THIS WEEK IN
Prepared by Norwood & Mattoch
Analysis of SB 899 (Poochigian)
Governor Arnold Schwarzenegger signed the workers’ compensation reform package
on
Of particular interest is the
fact that SB 899 contains no provisions regulating workers’ compensation rates
charged by insurance companies, no caps or limitations on commissions or fees
paid to broker-agents or any language requiring producers to disclose broker
fees or commissions paid to agents or brokers.
The following is our initial
analysis of SB 899.
Permanent Disability (PD)
The PD rate schedule has been based on three factors: (1) objective medical
findings; (2) subjective medical findings; (3) decreased ability to compete on
the open labor market.
SB 899 incorporates the AMA guidelines, 5th edition into the PD rate schedule.
Further modifying the PD schedule, the term “an
employee’s diminished future earning capacity” has replaced the term “an
employee’s decreased ability to compete on the open market.”
For injured workers who do not receive an offer to return to work, PD is
increased by 15%. For injured workers who receive an offer to return to work,
PD is decrease by 15%. Small employers, defined as those employers that have
less than 50 employees, are exempt from this provision.
In addition, PD is increased for injured workers who are over 70% disabled
thereby providing additional assistance to those most in need. At the same
time, PD is decreased for injured workers who are under 15% disabled, the area
most in need of adjustment.
Report Writing and Diagnosis in PD
Under existing law PD evaluations are to be supported to the extent
feasible by medical findings based on standardized examination and testing
techniques generally accepted by the medical community. Existing law further
specifies that measurements of the physical elements of a disability should
follow the recommendations of the Joint Committee of the
SB 899 will require medical evaluations to be made in accordance with
descriptions and measurements used in the most recent edition of the AMA
guidelines, beginning January 1, 2005. This will allow time for adoption
of a new PD rating schedule and AMA guides.
Procedures for determining diagnosis and treatment have to be in accordance
with the
Causation and Apportionment
Under existing law an injury is “compensable” under workers’ compensation if
the workplace in any way causes the injury, i.e. a “proximate cause”
standard. Psychiatric and post-termination claims have to meet a higher
“predominant cause” standard. Although existing law provides that prior
injuries should be taken into account when determining PD awards, case law
has severely restricted such apportionment.
SB 899 requires that any compensation for a permanent disability be based on a
direct causation and that the liability of the employer be limited to that
which is apportioned to work-related activity. Appointment is applicable
to all claims regardless of the date of injury. The employee must
disclose all prior relevant compensated injuries and non-occupational labor
disabling injuries. The employer has the burden of proof.
A physician shall determine the PD benefit by apportioning the percentage
resulting directly from a work-related injury with those caused by other
factors both before and subsequent, including prior work-related injuries
Temporary Disability (TD)
Currently, TD is capped at 240 weeks within a period of 5 years from the
date of injury.
For injuries after April 19, 2004, TD benefit payments are capped at 104 weeks
within a period of two years from the first payment by an employer. TD
awards may exceed the 104 week/ two-year “cap” under the following conditions:
acute and chronic Hepatitis A or C; HIV; amputations; severe burns; high
velocity eye Injuries; chemical burns to the eyes; Chronic Lung Disease; and
Pulmonary Fibrosis.
Medical Care
Medical Provider Networks
Under existing law, employers are allowed to contract with a state certified
health care organization (HCO) for the provision of medical care to an injured
worker.
For treatment beginning January 1, 2005, SB 899 will allow employers to
contract with networks of doctors as now done with group health plans. An
employee will be able to see three different doctors within the network and
then can seek an independent medical review (IMR), paid for by the employer. If
the IMR agrees with the injured worker, the injured worker can receive necessary
treatment outside the network at the employer’s expense.
The network of doctors must ensure adequate and appropriate care, including
sufficient geographical coverage, an adequate number of specialists, the
availability of a specified percentage of non-occupational physicians, and
continuity of care, among other things.
Pre-designation of Physician
Right now, the employer has medical control for the first 30 days after
the injury is reported. If the employee pre-designates a personal physician,
the employee has the right to be treated by that physician from the date of
injury.
Pre-designation was hotly debated until the very last, resulting in significant
compromise.
Under SB 899, the injured worker is allowed to receive care from his or her
group HMO or PPO or from the employer’s network if the employer provides group
health insurance and the injured worker pre-designated his or her treating
physician within the group. Any physician pre-designated after April 19, 2026
must agree to be designated. Workers who pre-designate their physician
must not exceed 7% of the total employees. Insurers must approve
referrals to specialists, and such treatments must be from within the HMO or
PPO. Insurers may require prior authorization of non-emergency treatments
or diagnostic services.
An employee who pre-designates a physician is bound by all the rules of group
health insurance. The Division of Workers’ Compensation will study
pre-designation to see whether it is cost-effective. The right to pre-designate
will sunset in three years.
