medical treatment. The timelines don’t very well anticipate these things. We need to coordinate return-to-work mandates and incentives in the workers’ comp program with the expectations under the interactive process. That is a federal law that’s implemented through the California Department of Fair Employment and Housing. That’s an umbrella over workers’ comp law. We need workers’ comp law to be consistent with the federally mandated interactive process.

What do you see, other than medical, as the next big cost driver?  
With the overall age of our workforce and physical condition of our workforce, it is getting more and more difficult to modify jobs, keep people healthy in the workplace, and bring them back into the workplace after an injury. They’re getting older, and their medical conditions complicate their healing process and leave them with more permanent disability than they might have had when they were younger. I don’t see that changing, especially in this economy. People aren’t leaving their jobs because there are no other jobs to go to. People are staying and working harder and wearing themselves out.

Is it realistic to deal for more cost-cutting reforms in exchange for increasing PD benefits?  
Yes. We tried to do it last year with Angie Wei. We had some pretty good ideas. Just in general, there’s still a lot of fat in the system—a lot of extra costs to deliver benefits. There is too much litigation and too many special interests that still profit in the system from the inefficiencies. There is too much frictional cost. If those could be taken out, it could be cheaper to deliver a dollar of benefits. The cost for workers’ comp insurance wouldn’t need to rise; those savings could go towards increased benefits for employees. The system really has two stakeholders: employers and employees. The system needs to work for the two of them first. Everybody else, doctors and lawyers and whoever else, is a distant second.

Where do you see applicant attorneys focusing litigation in the future?  
[I see them focusing on] permanent disability, medical treatment, and trying to control medical treatment to undo medical providers on an individual basis. They will claim that the employer doesn’t have the right to use a medical provider network because they haven’t complied with some specific rule. The attorneys will get [injured workers] to doctors they want so that those doctors will write reports they’ll like that exploit the rationale of the Almaraz/Guzman and Ogilvie line of cases.

What is the effect of more than $1 billion in payroll being absorbed by the self-insured groups?  
I think self-insured groups are potentially a very good thing. It allows smaller employers with good safety records and good practices to provide workers’ comp benefits at a more competitive rate. They aren’t bringing in the profits of an insurance company. They have to be very closely regulated and there has to be a lot of transparency so that no one is being gamed. It’s totally different than a permissibly self-insured individual employer. The groups are concentrated in certain sectors of the economy. This economy is a good example. [Car dealerships and construction comprised two self-insured groups that have become insolvent and hurt entire sectors of the economy in the process.] That’s one of the hazards, [self-insured groups] are homogeneous. But if they have good financial disclosure and the deposit postings are adequate, self-insured groups are good things.

If you’re self-insured are you seeing more or fewer claims in a recession?  
We’re seeing more, and it makes sense. When the economy is bad and people are nervous about their job and working more hours, they’re inclined to report an injury that they might otherwise try to work around. We’ve actually seen 20-25% higher incidence.

Is a recession more or less likely to drive an employer toward self-insurance?  
I think it’s more likely to drive them to look at [self-insurance], but the financial solvency thresholds are significant, so people are less likely to qualify for it. Self-insurance requires $5 million net worth and a net income of $500,000 over the past three years, which is a significant bar to get over.

What needs to be done to keep California SIGs from suffering the same fate as New York’s trusts?  
Robust and carefully crafted regulations that require adequate financial deposits and financial transparency and solvency [are needed]. And the wherewithal of the individual group members is important to prevent that.