Analysis of California's Workers Compensation Reform SB 899

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					     Analysis of California’s Workers Compensation Reform
          SB 899-Poochigian Effective: April 19, 2004
Prepared by Don Dressler (April 20, 2004) Ph: 949-533-3742
            2030 Main Street, Suite 1300 Email:
            Irvine, CA 92614

The enactment of comprehensive workers' compensation reform legislation is good news
for California's employers and its truly injured workers. Although it is not yet possible to
quantify the amount of savings to be gained, it is likely that employers will see savings of
approximately 25% for any workers’ compensation policies renewing after July 1, 2004.

Unfortunately not discussed in the press or by the political leaders is the fact that
workers’ compensation costs will continue to go up, even with this latest reform. The
legislature in 2002 enacted benefit increases which will still take effect in 2005 and 2006.
These benefit increases will eat into any savings from the reform bill.

Also, current workers’ compensation rates are distorted due to the Insurance
Commissioner’s ruling that rates as of January 1, 2004 were to be reduced by
approximately 14%. Almost no insurers implemented these reductions because the best
available cost analysis indicated that only a 3% decrease was warranted.

So, the bottom line is that employers can not assume that their premiums will go down,
unless they act to take advantage of this new law.

 This legislation, along with the reforms passed in 2003, will substantially change the
way workers' compensation works in California. Employers still need to be concerned
about the financial strength and heavy work load of the State Compensation Insurance
Fund and the lack of competition from other insurers. New insurers have been reluctant
to come into California and compete for new business because of uncertainty about rate
regulations and how reforms will be implemented. However, there may be new
competitors in the California market later in 2004 or 2005.

1. What is in the reform law that affects my company?

       A. Costs for workers’ compensation insurance should be lower because:

               1. Doctors are to follow specified protocols in treatment, with emphasis on
                  less treatment and more consistent treatment.

               2. Attorneys for injured workers do not get to select doctors for treatment
                  or evaluation of injuries, if the employer has a comprehensive medical
                  network available for care of injured employees.

            3. Costs for permanent disabilities will be lower-
                  (a) Degree of disability will be decided by objective facts, not
                      subjective factors such as “pain”.
                  (b) Workers’ compensation will not pay for permanent disabilities
                      caused by non-work factors such as age, prior injuries, etc.
                      Awards will be “apportioned” between work and non-work
                      related causes.
                  (c) Permanent disability awards are reduced by 15% if modified
                       work or a return to work program is offered. (for employers
                       with 50 employees or more.)
            But   (d) Disability awards are increased by 15% if modified work is
                      not offered (for employers with 50 or more employees.)
                  (e) Employees with minor permanent disabilities (less than 15%)
                      will receive a smaller benefit, while employees with a severe
                      injury (over 70% disabled) will see a significantly higher
                      benefit. The vast majority of injuries are minor.

             4. Temporary Disability payments are limited to 2 years in most
                 cases, down from 5 years previously.

     B. Your workers’ compensation insurance will be responsible immediately
     for any medical care required by an injured employee, and must pay all
     expenses, up to $10,000 until you or your insurer deny the claim as not work

     C. Employers with an experience modification of 2.0 or higher will be
     subject to a complete review of their Illness and Injury Prevention Plan and
     its effectiveness, if they change insurers.

2. What do I need to do in response to the new reform law?
     A. Handle every new work injury immediately:

            1. Immediate medical attention: Take the employee to your designated
               health provider. Don’t send your employee-drive them there
               personally, and wait for them. Ask about the injury and planned
               treatment right then.

            2. Immediate Employee Statement: Take notes about what the employee
               says happened. Who else saw it? Where? When? Conditions? How?
               This is your best opportunity to document the extent of the injury, learn
              what corrective action is needed to improve safety, and stop fraud right
\              now. The employee cannot later change their account of the incident
               to improve the chances of receiving undeserved benefits. Take photos.

      3. Alert the Physician to Suspicious Claims: If there is anything
          suspicious about the reported incident, call the physician to inform
          them before he/she sees the patient. An alert report of all suspicious
         circumstances will avoid wrong conclusions by the first physician.

      4 Decide Whether to Contest the Claim: All the facts you need are
        usually available in the first 24 hours. You or your insurer will pay
        for all medical costs up to $10,000 until you deny a claim.

      5. Report the Injury Immediately notify your insurer or claims
        administrator: Carefully prepare the first report of injury, based on your
        investigation and statements from the employee and any witnesses.
        Give the claims administrator the tools to do a good job for you.

B. Get the employee back to work:

      1. Returning the employee to work is the single most positive action you
         can take to minimize the cost of a claim.

      2. Review with the physician the diagnosis and any work restrictions.
         Can the employee bend, lift, stand, etc.

      3. Make a written offer of return to work. You will need to be able to
         prove what offers you make to injured workers, and if they decline,
         they will not receive temporary disability, and any permanent
        disability will be rated to save you 15%.

C. Keep in touch with the employee:

      1. Someone needs to talk directly with the employee on a regular basis,
      several times a week. Employees who feel abandoned or afraid may turn
      to an attorney, not share their physical condition with you, and become
      difficult, increasing lost time, extending medical treatment, and increasing
      your costs.

      2. Having someone at your company help an injured worker will provide
      you a 400% return on investment for any time and costs you incur. Help
      your employee with:

             a.   transportation
             b.   help with necessities such as shopping, if employee has needs
             c.   answer questions about their workers’ compensation claim.
             d.   demonstrate concern and understanding for them.

     D. Manage the Claims Adjustor:

            1. Keep informed about what the adjustor is doing about paying bills.
            calculation of benefits, issuing denials and documenting offers of
             modified work.

            2. Ask for written status of each open claim every 90 days. Review
            any loss reports you receive and follow up with any questions or concerns.

            3. Be prepared to meet personally with the claims adjustor, or their

3. What happens next and when?

     A. Calendar the key events which govern your workers compensation
     policy, not just your renewal or anniversary date.

            First: 120 days (4 months) before your anniversary date, discuss your
                   options with a broker or agent you trust. It takes time to
                   prepare a quality application for insurance and then decide which
                   insurers to approach. Waiting until 30 days before your renewal
                   date severely limits your options.

            Second: 120 days (4 months) after your anniversary date, have a review
                  of all open and closed claims for the past 4 years, since these
                  claims will be used to set your experience modification, and each
                  year’s claims are used for three years.

     B. Consider how much risk your company is willing to take. You can assume
     more risk to obtain lower costs with alternative funding arrangements. Some of
     the alternatives available include:

                       •   Self insurance
                       •   Group self insurance
                       •   Retro plans
                       •   Large deductible plans
                       •   Small deductible plans (may become available in 2004)
                       •   Captive programs.

     C. The reform law calls for a study of workers’ compensation insurance
     rates, and whether insurance companies and the State Fund are passing along
     savings generated by reforms to employers. Progress reports are due January 1,
     2005 and July 1, 2005, and the final study is due by January 1, 2006.