Good Reforming Workers Compensation Thesis Example

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An Exploratory Analysis of Senate Bill 863
Finished Chapters 1, 2, 3
ABSTRACT
TOC
TABLES FOR FIGURES AND TABLES
ACRONYMS AND ABBREVIATIONS
AB Assembly Bill
CA California
CCHSWC California Commission on Health and Safety and Workers' Compensation
DIR Department of Industrial Relations
DIV Division of Workers’ Compensation
DWC Division of Workers’ Compensation
ER Emergency Room
FEHA Fair Employment and Housing Act
MMI Maximum Medical Improvement
MPN Medical Provider Networks
PD Permanent Disabilities
PPD Permanent Partial Disability
SB Senate Bill
SB 899 Senate Bill 899 on workers’ compensation passed by the California legislature in 2004
SB 683 Senate Bill 683 for the reform of the earlier workers’ compensation bill (SB 899) took effect January 1, 2013.
TTD Total Temporary Disability
WCIS Workers’ Compensation Information System
WCIRB Workers’ Compensation Insurance Rating Bureau of California
Chapter I
Introduction
Overview
A series of legislative measures have been applied over the years in order to reform California’s WC (WC) system. The most recent is Senate Bill (SB) 863. SB 863 was introduced and presented to the public as a reform bill that would ensure better coverage and easier medical access for workers who are injured on the job. A higher degree of equity between injured workers was an expected outcome of instituting SB 863. SB 863 was passed on August 21, 2012, signed into law by the governor on September 18, 2012 and took effect January 1, 2013.This research reviewed the most recent academic research and other appropriate sources to determine whether or not the reform has positively impacted injured workers.
In 2006 a plan to abolish WC and replace it with a national disability insurance system, under the auspices of The Public Health Model, was proposed (LaDou, 2011, p. 103). Medical professionals, health care workers and safety workers would be part of the public health system under the plan; no part of the system would be private (LaDou, 2010; LaDou, 2011, p. 103). An article about a plan, the Public Health Model, appeared in Environmental Health (LaDou, 2010: LaDou, 2011). A follow-up to the review appeared in the Comments and Controversy section of New Solutions outlining an effective strategy based on LaDou’s recommendations for a new WC agenda (Lax, 2010, p. 303). Lax (2010, p. 303) emphasized the need to take action using LaDou’s recommendation for a strategy.
The purpose of SB 863 was to reform problems in California’s WC that developed from an earlier WC reform bill, SB 899. SB 899 was signed into law in 2004. WC is a complex issue with real life impacts on workers and their families. The outcomes for Senate Bill (SB) 863 were expected to improve outcomes from SB 869. The impact of SB 869 and SB 863on injured workers have been compared and contrasted, in order to learn whether or not SB 896 has resulted in improved coverage. The aim of the research has been to analyze the complexity of the issue in order to clearly understand SB 863’s impact on the people who depend on it the most, namely, injured workers. The analysis of the bills and the issues surrounding the bills allowed a better understanding of WC reform legislation in California. Therefore observations about the efficacy of California WC reform bills could be made. Recommendations could be developed for a future strategy for WC because the benefit s and disadvantages of past bills were assessed with the historical knowledge. An effective strategy has been designed for implementing WC that would be better for California and better for California workers.
If the processes for injured workers were compared between SB 899 and SB 863, insights into strategies would become clear. A new strategy, taking the best from the two reform bills, but throwing out the worse, could be developed with reference to the effective strategy proposed by LaDou (2010) and the actions proposed by Lax (2010).
Worker’s Compensation
WC is a tool for providing medical bill payment, cash (indemnity) benefits and occupational rehabilitation. The dependents of workers are covered upon the death of their primary care giver (father, mother or other designated person) when the death was caused by an injury or illness due to a workplace accident or situation. Seabury (et al., 2011, p. 45) explained how the system is based on an assumption of no-fault: regardless of fault, the employer must take on the responsibility of compensation for the worker or for the dependents of the worker in terms of costs of health care (medicine, hospital, etc.) and lost wages. In the case of a worker’s death, the employer is responsible for making monetary compensation to the workers’ dependents.
Every employer in California must meet the requirement of obtaining WC insurance whether one worker or more is employed. The employer can self-insure. Or the employer has the choice of purchasing insurance from the State Compensation Insurance Fund or from a private insurance agency (Seabury et al., 2011). If the employer decides to self-insure, the process requires proof s/he has enough financial resources to do so. After that has been proved, then certification from the Department of Industrial Relations (DIR) is required. For small businesses another option for self-insurance can be chosen, that is to form a group with other small businesses and apply for certification as a group or define the group as a joint public authority (JPA).
