Workers’ Compensation System Reform Discussed in Joint Legislative Hearing

Legislators convened a joint hearing of the Assembly Insurance and Senate Labor and Industrial Relations Committees on Wednesday to hear testimony from various stakeholders regarding the impact of SB 899 (Chapter 34, Statutes of 2004) on the workers’ compensation permanent disability rating schedule (PDRS). SB 899 was the workers’ compensation reform bill which, among other things, requires permanent disability determinations to be based on a formula that reflects the injured worker’s future loss of earning capacity rather than their ability to compete in the open labor market and provides that in determining percentages of permanent disability, account shall be taken of the nature of the physical injury, age and occupation of the injured employee and consideration given to the employee’s diminished future earnings capacity.

After a brief commentary from State Insurance Commissioner Dave Jones, who opined that increases in various costs are making the workers’ compensation system unsustainable, representatives from the Administration provided insight. Marty Morganstern (California Labor and Workforce Development Agency), Christine Baker (California Department of Industrial Relations) and Rose Moran (California Division of Workers’ Compensation) iterated Governor Brown’s desire to avoid piecemeal legislation and instead implement comprehensive reform to the workers’ compensation system; they additionally stated that the state cannot simply raise costs on employer to fix the system’s problems, which Morganstern attributed to compound drug costs, mounting surgical costs and the non-uniformity of costs at various treatment facilities. All three speakers pledged the Administration’s commitment to continue working with the Commission on Health and Safety and Workers’ Compensation (CHSWC) to determine solutions to the looming problem. Data on the post-SB 899 system was then provided by the University of California Berkeley and the California Workers’ Compensation Institute, including that average permanent disability ratings were reduced by 40 percent as a result of the use of American Medical Association Guidelines and a five percent reduction in ratings occurred due to apportionment.

Employers were represented by Shawn McNally (Grimway Farms) and Martin Brady (California Coalition on Workers’ Compensation) who both praised the use of the American Medical Association Guidelines in permanent disability determination as it removes subjectivity within the system and told legislators that public agencies make up 20 percent of the workers’ compensation marketplace, but cannot afford the rising costs of the system without reducing services to the public. Their testimony included attributing the rising costs within the system to increased litigation.

Committee members then heard from the California Applicants’ Attorneys Association and labor representatives who testified that workers’ compensation reform led to less access for employees to indemnity benefits and complete control of the system by employers through the establishment of medical provider networks and utilization review. Angie Wei with the California Labor Federation described the system as “bedraggled,” with a high occurrence of employer greed and fraud.

While no actions were taken during the joint hearing, Senator Ted Lieu (Chair, Senate Insurance Committee) pledged his commitment to making changes in the workers’ compensation system, but said that achieving any cost savings may come at an increased cost to California’s employers.