Immediate Medical Care
Current law allows up to 90 days to accept or deny a claim and to provide
necessary medical care. This often resulted in medical treatment
postponed up to 90 days.
The employer still has 90 days to determine compensability. But as of
April 19, 2004, the employer is responsible to provide initial medical
treatment within one working day after an employee files a claim form for a
declared work-related injury until the claim is accepted or denied up to a limit
of $10,000.
Standard of Care
Existing law requires medical treatment to “cure and relieve” an injured
worker.
SB 899 now defines “cure and relieve” to be treatment in accordance with ACOEM
guidelines.
Limits on Occupational Therapy
Existing law generally limited chiropractic and physical therapy treatments to
24 visits for injuries after January 1, 2004.
SB 899 amended this to include occupational therapy within the 24-visit
limitation. The requirement of written authorization for treatments beyond 24
visits has been clarified.
Carve-out Programs and 24-hour Pilot Programs
Last year, AB 227 (Vargas) and SB 228 (Alarcon)
provided for carve-out programs in unionized construction trades permitting
benefits to be determined in their collective bargaining agreements that
include an alternative dispute resolution (ADR) process.
This bill expands carve-out programs to other unionized industries to allow a
seamless 24-hour health and disability system, without regard to causation,
provided that statutory minimum PD benefits are met. SB 899 also provides
an option for 24-hour integrated coverage to be included within the existing
carve-out programs.
Repeal of the Treating Physician Presumption of Correctness
Under current law, if a physician is pre-designated by an injured worker,
the opinion of that treating physician is presumed to be correct.
Although the presumption was originally a rebuttable
one, over time, courts treated it as a conclusive presumption, which was a
major cost-driver in the system.
Effective on signature SB 899 repeals the treating physician presumption of
correctness for pre-designated physicians, completing the job begun in last
year’s reform package. The repeal applies in all cases, regardless of the
date of injury; but it shall not constitute good cause to reopen or rescind,
alter, or amend any existing order, decision, or award of the Workers'
Compensation Appeals Board.
Medical Disputes
Current law provides unwieldy and expensive medical-legal processes for
resolving disputed medical issues.
SB 899 creates new medical-legal processes for resolving such disputes for
unrepresented and union workers.
For unrepresented workers, SB 899 allows either party to request a med-legal
evaluation and to choose the Qualified Medical Evaluator's (QME) medical
specialty. If they can’t agree on a physician, the employee has ten days
to select a QME from a list of three, schedule an appointment and inform the
employer. Otherwise, the employer selects a QME.
For union workers, applicable to injuries after January 1, 2005, either party
may request a med-legal exam and suggest a physician to act as the QME. If they
can’t agree on the physician, either party may request a QME panel.
Selection of the panel follows a procedure overseen by the Department of
Workers’ Compensation (DWC) medical director.
For both unrepresented and union workers, additional medical-legal exams are
prohibited if the worker's representation status changes.
Vocational Rehabilitation:
Effective on signature SB 899 reinstates old Labor Code Section 139.5,
specifically providing that employees injured prior to 1/1/04 are eligible for
rehabilitation benefits. The rehabilitation must be completed no later than
12/31/2009, at which time Labor Code Section 139.5 expires.
Penalties arising from Labor Code Section 5814
Under existing law, when payment of compensation is unreasonably delayed or
refused, the entire species of benefits, including temporary disability (TD),
PD, and medical treatment, not just the late payment, is increased by 10%.
SB 899 substantially amends this section effective June 1, 2004.
After that date, should a payment of compensation be unreasonably delayed or
refused to an injured worker, the penalty will be 25% of the late payment, up
to $10,000. This penalty will not apply to late payments to physicians unless
significant harm to an injured worker resulted. However, there is a new
penalty up to $400,000 for a pattern or practice of such conduct. A new
two-year statute of limitation will apply to 5814 penalty claims. Section
5814.5 has been reinstated to allow recovery of attorney’s fees.
User Funding
Prior to last year’s workers’ compensation reform package, 80% of the
funding for the Division of Workers’ Compensation came from the State General
Fund and 20% derived from “user funding.”
Last year’s workers’ compensation reform package included provision for 100%
user funding of the Division of Workers’ Compensation. Unfortunately,
subsequent passage of the Budget Act “chaptered-out” or nullified the user
funding provision.
SB 899 restores the 100% user funding of the Division of Workers’ Compensation.
Return to Work Program
Existing law enacted in AB 749 (Calderon) in 2002, provided for, but never
funded, a return to work program for small and medium-sized employers.
This bill establishes and funds a return to work program that provides up to
$2500 to small employers who need to make workplace improvements or
modifications in order to return injured workers to their jobs.
Statutory Construction
Existing law requires that workers’ compensation provisions be liberally
construed by the courts and prohibits this provision from relieving a party or
a lien claimant from meeting the evidentiary burden of proof by a preponderance
of the evidence.