Historical Background
California Worker’s Compensation faced a crisis during the years 1999 to 2003 because the “aggregate premiums in California rose by more than 200 %” (Pourat et al., 2007. p. 618).The cause was recognized as the minimum rate regulatory system change to an open-rating system. In 2000, California had the highest total claims and premium rates in the U.S., but benefits paid to injured workers were close to the lowest (BRS, p. 3). “Employers were faced with even greater premium costs, lack of insurance markets willing to underwrite risks, and ultimately the unprecedented financial failure of 28 insurance companies insuring employers for WC in California” (BRS, p. 3).These problems motivated WC reform bills in 2002 and 2003. In 2004, SB 899 was passed because a coalition built of various stakeholders who were concerned with the possible catastrophic impact to California’s economy pushed for reform.
New reforms were initiated after April 19, 2004 based on SB 899. SB 899 created a cap at 104 weeks for TTD benefits, with a few exceptions for severe injuries or diseases (Seabury et al., 2011, p. 45). Severe injuries were categorized as on the order of severe burns or amputations. For severe injuries, the cap set by SB 899 was 239 weeks of TTD benefits after which no more benefits were paid. Workers who had not recovered by the time MMI was reached could apply for PPD benefits but the resumption of benefits was not guaranteed. The doctor judged whether or not permanent disability has been caused by a work-related disease or injury; the doctor rated the severity of the injury and filled out a medical report. On the report, the disability was rated by a number system from 1 to 1000, indicating the severity of the health problem or injury. SB 899 directly linked the amount of PPD benefits to the disability rating. At the maximum, an injured worker could receive 60 percent of their weekly wages for a benefit, but the amount was assessed each week and could be capped.
A worker injured on January 1, 2004, would have been eligible for up to $200 per week if his or her disability rating was under 70 percent, but he or she would have been eligible for up to $250 per week if his or her disability rating were 70 or more. (Seabury et al., p. 46)
The weeks an injured worker could receive linked to the disability rating. If the disability rating was above 70, then the injured worker could receive a small weekly life pension payment.
The purpose of SB 863 was to reform problems that developed from the earlier bill, SB 899 passed in 2004. In SB 863, California benefits for work-related injury or illness is two thirds of gross wages (the pretax value of the wages) (Seabury et al., 2011, p. 45).
Other states do not use a rating formula like California’s system. The Division of WC (DWC) administrative director adopted a rating system for determining every individual injury’s ‘percentage of disability’. Other states use a less detailed calculation based on a common benefit schedule organized according to the type of injury. Details that made California’s system unique in the U.S. were the adjustment factors for occupation, age, work-capacity and a category of “subjective” factors (Seabury, et al., 2011, p. 46). The California rating system has been blamed for being too subjective and not objective enough leading to disputes and lawsuits (Revelle, Seabury et al., 2005).
Research conducted on the impact of SB 899 reforms demonstrated that an easily identifiable difference in the amount of income replacement occurred (Seabury et al., 2011, p. 110). Unfortunately, from the perspective of injured workers the indemnity benefits showed a dramatic decrease and the highest felt impact of this occurrence was felt by permanently disabled workers. Seabury (et al., 2011, p. 110) reported that the causes included the changed disability rating schedule and the repeal of the vocational rehabilitation system. The fraction of workers who were eligible for permanent disabilities (PD) benefits was decreased. Decreased indemnity benefits directly related to decreased average replacement rate (of lost income) (Seabury et al., 2011, p. 111). The disability ratings were observed to increase about 8 to 10 percent between 2007 and 2009 (Seabury et al., 2011, p. 111). This observed increase helped even out the immediate 60 percent drop of PD awards after the bill was initiated; the drop evened out to about 40 percent in 2004. These types of problems helped motivate the reform movement that resulted in SB 863.
The decade from 2000 to 2010 was evaluated by a research study to determine information about post-injury employment outcomes. Several years after injury, workers’ personal finances were shown to be negatively impacted (Peterson et al., 1998; Reville&Schoeni, 2001). SB 899 was shown to have a negative impact for vocational training because it replaced California’s “extensive vocational rehabilitation system” with a voucher program (Seabury et al., 2011, p. 41).
