UNDERSTANDING & IMPLEMENTING AB 749 - I

Sunday, January 19, 2003 | 0

I - BENEFIT CHANGES

A. Temporary Disability Benefits:

1. Maximum Rates:

There are several different aspects of the changes to Labor Code section 4653(a) and the new rates that take effect beginning on 1/1/03. Of course the Maximum TD rate increases over 3 years to $840 week and thereafter will be increased based upon the rate of increase of the State Average Weekly Wage for the annual period ending on the First Quarter (March 31) of the prior year. n1

As a result of this change claims handlers will have to reorient their thinking about maximum temporary disability rates. For the first time in California history the rate of temporary disability benefits will rise each year without legislative action. An additional complication is that the maximum temporary disability rate after 2006 will no longer be in round dollars without any cents. n2 This will slightly complicate calculations for maximum temporary disability benefits as they will no longer be nice round numbers. This should not present a significant problem in adjusting claims but will require a somewhat higher level of vigilance for claims handlers once the new rates go into effect. The actual rate that will be in effect for each new year should be known long before the effective date of the new temporary disability rate as the SAWW will be known around the middle of each year. The increase in maximum temporary disability rates also affects several other benefits as will be discussed below.

The increases in temporary disability are created by raising the Maximum Earnings rate each year as reflected in the above chart. In either 2006 or 2007 the earnings level will no longer be scheduled and should be pegged to 1.5 times the SAWW. (By raising the earnings rate to 1.5 times the SAWW the net effect is to make the temporary disability rate the same as the SAWW. This would finally meet the recommendations of the Federal Task Force on Workers' Compensation from the Reagan administration in the mid 1970's) If earnings was pegged at the current SAWW, maximum temporary disability in effect for 1/1/03 would be slightly over $794 and the maximum earnings for temporary disability would be approximately $1192. If the SAWW continues to rise at a rate equal to or greater than 1.8% per year the maximum earnings in 2006 will exceed the $1280 level and the equality between maximum temporary disability and SAWW will be achieved. If the increase is below that number then the SAWW will take an additional year. It appears that the legislature did not feel confident after passing AB 749 that inflation would guarantee the 1.8% needed to exceed the 2005 maximum level and in AB 486 the section was amended to provide the cushion of another year for the Earnings rate to equal or exceed the 1.5 times the SAWW.

Temporary disability benefits will continue to rise into the indefinite future based upon the increases in the SAWW. Temporary disability will however never be reduced. The statute makes it clear that temporary disability rates are increased based upon the percentage increase in the SAWW but makes no mention of decreases in the event of deflation in that number.

2. Minimum Temporary Disability Rate

The legislation is a "blast to the past" where minimum temporary disability rates are concerned. Prior to the current system of calculating minimum temporary disability that went into effect on 1/1/00, there was a minimum temporary disability rate. The concept has been reinstated for injuries occurring after 1/1/03 when a new minimum rate has been created at $126.00 per week. Even if the employees earnings are less than $126 per week (and even if there are no earnings) the injured worker will be entitled to receive the minimum temporary disability rate of $126 where their the earnings are less than $189 per week.

The minimum temporary disability rate will also be subject to annual increases after 1/1/06 based upon the percentage increase in the SAWW. If that number rises by 3% then the minimum temporary disability rate in effect for 1/1/06 will be$129.78 based on any earnings less than $194.67 and will continue to rise each year thereafter.

3. Special Problems - Seasonal Earnings and Minimum Rates:

The creation of a minimum TEMPORARY DISABILITY rate may create a problem with calculation of temporary disability benefits for seasonal employees. In the Jiminez v San Joaquin Valley Labor, (2002) 67 CCC 74 case the W.C.A.B. held that where there were seasonal variations in earnings (such a cannery workers) that a defendant should pay 2 different rates; an in season temporary disability rate based upon earnings while working and an off season rate, which might be zero if the injured worker did not work during the off season. With the implementation of a minimum temporary disability rate it is no longer possible to pay a temporary disability benefit of $0 during the off season. The Jiminez rational therefore simply does not apply where there is a minimum temporary disability rate that requires payment of some benefit during a period when the injured worker would not be having any earnings.

