Top 10 Developments in Calif. Workers' Comp

Tuesday, January 6, 2009 | 0

By Julius Young

As always, the huge California workers' comp industry continues to be an area of great controversy. In 2008 the 2003 and 2004 reforms continued to settle in, but there were important new developments.

There are many possible items for a Top 10 list for California workers' comp in 2008. Here, in no particular order, are my picks:

1. GOVERNOR ISSUES VETO OF COMP BILLS

Intent on protecting the interests of business interests and loathe to make changes in his signature legislative success, Governor Schwarzenegger vetoed a group of bills passed by the Democratic-dominated legislature. Among the bills vetoed:

    -a bill to reverse some of SB 899's sharp cuts in permanent partial disability benefits was vetoed for the third year in a row.

    - a bill that would have explicitly prohibited discrimination in the application of apportionment statutes was nixed by a veto.

    - Also vetoed was a bill that would have required California licensure of utilization review physicians

    -and a bill that would have prevented abuses in workers' comp "cottage industries".

2. EAMS MAKES A ROCKY DEBUT

The California Division of Workers' Compensation unveiled the new computer management system, EAMS. Several years in the planning process by the DWC with lead contractor Deloitte and software contractor Curam, EAMS has been a subject of great anticipation and concern among comp world stakeholders.

One can only assume that the system will be upgraded over time, but as 2008 ends, attorneys, judges, and WCAB file clerks who are happy with the system are hard to find. Complaints run the gamut: forms that are too lengthy and confusing for practitioners and clients, extra work tasks occasioned by quirks in the system, poor training, lack of a coherent strategy for rolling out EAMS regulations and forms, lack of uniformity as to how to handle legacy cases, calendar delays and more.

EAMS appears to be a system best designed for data mining rather than practical interface with thousands of users.

The consensus seems to be that the system gets a "D". Unless substantial progress can be made, this assessment may be a stain on the record of Court Administrator Keven Star, currently off on extended military leave. It was under Star's watch when many of the key decisions on EAMS architecture were developed.

3. APPELLATE COURTS CONTINUE TO INTERPRET 2003/2004 REFORMS

Appellate court activity slowed somewhat in 2008, but important issues continued to be resolved. The California Supreme Court rendered its decision in SCIF v. WCAB (Sandhagen). The Sandhagen court noted that "An employer may not bypass the utilization review process and instead invoke section 4062's provisions to dispute an employee's treatment request".

In Fagundes-Guerrero the Court of Appeal rejected a challenge to the 24-visit chiropractic cap.

In Foster v. WCAB the 3rd District Court of Appeal ruled that where independent injuries result in concurrent periods of temporary disability, the 104 week two-year limitation runs concurrently.

In Hertz v. WCAB (Aguilar) the 6th District Court of Appeal rejected a finding of permanent total disability under the LeBoeuf theory where the worker's non-feasibility was said to be due to language and literacy factors.

And at year end the comp community was awaiting a decision by the 1st District Court of Appeal in Benson v. Permanente Medical Group. Benson is an appeal of a WCAB en banc decision that rejected the decades-old Wilkinson doctrine. Unless Benson is overturned, separate injuries which become stationary at the same time will be usually be rated individually rather than rated as one. The 2nd District Court of Appeal is considering two cases (Vikitis and Forzetting) with Benson-type issues.

4. INSURERS CONTINUED TO REAP LARGE PROFITS IN THE CALIFORNIA WORKERS COMP MARKET BUT WARN REFORM SAVINGS DWINDLING

Overall premiums collected declined, but WCIRB statistics revealed that carriers continued to do extemely well in the California market. According to WCIRB statistics as of September 2008, loss ratios had deteriorated somewhat, but were projected at 52% of premium collected, a very favorable ratio by historic standards. Combined losses and overhead were 87% of premium. This was the 5th year in a row where insurer losses and expenses were significantly below premium collected.

Meanwhile, the WCIRB called for a 16% increase in comp premiums. This recommendation was rejected by Insurance Commissioner Poizner, who countered with a non-binding recommendation of a 5% increase. Most carriers came in with rates closer to Poizner's figure, casting further doubt on the WCIRB's forecasting.

In September 2008 the California Workers Compensation Institute noted concern about rising costs, particularly medical costs. Although the CWCI noted that usage of medical networks was increasing,certain medical costs, including opioid medical costs, had increased at high rates.

Raids by the Economic and Employment Enforement Coalition in 2008 continued to find many California employers without comp insurance, cornfirming a 2007 study for CHSWC that claimed that uninsured employers were defrauding the system of billions in premiums.

5. WORKERS AND THINK TANKS NOTED THE SYSTEM IS NOT WORKING

The current system came under criticism form workers and some system researchers.

In a November 2008 report prepared for CHSWC, UC Berkeley researcher Frank Neuhauser claimed that California state disability (SDI), funded by workers, is subsidizing California workers' comp. Neuhauser's research finds that up to 8.4% of work injuries and two-thirds of occupational diseases are being misclassified as non-industrial. Neuhauser also noted that SDI delivers benefits at a cost of about $.05 per dollar of SDI benefits whereas workers' comp costs $2.40 to deliver $1 in benefits.