The effects of reform bills on California WC were evaluated in a study for DIR and DWC. The first recommendation resulting from the study was to reassess how effective the regulatory system had made necessary changes. The purposes of the reassessment are to encourage stable costs and ensure fair competition. The hope is that cutthroat competition will be avoided. The main concern of insurance companies was future legislative movement on WC that would require ineffective predictions of costs. If predictions are not reliable the insurance companies end up having to increase their costs retroactively.
The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) was put in charge of a plan to monitor changes caused by reforms. Other recommendations were meant to keep the insurance rate competitive; for example, creating a “strong state fund alongside a competitive market” was recommended (Miller et al., p. 9). In 2006, the medical provider network market had been undergoing a consolidation into fewer and fewer companies and the trend is still continuing. Cost control measures that affected WC were found to include medical services. A diverse range of medical provider categories were available. Another recommendation was to follow procedures and measures in other states that could be successfully applied to Californian WC.
California benefits for work-related injury or illness is two thirds of gross wages (the pretax value of the wages) (Seabury et al., 2013a, p. 45). Recent research, after the institution of SB 863, has focused on SB 863’s impact on injured workers (Seabury, Neuhauser & Nuckels 2013a; Seabury & Scherer, 2013b) as well as, injured worker’s perceptions of medical care and their satisfaction level (Pourat et al. 2007). In fact, research from the RAND Center has identified the disproportionate earnings losses that permanently disabled workers have experienced due to SB 863 (Seabury & Sherer, 2013b). The degree and quality of access available to injured workers after SB 863 reforms were instituted has been evaluated by the Berkeley Research Group (Miller, Hisrsh & Kellogg et al., 2013). The findings reported in a number of studies published in peer-review academic journals do not demonstrate that the assurances from Angie Wei, the legislative director for the California Labor Federation have come true. Wei (2013) declared that the reforms implemented due to SB 863 would reduce costs and help injured workers.
An organizer for the California Labor Federation remarked at the time SB 899 was passed, that it was “a draconian bill that gutted the workers compensation system and created more pain and suffering for injured workers” (Wei, 2013, Labor’s Edge section, para. 2). The anger at the omissions and the seeming punishments to injured workers that resulted from the passing of SB 899 led to a movement for creating a reform bill. The organized push for a reform bill resulted in the California Senate Bill 863 (SB 863).SB 863 was passed on August 21, 2012, signed into law by the governor on September 18, 2012 and took effect January 1, 2013.
Kirk Kancella is a doctor who practices in San Diego. (‘Docs,’ 2013). Kancella sued the State of California on behalf of medical providers who offer care to WC applicants on a lien basis. This is only one example of court cases arising due to SB 863. Part of the problem may be that not all the reforms were immediately effective (‘Docs’, 2013), but there are complexities in the law suits that argue against some of the basic reforms embedded in the bill.
Massachusetts WC medical care was impacted by health care reform in the emergency room (ER) sector. The number of uninsured patients was reduced. Heaton (2012, p. 28) reported that “The share of ER patients who wer3e uninsured fell from about 15 percent pre-reform to about 9 percent after reform.” For hospital inpatients the reduction of uninsured was about 50 percent (Heaton, p. 28). But Heaton (p. 27) warned that this general trend may not necessarily result in a statistically important reduction in WC patients therefore more research remains to be done.
A recent study (Miller et al., 2013) on California Workers used data from worker surveys taken in 2011 and 2012, and submissions of medical claims from 2007 to 2011 to the WC Information System (WCIS) in order to evaluate the availability of medical care for injured workers. The study objectives were to evaluate whether or not access was available to meet the needs of injured workers to health care and the health products needed for recovery. Eighty four percent of the injured workers were found to be ‘satisfied’ or ‘very satisfied’ with their provider (Miller et al., p. 30).
Language was not found to be a large barrier to communications with a medical provider; only three percent noted problems with a provider due to language differences (Miller et al., 30). Therefore, language does not have an impact on the degree of satisfaction for employees claiming WC. Language would not be an important variable to take under consideration in future research projects. Although the American mass media has raised concerns about a language problem for Latino workers, at least in terms of WC reforms, communication of changes between a health care provider and an injured or disabled worker would not be expected to be a problem based on the survey (Miller et al., 2013).
