Did We Get Workers' Comp Reform?

Sunday, September 28, 2003 | 0

Probably not. The Legislature's three previous attempts to reform workers compensation generally made matters worse and early indications are that legislators have kept their streak intact. Very little was done to control medical treatment and litigation, which have been major cost drivers, and the AB 749 TD and PD increases (also major cost drivers - but a necessary adjustment) remained intact. The Legislature eliminated the vocational rehabilitation benefit and limited chiropractic treatment. When legislators passed and sent AB 227 and SB 228 to the Governor for his expected signature, they claimed a one time savings of $5.3 billion with on-going annual savings of $5-6 billion. Most observers believe employers will be lucky if they experience half that amount in savings and it is likely that much of the savings will be eliminated by scheduled increases in the TD and PD rates.

The vocational rehabilitation benefit has been at risk since the Legislature first began discussing workers' comp reform in 1984. AB 227/SB 228 eliminated the mandatory benefit and replaced it with a "job displacement voucher" for injured workers who do not return to work within a specified time frame. The Legislature estimated that this scheme would save employers $1.2 billion annually but this "savings" is likely to be as illusory as all the alleged savings from previous reform attempts. In its rush to "do something," the Legislature failed to fully consider the consequences of its actions. It is really quite amazing that an issue as important as workers' compensation should be left to the final three weeks of an eight-month legislative session.

It is true that vocational rehabilitation, like the workers' compensation system as a whole, needed trimming to eliminate abuse and waste. Approximately one half of the injured workers using VR services have PD rates below 25%; clearly many of these individuals could return to their regular duties but many were in lowing-paying, "dead-end" jobs so VR services have been an attractive option. Other individuals who are clearly entitled to VR services lack sufficient motivation and use the benefit to extend compensation. These abuses and misuses of the system needed to be eliminated but the Legislature's action eliminated the VR benefit for injured workers who require return-to-work assistance and are motivated to use services appropriately.

The mandatory VR benefit in California was created because a federal study in the early 1970's indicated that 60% of persons with disability rates greater than 25% who are able and want to work were either unemployed or underemployed. Subsequent studies have produced remarkably similar results. Return to work assistance for these workers is essential because they do not have the option to try VR and then return to their pre-injury jobs if it doesn't work. The $16,000 cap was not sufficient for many of these individuals because they needed more time to complete training programs and/or required assistive and adaptive devices to compete effectively. And the cap rarely allows for placement assistance; persons who have experienced long periods off work due to disability need a job coach to prepare them for the interviewing process and to help with the job search. These individuals will now have neither the $16,000 cap nor placement assistance - but they will have a voucher.

AB 227/SB 228 creates a "job displacement voucher" for injured workers (1) who have a ratable disability, (2) whose employer failed to offer appropriate work within 30 days of knowledge of P&S status, and (3) do not return to work within 60 days of P&S. The amount of the voucher ranges from $4,000 for persons with a PD rate from 1-14% to $10,000 for persons whose disability rate is 50% or greater. There is no requirement for the individual to be a Qualified Injured Worker (it won't matter if the employee is able to return to regular duties - if the employer doesn't offer work within 30 days for any reason, the employee will be entitled to a voucher). The voucher must be used for training and reimbursement for training related expenses. There is no VRMA - the employee must use his/her PD or other resources for support during the training program. No more than 10% of the voucher amount may be used for counseling services. Exactly how the voucher system will work will be established through regulations promulgated by the DWC Administrative Director.

Without some very favorable regulations, this voucher system may prove to be worthless for almost all injured workers and provide little if any savings for employers. It appears that the employee cannot obtain a voucher until there is a PD award. By that time, most of the employee's PD has been paid out in the form of PD advances so there will be little left to support the employee through a training program. On the low end of the PD scale, the voucher is probably insufficient for most training programs but it appears that the injured employee cannot use the voucher to obtain assistance with job placement, which is often the most appropriate re-employment strategy for a person in that PD range. At PD rates above 15%, the voucher would cover the cost of many vocational training programs but injured workers do not have the requisite knowledge and skills to identify and evaluate available training programs. And $600 to $1000 for counselor fees may not be sufficient for a proper evaluation, testing, and selection of an appropriate training facility. The voucher system will require some very favorable Regulations if it is to work at all.