The term “liberal construction” now is to be interpreted in an impartial
and balanced manner in order that all parties are considered equal before the
law. While SB 899 does not alter Labor Code Section 3202, it makes clear
that the courts now are to interpret evidence in an equally balanced fashion
and not construe with the intent to expand benefits, as they were required
under Section 3202.
Injury and Illness Prevention Program (IIPP)
SB 899 reduces the scope of IIPP requirements in AB 227 and SB 228 enacted last
year. Specifically, the requirement that every workers’ compensation insurer
conduct a review of the injury and illness prevention program of each insureds within four months of the initial insurance policy
term is restricted to employers with an experience modification factor of 2.0
or greater and is extended to within six months of the initial policy
term. The review may be done by a licensed
Insurance Rate Study
After intense months-long debate in and out of the media spotlight, SB 899
requires the Division of Workers’ Compensation in consultation with the
Department of Insurance to contract for a report on the impact that the cost
savings from this bill and AB 227 and SB 228 of last year have on rates. This
bill also requires the study to address the appropriateness of rate regulation.
The insurance industry will pay for the study, up to $1,000,000,
proportionately allocated by each insurer’s share of the
Senate Insurance Committee to Hold
Hearings on CDI & State Fund
The Senate Insurance
Committee will be holding two hearings to address the California Department of
Insurance and the State Compensation Insurance Fund to investigate the various
issues with the State Fund and those raised with the Department of Insurance’s
treatment of the State Fund. The
hearings will be held on May 11th and 12th. The time and location have not been
announced.
The specific issues that will
be addressed at the hearings are unclear at this time and an agenda has not
been published.
Banks Trying to Block SB 1
The American Bankers
Association (ABA) and two other industry associations filed suit in a
Legislative Update
AB 1953 (Vargas) passed off the Assembly Floor this week with a unanimous vote of
69-0. This bill would increases
penalties for unlicensed public insurance adjusters, specifies language for
disclosure terms in contracts and requires prior approval of contracts by the
Insurance Commissioner.
AB 2129 (Chavez) also passed off the Assembly Floor with a vote of 76-0. Current law, scheduled to sunset on January
1, 2005, allows structured-settlement transfers only if approved in advance by
a court order. This bill would remove the sunset date.
AB 2639 (Cox) passed
off the Assembly Floor with a vote of 76-0.
This bill would authorize the Insurance Commissioner to restrict, rather
than suspend or revoke, an underwritten title company's license or certificate
of authority.
The following bills were
heard in the Assembly Insurance Committee this week:
AB 2520 (Vargas): Requires self-service storage
facilities to obtain a limited lines insurance agents license in order to offer
personal property insurance incidental to the business of renting storage
space.
Vote:
15-0. To Assembly Appropriations Committee.
AB 2677 (Ridley-Thomas): Requires admitted
automobile insurers to provide to consumers in
Vote: 16-0. To Assembly
Appropriations Committee.
AB 2709 (Levine): Current law requires an applicant for an original vehicle registration,
or transfer of registration, to submit an insurance form establishing financial
responsibility. This bill requires insurance or surety companies to notify the
Department of Motor Vehicles (DMV) upon the issuance, renewal, cancellation, or
expiration of an automobile policy or bond.
The author accepted
amendments that would allow smaller companies additional time to comply with
the requirements of this bill.
Vote: 16-0. To Assembly
Appropriations Committee.
The following bills were
heard in the Senate Insurance Committee:
AB 700 (Diaz): Allows
insurers who are licensed to transact credit insurance in other states to also
be eligible to issue financial guaranty insurance in
Vote: 9-0. To Senate Appropriations
Committee.
SB 1291 (Burton): Requires the Insurance Commissioner to approve a class plan, a rating methodology, an
underwriting or eligibility rule, or a policy form for use by an insurer
if any other insurer has previously
received approval and the approval
remains in effect.
Vote: 6-0. To Senate
Appropriations Committee.
The following bill was heard
in the Assembly Labor and Employment Committee:
AB 2181 (Campell): Repeals last year’s SB 796, which allows lawyers to
file suits against California employers for any Labor Code violation regardless
of the severity of the violation or if any employee had been harmed by the
violation.
Vote: 2-6. Failed passage.
The following bills were
heard in the Assembly Public Safety Committee:
AB 2474 (Wolk): Require any person who provides financial services,
including insurance agents, title insurance company officers and investment
officers, who observe an incident that appears to be elder financial abuse to
report the suspected incident to adult protective services or the local law
enforcement agency.
Vote: 1-3. Failed passage. Reconsideration was
granted. The bill ultimately passed the
Assembly Public Safety Committee after insurance companies, agents and brokers,
escrow and title officers were removed from the bill.
AB 2611 (Simitian): Proposes to impose a mandatory duty on financial
institutions to report to specified governmental entities any reasonable
suspicion of elder financial abuse and suspected physical abuse, abandonment,
abduction, isolation or neglect.
Vote: 4-2. To Assembly Appropriations Committee.
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