The percentage of workers reporting problems when they contacted medical provider networks (MPN) totaled 11 percent. No appointments were available for a small percentage and five percent reported difficulties not related to trying to finalize an appointment. The majority of participants, 89 percent, contacted healthcare providers in the MPN without any problems. Seventy nine percent of the participants reported their satisfaction with the quality of care whereas13 percent fell into the range of “very good” to “good” satisfaction’, and eight percent gave a rating of ‘poor’ (Miller et al., 2013, p. 36). Participants who gave a ‘fair’ or ‘poor’ included the reasons of denial of care or claims; no improvement, treated with disrespect and not receiving the appropriate attention (Miller et al., 2013, p. 36). Although 71 percent of the participants returned to work and received earnings the same or similar to what they received before the injury, 14 percent earned less are returning to work and nine percent reported earning more (Miller et al., 2013, p. 40).
The Fairness in Employment and Housing Act (FEHA) requires employees to actively communicate in transparent and genuine ways with workers’ who have been injured and need to reintegrate back into the job (Sum, Kalmin, and Valentine, p. 9). Many of the impacts of WC reform are from how a new law integrates with other laws such as the disability rights laws. An injured person could have incurred a temporary or permanent disability which must be dealt with under California regulations; this can be expensive and compliance can be difficult from a small business owner’s perspective.
The relationship and quality of communication between employer and employee is important in situations when WC may or may not be an issue depending on the perspectives of each participant. In that kind of instance a reform may further confuse an issue or make the issue easier to resolve. Legal reforms intend to make the process easier to navigate, but often that is not the case. Disabilities and job-protected leave for employees with serious health conditions can make an employee’s life easier or more difficult and the same applies to employers. Sometimes, the perspective has the most importance for interpretation of a reform. Each stakeholder may have a different solution in mind, because the goals are not usually the same.
The California Injury and Illness Prevention program also has impacts when changes are made in WC laws (Mendeloff et al. 2012). The issues between health, occupational safety, and WC have become complicated and often difficult to interpret. Legal reforms have required adjustments to the WC Information System as well as to the Occupational Safety and Health Administration Data Initiative Data (Mendeloff etal., p. 77). Fair insurance rates have been shown to be dependent stable competition.
Agencies and data providers for the California Industrial Relations department and for other WC reform stakeholders have clearly defined roles. The purpose is to prevent an overlap of complexities in the system. System overlaps cause claims to become increasingly difficult to interpret. Better communication and task division results are a purpose of defining roles carefully. Three examples of agencies with impacts on WC processes impacted by reform laws are described below. The three examples have different missions and different ways to measure variables. WC issues must be very careful when comparing variables between one agency or department to another.
1. The WCIS is in charge of first-report-of-injury forms insurers (submitted by the employers to third party administrators). Injuries were reported to WCIS with electronic communication starting in 2000 and the numbers received increased rapidly until 2001 (Mendeloff et al., p. 72). The WCIS estimated approximately 25 percent of first reports of injury are not submitted (Mendeloff et al., p. 72).
2. The Occupational Safety and Housing Administration (OSHA) is in charge of collecting, maintaining the categories of injuries and the types of illnesses in the manufacturing sector for businesses with 40 or more employees. OSHA is a federal department that compiles a national database by collecting data from each state.
3. The WCIRB is responsible for medical reports and indemnity claims from firms. The employers who are not self-insured are required to submit claims to this bureau. The amount of under-reporting has not been researched because, even though reporting to WCIRGB is mandatory, gaps exist in the available data (Mendeloff et al., p. 72). No fees or other penalties are assigned for non-compliance. Therefore under- reporting occurs but the amount and the impact on research results cannot be estimated because data is not available.
Medical post-reforms were considered after 2003 and 2004 to determine if new reforms could improve the medical decision making and decrease medical expenditures. Winn, Timbie and Sorbero (2011, p.97) have recommended improvements in administrative efficiency and program oversight. The researchers pointed out that the fastest increasing factor of WC medical expenditures was the “medical cost-containment expenses” Winn (et al., 2011, p.97). The WCIRB set forth new requirements for reporting medical cost-containment expenses meaning that the two categories of medical care payments and medical cost-containment expenses. The recommendations were targeted at the next reform bill which was passed in the form of SB 863.
Definitions
Some of the terminology used in the research is specifically related to workers compensation issues. The following definitions were based on those provided by the California Commission on Health and Safety and WC and the RAND Center for Health and Safety in the Workplace.
Disability refers to a mental or physical impairment that may or may not be related to work but limits employees important daily life activities. A disability can fall under the categories of permanent or temporary. A doctor determines if an injury or illness has resulted in a permanent disability (Seabury et al., 2013b, p. 18).