The voucher system has the potential to seriously erode the "savings" identified by the Legislature. An injured worker does not need to be a Qualified Injured Worker to be eligible for a voucher so we may have as many as 100,000 workers annually who are eligible for vouchers rather than the current 45,000 QIWs who are eligible for VR services. This amounts to a potential cost of $700 million annually (plus an additional $350 million for administrative costs) if the average voucher is worth $7,000. Many injured workers would not use their vouchers but an applicant's attorney is arguably guilty of malpractice if s/he did not request the voucher to preserve the injured worker's right to use it at some point within five years of his/her date of injury. Carriers who issue these vouchers will have to keep these files open - with reserves - until the voucher is used or the statute runs. Open reserves impact an employer's experience modification and thus their future premiums. The result - no savings on premiums.

Are there ways for injured employees to use vouchers? As noted, much will depend on the regulations developed by the Administrative Director. Settlement often occurs one to two years after the employee becomes permanent and stationary and a voucher will have little practical value at that point since a substantial portion of the PD will have been paid out by the settlement date. It will therefore be necessary to substantially accelerate the settlement process OR establish a procedure for vouchers to be issued based on a reasonable estimate of PD. Since there was nothing in 227/228 to facilitate settlements, we need a mechanism to allow issuance of vouchers soon after the employee is informed that work is not available with the pre-injury employer. Ideally, this would occur while the injured employee is TD so s/he could use TTD for maintenance during the training program. Realistically, this would rarely happen because (1) the employer wouldn't have sufficient information to make a return-to-work decision, and (2) the claims examiner wouldn't have enough information to accurately assess probable permanent disability. Once the employee is P&S, a guesstimate can be made regarding probable PD. The problem, of course, will be those situations where (for example) the defense medical rates in the 15-25% range and the employee's medical falls in the 26-49% range. The Regulations or clean-up legislation need to address this issue if vouchers are to have any utility.

Assuming vouchers can be provided timely to injured workers who wish to use them, there are other potential obstacles to address. A weekly PD rate of $230 won't support an injured worker who was receiving $500 weekly in TTD. These injured workers will need the ability to receive PD payments at a higher rate (currently not an option except for the PD Supplement) OR they will need to obtain concurrent employment to supplement their PD. Without guidance from their physician or a QRR, there is significant risk that the employee may accept physically inappropriate employment. An alternative is for the employee to seek assistance from the State Department of Rehabilitation and EDD. Many injured employees would also qualify for various welfare benefits while engaged in their retraining programs. These options do little to reduce employer costs or relieve strain on the State budget but injured employees who need retraining will have few choices. Ethically, their attorneys and the QRRs who work with them have an obligation to inform them about these options. Injured employees can also look into grants and loans but these options are not as readily available as they once were.

Rehabilitation professionals face difficult circumstances in assisting injured employees who need to utilize their vouchers. The statute will limit fees to $400 (6 hours) to $1,000 (15 hours) for the counseling services provided under the voucher system. These fees must accommodate evaluation of the injured worker, vocational testing, vocational exploration/career counseling and job placement training. Since the injured worker gets just one voucher, QRRs must be very cognizant of their professional liability; training recommendations cannot be made lightly. Counselors will need to develop and draw on new resources to insure they make recommendations appropriate to each individual rather than relying on a half dozen "hot" programs. It can be done but most likely with greater reliance on less expensive public training programs such as the Regional Occupational Programs.

These are just a few of the problems waiting for us in 2004. Employers who may be celebrating the demise of vocational rehabilitation do not realize that VR, while much less than perfect, has shielded them from much more expensive legal actions under California's Fair Employment and Housing Act (FEHA). Without VR, and if the voucher system is unworkable, employers can expect a sharp increase in demands for "reasonable accommodation" and complaints filed with DFEH if they fail to respond appropriately. Injured employees will have no other choice and their attorneys risk malpractice if they do not demand accommodation for their clients. Employers must therefore develop return-to-work programs and work closely with their insurers to offer medically appropriate work timely. And they must include the injured employee in the return-to-work process - failing to work interactively with the disabled employee is, by itself, a violation of FEHA. A FEHA action can easily cost an employer several hundred thousand dollars - enough to pay for 15 or 20 capped rehab plans. Be careful what you ask for - you just might get it.

Previous "reforms" have created both new problems and new opportunities. AB 227/SB 228 will create a whole new set of problems - and new opportunities.

Contributed by vocational rehabilitation expert Allan Leno, Leno & Associates, (818) 370-8859, allanleno@leno-assoc.com.

The opinions of the author do not necessarily reflect the opinions of workcompcentral.com management or its editors. The article is published for the sole purpose of provoking thoughtful debate about the subject matter written.