The answer to this dilemma may found in a closer adherence to the Court of Appeal decision in Grossmont Hospital v W.C.A.B.(1997) 62 CCC 1649, . In Grossmont Hospital the Court ruled that an injured worker was required to be paid temporary disability at a single rate based upon earning capacity with consideration of actual earning capacity. While the undersigned has found that application of this principle in cases involving adjustments for increases in earning capacity post injury (the commonly called "Thrifty Drug" adjustment) to be impossible to apply n3, for the seasonal earner the application would require a single rate to be calculated based upon the injured workers' earnings averaged over that period that most reasonably reflects actual earning capacity, probably a full year. This solves the problem of paying benefits during the injured worker's earning season at full earnings rate and then provided a windfall for the period of time where there would be no earnings by payment of the minimum rate.

Implementation Issues:

Whenever there is a rate increase affecting maximum or minimum rates, the impact of Labor Code section 4661.5 needs to be considered. This section provides:

"Notwithstanding any other provision of this division, when any temporary total disability indemnity payment is made two years or more from the date of injury, the amount of this payment shall be computed in accordance with the temporary disability indemnity average weekly earnings amount specified in Section 4453 in effect on the date each temporary total disability payment is made unless computing the payment on this basis produces a lower payment because of a reduction in the minimum average weekly earnings applicable under Section 4453."

Labor Code section 4553 affects more than just temporary disability rates. Several other benefits are also calculated using the same data as temporary disability. All benefits, except Permanent Total Disability, that are calculated using temporary disability rates are also affected by Labor Code section 4661.5

a. Temporary Disability (Maximum & Minimum Rates):

All payments of TD benefits made after the 2 year anniversary of an injury are to be calculated based upon the rates in effect on date of payment. If new rates affect maximum or minimum rate of payment then the adjustment is required. Therefore if you are currently paying an injured employee temporary disability at maximum rates or below the new minimum rate, you should be prepared to recalculate the temporary disability benefit with the new maximum and minimum earnings rates in mind on all cases where the injury is more than 2 years old on 1/1/03. Thereafter as each claim reaches its 2nd anniversary date the same calculation and adjustment needs to be made.

Therefore if a payment of temporary disability is being made to cover the period 12/24/02 to 1/07/02, and the payment is being made on 1/7/03, the entire payment must be made at the new rate since the payment date is after the effective date of the new earnings rate.

Once the 2 year anniversary of the injury has passed the injured worker is to be given the benefit of Labor Code section 4661.5 every time a new rate goes into effect. After 1/1/03 that means recalculating benefits annually as there will be a new rate in effect every year. Hypothetically if applicant A was injured on 6/1/99 and had earnings of $1200 per week, the applicant would receive increases as follows:

1/1/03 temporary disability paid at $602 (based on new maximum earnings rate of $903)
1/1/04 temporary disability paid at $728 (based on new maximum earnings rate of $1092)
1/1/05 temporary disability paid at $800 (based on 2/3 of earnings of $1200)

The requirement to make this adjustment also applies to minimum rates. If an injured worker is currently receiving temporary disability at less than $126, after 1/1/03 that employee will be entitled to have temporary disability increased to the maximum of $126 on 1/1/03 if this is after the 2 year anniversary date of injury, or on the 2nd anniversary if this occurs after 1/1/03.

b. Dependency benefits:

Dependency benefits for injuries after 1/1/90 the benefit rate are affected by Labor Code section 4661.5 after the 2 year anniversary of the date of injury. Consistent with the holding in Phillips v SMUD, (en banc) (1997) 63 CCC 585 & amended decision at 63 CCC 595 , , dependency benefits are also adjusted based on increases in maximum temporary disability rates under Labor Code section 4661.5. (The minimum rate for dependency benefits if $224, so the minimum temporary disability rate changes do not affect this section until the minimum rate exceeds that level which can be projected to occur in 20 years or so)

c. Vocational Rehabilitation Delay rate under Labor Code section 4642:

Where vocational rehabilitation benefits have been delayed, VRMA benefits are paid at TD rate and are subject to 4661.5 increases if payment is made after the effective date of the rate change and earnings justify the increased rate. The increase is made in any circumstance where the injured worker would be entitled to a rate increase in the temporary disability rate.

d. PD Supplement rate under Labor Code section 139.5:

Vocational rehabilitation maintenance allowance benefits are supplemented with permanent disability benefits up to the injured worker's TD rate and require 4661.5 adjustment if the vocational rehabilitation maintenance allowance is being paid after 2 years from the date of injury and temporary disability would increase at the same time. This will have the effect of paying out permanent disability benefits at an accelerated rate.