Disability management, according to the U.S. General Accounting Office the key factors are (a) immediate action when an accident that causes or may potentially cause a worker disability, (b) set return-to-work goals and manage assistance in reference to those goals, and (c) design the system of so medical and indemnity benefits give workers with disabilities an incentive to return-to-work (Seabury et al., 2011, p. 42).
Essential functions are the tasks and requirement that fulfill the purpose of a job position. A function is considered essential if its removal would make the job change in essential ways. Another way to determine if a function is essential is if only a few employees are able to perform the function. Finally when only an expert or person specially trained can do the job task it is considered an essential function.
Reasonable adjustment is the changes in a work environment made so that an employee can continue working. The degree of changes should be proportional to the degree of injury or disability of the worker.
Temporary injuries or illnesses that are work-related are classified as causing a worker to be unable to perform the expected routine work, miss work for more than three days or to be hospitalized overnight (Seabury et al., 2013b, p. 17).
Undue hardship applies to situations of accommodating an employee that would result in a burden on the employer in terms of resources and/or costs. Two laws have addressed this issue FEHA and Labor Code section 132a for initiating an action against an employee.
Purpose of the Study
The purpose of the study is to identify the underlying problems of constantly passing a series of state WC bills to improve the system. Reforming WC has been done by changing steps in the process of making claims as evidenced by SB 899 and SB 863. The processes of SB 899 and SB 863 need to be evaluated side by side. The positive and negative parts or the bills can enhance the understanding of how WC works; is it effective or not?
The evaluation discussion can be further strengthened with knowledge from European systems and systems in other states. A realistic, pragmatic WC design could be built from the ground up after a careful assessment of the history of WC in the U.S. The evaluation of the two reform bills with respect to each other and the proposal for an effective WC system would be useful to workers, the DIR, the DWC, the state legislators, the medical community, the insurance business and other stakeholders.
Hypothesis: If the processes for injured workers were assessed based on the historical outcomes, a better strategy could be designed.
Aim
The aim of the research is to simplify the complexities of SB 899 and SB 863 by evaluating the systems in order to design a new system from the ground up, avoiding the pitfalls of earlier reforms.
Objectives
1. To identify the benefit of SB 899 and SB 863 by drawing parallel flow charts of the processes the bills demanded for WC.
2. To recognize the disadvantages of SB 899 and SB 863 by drawing parallel flow charts of the processes the bills demanded for WC.
3. To categorize the processes the reform bills of SB 899 and SB 863 as effective of ineffective for injured workers.
4. To develop a plan for a WC system that would be effective in offering fair compensation to injured workers.
5. What positive effects did SB 899 have on injured workers?
6. What positive effects does SB 863 have on injured workers?
7. What would an effective, fair WC process look like, if the opportunity arose to build a new system from the ground up?
Thesis Structure
Chapter I introduces the statement of the problem: an analysis of California’s worker compensation law (Senate Bill 863). A historical background was given on other reforms instituted in California for WC. The purpose of the research has been described. The research questions are listed along with the aim and objectives of the research.
Chapter II contains a literature review composed of peer reviewed articles from academic and professional journals. References with insights into the WC process created for injured workers by SB 899. Research results from the RAND Center for Health and Safety and Berkeley’s Institute for Research and Labor have been included with detailed descriptions of the results of their studies on the influence of SB 863 on injured workers. Articles comparing and contrasting how SB 899 and SB 863 have worked are referenced. Recommendations made in the literature for a more effective system have been discussed.
Chapter III has explained the method of data collection. A chart of the steps taken for the methodology during the research has been provided. A qualitative method was chosen because quantitative measurement tools are not available for this type of descriptive and evaluative policy study. Flowcharts for an injured worker from making a claim to receiving benefits are the foundation of a study to build a new reform system from the ground up. The present situation was assessed by considering the experience of workers who make claims and the amount of the benefits paid to disabled and permanently disabled workers. The California government websites, such as the Department of Industrial Resources (DIR) and the Division of Workers Compensation (DWC), give a very positive, upbeat perspective on the impacts of SB 863. Other sources offer a very different perspective. Therefore, the references include a range of sources such as DIR, DWC, California Labor Federation (CLF), Berkeley Research Group (BRG), and the RAND Center for Health. Articles from the peer-reviewed academic journal, the Journal of Occupational and Environmental Medicine have been cited.
