A Challenge to the Math on Settling Rehab

Sunday, September 14, 2003 | 0

The Legislative intent in allowing settlement of prospective rights to vocational rehabilitation was, in part, to save money for employers. As we approach the point where settlement of VR for 2003 cases becomes possible, it is appropriate to assess whether this practice would actually result in cost savings for California's beleaguered employers who are understandably concerned about their skyrocketing workers compensation costs.

L. C. section 4646(b-d) was created to allow for settlement of prospective VR benefits/services, presumably for QIW employees who were able to direct their own rehab. However, since L. C. section 4646 doesn't specifically mention that it applies only to QIW employees, the DWC wrote CCR section 10131 to allow settlement of VR liability for cases where VR was at most a potential issue. It is therefore entirely permissible to settle VR in these cases and applicant attorneys would be arguably remiss if they did not obtain some monetary benefit for their clients. L. C. section 4646(b-d) was supposed to represent a cost savings for employers (i.e., VR would cost $10,000 rather than $16,000) but has the potential to result in quite the opposite if allowed to go forward without specific limitations, as demonstrated by the following data.

There are approximately 450,000 indemnity claims filed each year. Of these, 20% (90,000 cases) have an actual or potential rehab component. Of these, about half - or 45,000 cases - are QIW and about 30,000 will use VR services. All 45,000 QIW injured employees are potentially entitled to the $10,000 settlement and it is unlikely an applicant's attorney would recommend settling their VR benefits for less than $10,000 (it would arguably be malpractice for an attorney to recommend settlement for less where the employee is clearly a QIW). The total cost for settling these cases would be $450,000,000.

There are 45,000 cases where QIW is an issue but the employee eventually returns to his/her usual and customary occupation, decides not to pursue benefits, or is determined not QIW. As noted, these cases can now be settled rather than incurring the cost, time, and effort to contest QIW. An insurer might pay only $500 - $1000 for a case where QIW liability is minimal but $5,000-$6,000 where there is significant liability. Let us say, for the sake of argument, that the carrier will pay an average of $3,000 per case to resolve the potential QIW liability once and forever. That is not an unreasonable assumption since a carrier can easily pay that amount (or more) in med-legal costs and defense legal fees to contest the issue, not to mention VRMA that may be due during the dispute. 45,000 cases at $3,000 per case amounts to $135,000,000.

Keep in mind that the industry currently spends approximately $500,000,000 for VRMA, QRR fees, tuition for training programs, and all other required VR expenses. If all cases were settled, the industry would pay $585,000,000 to resolve its VR liability. Settling VR hardly represents the purported savings for employers. The situation is probably worse (for employers) than presented here. Not all QIW employees would settle their VR entitlement; if just 10,000 opted to use the benefit, we must add $60,000,000 (the total becomes $645,000,000). And a few opportunistic attorneys and treating doctors may create potential QIW issues for injured employees who are fully capable and do return to their regular jobs (all the treating doctor has to do is find that "the employee can return to regular duties at this time but may need VR services at some point in the next two or three years"). Such language creates a VR issue and sets the case up for settlement - and these are cases that cost employers $0 now.

Allowing blanket settlements of the vocational rehabilitation benefit could easily cost employers an additional $100,000,000 to $150,000,000 per year - and that does not include the increased cost of various welfare programs and increased costs for the Department of Rehabilitation for the tens of thousands who cannot direct their own rehab. Nor does it include the increased costs for employers to defend actions filed by former employees under the Fair Employment and Housing Act. Blanket settlements of VR do nothing to improve the employer's bottom line.

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