Neuhauser called for integrating workers' comp and SDI. The publisher of workcompcentral.com, David DePaolo, issued an impassioned call for rethinking the system overall. But with the Governor and the legislature failing to advance healthcare reform in California, all eyes at the end of 2008 turned to see what the incoming Obama administration will propose on healthcare and how that might affect workers' comp.

Disabled workers received no relief from low permanent disability awards. Several post 2004 studies (including sudies by UC Davis and UC Berkeley researchers and the DWC's own figures) had shown that awards are reduced by as much as 50% or more from pre-2004 levels.

A legislative PD fix was vetoed by the Governor in September. The DWC unveiled a tentative proposal for a revision of the rating schedule which would result in a small PD increase, but at the end of 2008 that proposal appears to be in administrative limbo.

Meanwhile, WCIRB figures released in 2008 demonstrated that insurer overhead (ALE and ULAE) had risen and that when broker commissions and insurer overhead are added together, the cost of middlemen/overhead is as much as 60% of the benefits paid to or on behalf of disabled workers.

Concerns about system benefit adequacy went unaddressed. Worker advocates continued to note that benefits to workers seemd to be dwarfed by the interests of system stakeholders.

6. THE STATE COMPENSATION INSURANCE FUND RECEIVED NEW MANAGEMENT CONTINUED UNDER SCRUTINY

SCIF, California's largest comp insurer, has had its share of problems over the past few years. A scandal over arrangements with directors and certain "safety groups". A scathing audit and resulting legislative investigation. Removal of two executives in 2007 and resignation of 3 board members.

New management was at the helm in 2008, but problems persisted. New management sought to "rebrand" SCIF with a new image. Yet, SCIF was haunted by word that its loss-adjustment expense ratio had tripled to 38.4% over the past six years as its market share decreased from 50% to around 20% of the California market.

A Department of Insurance report noted that SCIF was bloated; SCIF had staffed up to process increased claim volume, but had not decreased staff as its market share declined. As the year ended it was not clear whether furloughs and layoffs proposed the the Governor would apply to SCIF (or the WCAB district offices for that matter) and whether this might provide impetus to SCIF to shed some of its overhead.

7. RECESSION RESULTS IN HIT TO SELF-INSURERS FUND

As both the national and California economies rapidly deteriorated in the fall of 2008, the parent of AIG teetered on the verge of bankruptcy before receiving government bailout rescue funding. Several other corporate parents of California comp insurers found themselves under pressure due to exposure to the subprime mortage fiasco.

A major corporate casualty of the economic downturn (and alleged chicanery by venture capitalists who took over the company) was major retailer Mervyn's. Since Mervyn's was self-insured, its comp obligations have been transferred to the California Self-Insurers' Security Fund.The projected exposure is said to be around $19 million.

In November 2008, fund manager Jeff Pettegrew was quoted as noting that the Self-Insurers Fund has adequate funding in place to absorb Mervyn's claims. According to an article in workcompcentral.com, Pettegrew noted that the Alternative Security Fund's 355 members have $5.5 billion in assets and "a recent actuarial report by Oliver Wyman concluded that the fund could withstand a major recession, pandemic or major earthquake".

With a number of companies having trouble in the current business climate, we may not have seen the end of this story.

8. ADMINISTRATIVE INACTION AND ACTION

As 2008 ends, it's apparent that the DWC has been in no hurry to finalize a number of long-promised regulatory changes. Among the regulations that have gone through multiple drafts and repeated public comment are:

    -proposed new QME regulations

    -proposed medical treatment utilization schedule (MTUS) regs, which would add chronic pain treatment guidelines consistent with the ODG guidelines and postsurgical treatment guidelines

Also of note on the regulatory front was the departure of DWC Medical Director Anne Searcy. Searcy headed to a position with Zenith Insurance.

9. THE SUN SETTING ON VOCATIONAL REHABILITATION

As the year ended, voc rehab for workers injured before 1/1/04 was considered by many to be sunseting 1/1/09 per Labor Code 139.5. If so, this marks a historic end to a benefit that was a pillar of the workers' comp benefits package for decades (note; workers injured after 1/1/04 may qualify for a lesser benefit, a schooling voucher).

In an e-mail, Neil Sullivan, deputy commissioner of the WCAB noted that after 1/1/09 the WCAB has jurisdiction to preside over "whether or not injured workers might be entitled to new or additional vocational services or benefits on or after 1/1/2009".The Rehab Unit as we have known it is gone as of 1/1/09.

What is not clear is whether the WCAB will have any statutory basis to award future voc rehab services or benefits after 1/1/09. You can expect litigation over this issue in 2009.

10. QME POOL SHRINKING

In June DWC Administrative Director Carrie Nevan noted in remarks at a CSIMS conference that 1,000 QMEs had dropped out of the California workers comp system over the past five years. At a time when evaluations under the AMA guidelines have become more complex, the graying and thinning of the pool of QMEs has been of great concern to many system observers.

That's the list. In a coming post I'll list links to many of the studies cited in this piece. In the meanwhile, you can use the search box feature on the right column to read posts I've done in 2008 on all these issues.

In coming posts I'll feature a quiz on projected events and trends for 2009. Stay tuned. Happy New Year to my readers.

Julius Young is a partner with Boxer & Gerson in Oakland. This column was reprinted with his permission from his blog, http://www.workerscompone.com