Chapter IV the results of the research in the form of flow charts for the two systems instituted after SB 899 and SB 863 were passed. Tables and charts for categories of advantages and disadvantages have been included. A third flow chart of the proposed WC resulting from the research has been included.
Chapter V has presented a discussion of the results. Conclusions derived from the results are included. A description of the proposed system and the reasoning behind each of the steps in the proposed process has been explained. Recommendations for future study have been suggested. Limitations of the research have been shared.
Chapter II
Literature Review
Overview
The organized push for a reform bill resulted in the California Senate Bill 863.SB 863 was passed on August 21, 2012, signed into law by the governor on September 18, 2012 and all the changes made in the bill took effect by January 1, 2013. A question remains though if SB 863 is a reform bill or not. Does the bill benefit the people who need it the most, the injured workers of California? If not, then what group of stakeholders is receiving the most benefit?
A comprehensive literature review has been carried out in order to better understand the dynamics of WC (WC). Another goal has been to better understand the impacts on injured California workers who may have temporary or permanent disabilities from an on-the-job injury. The details of SB 863 were found on websites for the Department of Industrial Relations and the Department of WC. The bias on the California state websites was in favor of the legislations, so in order to offer other opinions research from the RAND Center for Health and Safety in the Workplace, RAND Civil Justice and blogs such as the Courthouse News. Several perspectives have been included in order to understand the opinions of the various stakeholders.
The literature review included a historical background on how the United States (U.S.) borrowed ideas from systems that existed in Europe to initiate an American WC system. A short discussion of the federal WC program is included to show the difference between the federal and the state level WC systems. California’s reforms for WC are reviewed starting in 2001 with the Assembly Bill (AB) 222 and continue to the recently passed SB 863. Some of the measures of SB 863 took effect in 2013 so that doctors’ small practices have already discovered that the new reform form for gaining reimbursement is more expensive than they can afford; a litigation case has been described. Details of the SB 863 have been covered.
Overall the one feature that seemed to be linked to dissatisfaction with the new reforms, is the Utilization Review. The new method for review and the organization of the decision making process has been described. The difference between the former UR procedure and the new process are discussed. The changes to the voucher system have been noted along with other details necessary to understand SB 863. A major change with SB 863 was the setting up of the Independent Medical Review (IMR) for medical review. Another major change was the institution of An Independent Bill Review (IBR) to resolve bill payment disputes so that the WC judicial system has been designated for only difficult to resolve disputes.
Historical Background
California has the largest work force in the U.S. and between the years 1996 to 2007 WC in the state demonstrated an increase of more that 2.5 million workers. (Gerlach, 2012, p. 2). (See table A-1) California workers amounted to 11.8 percent of the total national workers covered by WC in the U.S. during 2009. In 2001, the number workers reached a peak of 14.73 workers, followed by a dip in 2002 and 2003. (See fig. 1) In 2007 a higher peak was reached of approximately 15.40 million workers, with a dip to about 14.38 million workers in 2009. (See fig 1) EDD data recorded another year of decreasing workers covered by WC during 2010, followed by an increase in 2011to levels approximating the same number in 2009. (Gerlach, 2012, p. 2)
Figure 1(National Society of Social Insurance as cited by Gerlach, 2012, p. 2)
The paid medical showed an increasing trend since 2006 when medical benefits equaled about $3.7 billion, until 2010 when medical benefits equaled approximately $4.25 billion. (Gerlach, 2012, p. 7) In 2003, the medical benefits paid out about $5.0 billion that was the peak of increase due to the passing of new legislation between 32003 and 2004. (Gerlach, 2012, p. 7) The peak of 2003 has not been matched to this date, although the 2010 payout for medical benefits is approximately 15 percent higher than in 2006, the payout in 2010 was more than 13 percent lower than the 2003 peak. (Gerlach, 2012, p. 7)
During the years from 2003 to 2008 the WC insurance rates dropped by 66 percent (Gerlach, 2012, p. 1). The reported amount in July 2003 for the average WC insurance rate equaled approximately $6.29 per $100 payroll. (Gerlach, 2012, p. 4) The rate has been decreasing since that to the lowest amount of $2.16 per $100 payroll in January 2008. (Gerlach, 2012, p. 4) The range from January 2009 to January 2011 showed a miniscule increase from $2.29 to $2.37 per $100 payroll. (Gerlach, 2012, p. 4)
The Utilization Review (UR), bill review and the medical network costs are the main drivers of medical costs. (Gerlach, 2012, p.1) For example the QME panels have increase in 2010 to about 96.9 thousand after some of the SB 863 reforms were instituted. (Gerlach, 2012, p. 11) (Some of the reforms were instituted earlier than others.) Problems were identified with a bottleneck with QME assignments because 40 percent of all medical evaluations take place in 3.9 percent of the location available in the state. (Gerlach, 2012, p. 11) The CHSWC reported in 2010 that the number of permanent disability ratings were “substantially and significantly lower” the GMEs handling the high volume than at any of the other locations (Gerlach, 2012, p. 11).
