Workers’ Comp Reform: Undoing the Damage of Schwarzenegger’s Rules

California’s workers’ compensation system was created a century ago to provide medical treatment and wage replacement benefits to workers injured on the job. Employers fund the system, and in return, injured workers are generally prohibited from suing the employer of injury—even if employer negligence was to blame.

What sounds like a grand compromise has, in practice, become something of a nightmare. But most of the worst abuses are relatively new, and the system wasn’t always quite so broken.

Among labor’s top priorities for 2012 will be a massive overhaul of the entire workers compensation system. That’s why the California Labor Federation today launched its campaign to restore benefits to injured workers with the release of “Workers’ Compensation Reform: Undoing the Damage of Schwarzenegger’s Rules,” a research paper outlining concerns with the current system and recommendations for how it could better serve injured workers.

The release of the new white paper coincides with today’s Assembly & Senate joint hearing on the issue, as well as upcoming workers’ compensation listening tour events across the state. All three components work together to highlight the urgency of this campaign and the immediate need for worker involvement at every step.

So why do we need reform?

Well, in 2004, following workers’ compensation cost increases in the late 1990’s, employers began drafting a draconian ballot initiative that would have devastated our entire system. Newly elected Governor Arnold Schwarzenegger, who had campaigned on a platform of workers compensation reform, also threatened to support the ballot measure. Legislative negotiations ensued and labor ultimately went neutral on a major reform: SB 899 (Poochigian). However, to implement the legislation, Schwarzenegger implemented rules that have been nothing short of a disaster for injured workers.

Billed as a reasonable means to address rising costs without major benefit reductions, 899—and subsequent rulemaking—in fact cut benefits, delayed medical care, and generated massive new costs associated with processing and reviewing treatment decisions. All have done little to relieve injured workers but everything to generate expensive waste and fraud throughout the system.

Regarding benefits, the most important fact to know is that permanent disability (PD) indemnity benefits, or wage replacement for workers with permanently crippling injuries, were sharply reduced under new rules. The vast majority of claimants watched their benefit duration reduced by an average of 11%, and an overhauled disability evaluation process means that 25% of injured workers now receive no benefits at all. In addition, Schwarzenegger’s regulations adopted a controversial new disability rating method that cut PD compensation by 40%. With these and other reductions, the total dollar amount awarded to permanently crippled workers has fallen by 2/3rds.

Medical treatment didn’t fare much better. SB 899 forced many reforms to the process by which a worker receives care: employers now generally control an injured worker’s choice of doctor, insurance companies review these doctors’ decisions and, in the end, workers compensation judges make medical treatment decisions. These and other reforms have increased delays within and costs to the system—with no corresponding benefit to injured workers.

The administrative waste and fraud brought by this bill are truly staggering and quickly getting worse. “Medical cost containment” figures, for example, represent the cost of administering, processing and reviewing claims. SB 899 and subsequent rulemaking were supposed to reduce these expeditures, but medical cost containment expenses have since tripled. This unintended 300% increase, especially in light of drastic PD benefit cuts, shows no sign of slowing down and highlights the urgency behind this year’s reform effort.

Specific legislation will follow months of research and negotiation between affected stakeholders, but a few key reforms will likely shape the discussions:

PD Benefit increases: SB 899 cut PD benefits far beyond what opponents and even supporters envisioned. Using a system more driven by wage loss data, permanent disability benefits will be restored.

Medical treatment reforms: 2012 reform legislation will almost surely include efforts to help medical providers secure fair and timely payment. Measures to suppress abusive profiteering will also be critical.

Workers compensation reform legislation will also include ideas and suggestions from a statewide outreach effort and listening tour sponsored by Department of Industrial Relations Director Christine Baker and Division of Workers Compensation Director Rosa Moran. We strongly encourage labor representatives to attend these hearings, get involved, speak up and contribute pro-worker ideas to improve California’s workers compensation system.

For more information, please contact Mitch Seaman at mseaman@calaborfed.org.