In 2003 6 months of Maximum supplements will = $9,256 (appx 17%)
In 2004 6 months of Maximum supplements will = $12,532 (appx 22%)
In 2004 6 months of Maximum supplements will = $15,444 (appx 27%)

It is therefore important for claims handlers to recognize the permanent disability benefits will be paid out more quickly and make certain that there are not overpayments of the potential permanent disability award.

Planning for the Impact of LABOR CODE section 4661.5:

This code section has an impact immediately upon the turning of the calendar to 1/1/03 on all cases where benefits are being paid at maximum rates and the date of injury is more than 2 years old. Therefore it is possible to plan for this impact as the new year approaches and make certain that you have identified cases where increases need to be made.

Also because the effect of Labor Code section 4661.5 can be to cause increases in retroactive payment of benefits, part of that planning is to resolve outstanding TEMPORARY DISABILITY issues before they are affected any increase in rates. This means searching for files with past due temporary disability and vocational rehabilitation maintenance allowance and deciding now if you want to keep those issues alive after the new year or beyond the 2 year anniversary date if it is later than 1/1/03. If this is an issue that you do not have a good chance to win, then letting it fester beyond the date of any Labor Code section 4661.5 increase in benefits will only cost up to $112 more per week (if the disputed period is for 2 years the additional exposure of $11,648).

Obtain Complete Wage Statements:

Because of the increased number of individuals who will not be eligible for maximum benefits as the TD rates increase, obtaining complete wage statements will mandatory at early stages in the case. Employers should be encouraged to complete the entire form not just provide a printout of payroll information and staple it to a blank or incomplete form. Applicant attorneys will want to know about the possibility of "reasonably demonstrable earnings increases" to see if the applicant's earnings could anticipated to increase during the period of disability, thereby justifying increases under either Labor Code section 4661.5 or under rational of the Thrifty Drug/Grossmont Hospital line of cases.

Applying Labor Code section 4661.5:

Remember the following principles apply in determining if an increase in an temporary disability calculated benefit needs to be made after 1/1/02:

1 Date of Payment controls whether to increase the payment, not period covered
2. Benefits do not have to have been continuous to be increased (Hoffmeister v W.C.A.B.,)
3. Past due benefits, paid more than two years from date of injury, are payable based upon rates in effect at date of payment, not the date the benefit was due nor the period covered.
4. The statute requires that the new maximum earnings rates are to be applied. Payments are therefore only increased if the applicant's Earnings justifies a higher rate. (For post 1/1/03 earning must be higher than $735wk to justify increased benefits, after 1/1/04 higher than $1092 and so forth.)

FOOTNOTES:

1 The State Average Weekly Wage (SAWW) is calculated quarterly based upon earnings reported to Unemployment insurance benefits by California Employers for the 1 year period ending each quarter before the rate is to be calculated. For the rate increase to take effect on 1/1/06 the earnings increase will be calculated on the reported benefits from the year ending on March 31, 2005. The current SAWW information can be located at:http://www.ows.doleta.gov/unemploy/content/data_stats/datasum02/1stqre/finance.asp#california
2 As an example, assuming 3% interest rate over the next 3 years the SAWW will be $868.36 in 2006, the first rate that the new procedure for calculating earnings will be used. If this estimate proved accurate the SAWW and the maximum temporary disability benefit would be the same. At that time the earnings rate for maximum temporary disability would be $1302.54.. After 1/1/07 however the SAWW and maximum temporary disability rates will be the same.
3 Thrifty Drug v WCAB (Kaye) (1979), 44 CCC 809. The court held that temporary disability should be increased after the date of injury if there was "specific demonstrable evidence" of increases in earnings that the employee would have received, but for the injury, that the earnings capacity should reflect the increases that are in place.
4 The author has simply recommended to clients that in those cases where the injured worker is able to show "reasonably demonstrable earnings increases" that the temporary disability rate be raised at the time the increase would have been effective. I have never had an applicant attorney complain about applying the Thrift Drug rule of increasing TEMPORARY DISABILITY when the earnings increased rather than Grossmont Hospital. I suspect this is because most applicant attorney's are equally puzzled by the prospect of trying to argue how to apply the Grossmont Hospital holding to actual cases.
The amended decision held that the application of LC 4661.5 would not be applied retroactively. Claims with awards made before the original decision on April 8, 1997 do not require increases in benefits under LC 4661.5

This is the first of a six part series authored by attorney Jake Jacobsmeyer, of the firm Adelson, Testan & Brundo. He can be reached by e-mail at RichardJacobsmeyer@atblaw.net, or by phone at (925) 609-1990.



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