The CHSWC Liens Report (2011 cited by Gerlack, 2012, p. 13) estimated that litigation costs of about $117 million “could be saved by reducing the number of liens by one third.” The number of liens in 2010 reached more than 350,000, and the amount that was expected to be filed was over 470,000. (Gerlack, 2012, p. 13) Eighty percent of the dollars in dispute were for medical treatments bills (62%); “one out of three of the disputes were over bills received by the adjuster after they had been paid” (Gerlack, 2012, p. 13). Seventeen percent of the liens were due to disputes over the medical fee schedule.(Gerlack, 2012, p. 13) The three top categories of liens issued over treatment authorization disagreement were 37 percent, unauthorized providers; 29% the authorized treatment; and 20 percent under the category of other.
The Berkeley Research Group (2013: 2) conducted a workers survey reported that the main injuries treated were “sprains, strains or other muscle joints.” The survey included workers who had been injured in the 4th quarter of 2011 or the1rst quarter of 2012. The four most used codes for types of treatment were for electric stimulation therapy, therapeutic exercise, and office visits; these all fall under the diagnosis code ICD-9 which is the category for orthopedic treatments. (BRC, 2013, p. 3) BRC (2013: 4) conducted surveys on worker satisfaction on medical care satisfaction in 2006, 2008, and 2012; the majority of workers (amounting to about 85 percent) responded they were satisfied with their care in each of the three survey years.
The WCIRB 2012 report on WC losses and expenses for permanent disability claims showed that about 24 percent were for slip and fall injuries and about 21 percent were for back injuries. The average medical cost per permanent disability claim was approximately $39, 860 for slip and fall injuries $31,254 for back injuries, $22,936 for carpel tunnel and other repetitive motion injuries and $15,600 for psychiatric and mental stress injuries (WCIRB CA, 2012, p. 28).
The purpose of the SB 862 reform law was to create “(a) greater efficiencies and accountability in the system, (b) save major employers money that can be used to hire new workers and help our economic recovery, and (c) protect workers who have been injured on the job” state Assembly Speaker John A. Perez (Neuhauser et al., gov.ca.gov, 2012). Governor Brown stated that the reforms would (a) save hundreds of millions of dollars for California’s employers while (b) preventing an imminent crisis of skyrocketing rates that would hurt both injured workers and businesses” (Neuhauser et al., gov.ca.gov, 2012).
One of the outcomes of SB 863 expected to provide was a 30 percent increase in permanent disability benefits coupled with more efficient, speedier awards payments. (Neuhauser et al., gov.ca.gov, 2012) The benefit delivery system was reformed in the bill with the goal of establishing a more objective and more reliable system. The average WC rate per $100 of payroll was expected to increase for $2.39 due to SB863. (Neuhauser et al., gov.ca.gov, 2012)
The rates of WC rates were expected to be reduced because of the new dispute resolution program. SB 863 was designed to establish better retraining for workers and increase permanent disability benefits. An annual savings of $40 million in insurance costs was stated to be an expected outcome. (Neuhauser et al., gov.ca.gov, 2012) Business expected to receive almost $1 billion due to the reduction in worker’s compensation costs and losses addressed by the reform bill. (Neuhauser et al., gov.ca.gov, 2012)
California WC reform AB 2222
Public policy on WC in California has been revised several times in the past 15 years, starting in the early 2000s. The assembly passed the Assembly Bill (AB) 2222 in 2001 that established disabled workers protections under California’s Fair Employment and Housing Act (FEHA) (Seabury et al., 2011, p. 15). The desired outcome was to reduce discrimination against disabled workers in the job market. Another purpose was to enhance employers’ responsibility to provide needed changes to work stations. The reason was to support disabled workers’ timely return-to-work by ensuring changes on the job so they could continue accomplish tasks even with disabilities. The policy was expected to ensure a shorter amount of time to pass between the injury and the injured worker’s return-to-work. A study by the RAND Center for Health and Safety in the Workplace determined that “AB 2222 led to a large increase in the number of discrimination claims starting in 2002” (Seabury et al., 2011, p. 15).
Reforms to implement better medical decision-making and to decrease medical expenditures were recommended after the passing of the above reform legislation. Results of research led to the call for increased medical care administrative efficiency and the establishment of program oversight (Winn, Timbie and Sorbero, 2011, p.97). The researchers pointed out that the main reason higher rates of costs for WC was the uncontrolled increases in medical costs (Winn, Timbie and Sorbero, 2011, p.97). It wasn’t until the reforms being considered to improve SB 899 that expense containment under the categories of (a) medical care payments and (b) medical cost-containment expenses was addressed.
California WC Reform Bills SB 228 and SB 899
Permanent Partial Disability (PPD) benefits California Senate Bill (SB) 228 was passed in 2003 and made big changes including the initiation of the Utilization Review (UR) based on specific medical treatment guidelines and delivery systems for health care (Seabury et al., 2011, p. xiii). In 2004 the Senate passed SB 899 in order to make WC affordable for employers but at the same time make sure that the benefits for injured workers were adequate. Instead the benefits for PPD were significantly reduced. In fact PPD benefits fell by 50 percent or more (Seabury et al., 2011, p. 15).
Return-to-work changes
The SB 899 was passed to offer a new design for pay-outs of the permanent disabilities (PD) benefits. SB 899 changed the one tier system for PD payment levels so that 2-tiers were established in the hopes the payment amounts would be fairer. Fifteen percent higher payments were established for employers, if the employer makes no return-to-work offer. On the other hand if a return-to-work offer is made to the injured worker, then the employer will pay 15 percent less in benefit payments if the worker does return-to-work (DIR, 2014). Research on the amount of injured worker amount of benefits received under SB 899 showed that benefits decreased dramatically. The highest negative impact for decreased benefits was felt by the permanently disabled workers (Seabury et al., p. 110).
The two changes that most decreased advantages for injured workers were the new disability rating schedule and the repeal of the vocational rehabilitation system was (Seabury et al., p. 110. The number of injured workers eligible for permanent disabilities (PD) benefits was decreased leading directly to decreased average replacement rate (of lost income) (Seabury et al., p. 111). The disability ratings were observed to increase about eight to ten percent between 2007 and 2009, helping to even out the immediate 60 percent drop of PD awards after the bill was initiated (Seabury et al., p. 111). The decrease in amount of benefits fell to about 40 percent by 2004.
The reasons for the problems were stated as ranging from “the incentives embedded in the WC system” to a number of public policies that influenced the return of work (Seabury et al., 2011, p. 15). SB 899 was regarded by an organizer for the California Labor Federation as “a draconian bill that gutted the WC system and created more pain and suffering for injured workers” (Wei, 2013). The anger at the omissions and parts of the bill, such as the decreases in benefits and the voucher system for vocational training, were interpreted as punishments to injured workers. Seabury (et al.) concluded that in the two years after SB 899 passed; return-to-work increased, but decreased benefits resulted, particularly to PD workers. These types of problems helped motivate the reform movement that resulted in SB 863.
The WCIRB was directed to monitor the different impacts the reforms caused. Creating a “strong state fund alongside a competitive market” was recommended in order to keep insurance rates competitive (Miller et al., 2013, p. 9). Monopolies of the medical provider network started forming in 2006; this trend has continued. Medical services were impacted by cost control measures, which in turn had an influence on the services to workers. A diverse range of medical provider categories were available which included chiropractors and acupuncturists (Miller et al., 2013). A recommendation to compare the procedures and measures used in other states was made, with the purpose to use any that could improve the WC system in California.
Stable competition has been found to be the most important feature that equitable insurance rates are based (Mendeloff etal., p. 77). Legal reforms are expected to require adjustments to the WC Information System (WCIS) but other agencies are also affected such as the Occupational Safety and Health Administration Data (OSHA) Initiative Data (Mendeloff et al., p. 77). The data and information linkage between WCIS and OSHA has resulted in a complex and hard to interpret. Because of the reforms, the issues between health, occupational safety, and WC have become complicated. For example the WCIS is responsible for first-report-of-injury forms insurers (submitted by the employers to third party administrators). Starting in 2001 electronic submissions of injuries are allowed. A problem that may confound research data is the estimate that about 25 percent of first reports of injury are not submitted (Mendeloff et al., p. 72).

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