History Shows SB 863 Reform the Right Solution for Injured Workers

Surprised that the workers’ compensation attorneys, who are normally seen as natural allies of Labor, are saying that the bill on workers’ comp reform the California Labor Federation is co-sponsoring is bad for injured workers?  You shouldn’t be.  They have historically opposed virtually every effort by Labor and management to negotiate a more rational workers’ compensation system in California, which would provide injured workers with higher, more certain benefits while getting rid of some features in the system which, while not really helping injured workers, add major unnecessary costs for employers.

A little history might be useful here.  During his previous Governorship, Jerry Brown’s Director of Industrial Relations, Don Vial, proposed to create a more efficient workers’ compensation system by creating a pool of state doctors to evaluate permanent disability claims.  At that time, Labor and the applicants’ attorneys joined together to defeat this effort.  Then, just before he left office in 1982, Brown signed a benefit increase bill that was the product of a deal between Labor, the insurance industry and the applicants’ attorneys.

It contained a provision which enraged the employers, who had previously heavily relied on the insurance industry to represent their interests in workers’ compensation matters before the legislature; just as Labor had arguably relied too heavily on the applicants’ attorneys to represent their interests.

Passage of this bill caused the employers to organize themselves, and they formed a coalition to represent their interests regarding workers’ compensation independent of the insurance industry, to the latter’s dismay.  The Federation engaged in negotiations with this group starting in the mid 1980’s, and in 1989 agreed upon a benefit increase reform bill.  The California Applicants’ Attorneys Association reacted to this deal in the same way they are reacting today to SB 863.  Together with Dick Floyd, the then chair of the Assembly Labor Committee, they even organized seminars for union officers to try to convince them how bad the bill was.  Labor’s response was to picket them. Jerry Cremins, President of the State Building and Construction Trades Council, and Jack Henning, Executive Secretary-Treasurer of the Labor Fed, headed up the picket lines. The California Society for Industrial Medicine and Surgery joined the California Applicants’ Attorneys Association in opposing the bill, as they have today, and in one week raised $200,000 from their members to oppose the bill.  (In 1989, this was considered a phenomenal sum.)  Due to pressure from applicants’ attorneys and doctors, the bill which passed the Legislature in a much amended form, resulted in a more complicated workers’ compensation system, as well as in major benefit increases.

When the costs of the system continued to increase, by 1993 there was a cry from the Insurance Commissioner, among many others, to induce competition into the system to reduce premium costs.  Previously, the system had been regulated: all insurance companies were required to charge at least a minimum premium rate set by the Insurance Commissioner to ensure that the insurers would remain solvent.  A major benefit increase/system reform bill was passed and signed in 1993.  It contained a repeal of the minimum rate law which the advocates of deregulation hailed as the end to guaranteed benefits for the insurance industry at the expense of the injured worker.

What happened then?  Premium rates went down due to the fact that many insurers reduced their rates below what they needed to charge to pay for their claims.  This led to a wave of insurer bankruptcies – 27 in all – and to a steep rise in insurance premiums.  Then to a massive call for reform on the part of employers – used as a rallying cry by Schwarzenegger in his 2003 recall campaign.  (Davis, after vetoing a series of workers’ compensation benefit increase/reform bills during his first term, finally signed a benefit increase Labor sponsored bill in 2002 and a bill to hold down workers’ compensation medical costs in 2003.)  Then to the qualification of a draconian reform initiative sponsored by a group of employers enraged by increasing costs.  Then to months of negotiations over a bill to head off the initiative on the November 2004 ballot. 

Eventually, the negotiations were taken over by the Senate President pro Tempore and Governor Schwarzenegger, resulting in SB 899.  Labor managed to remove some of the worst features of the initiative from the final bill, but it did take away some of the permanent disability benefits passed 2 years earlier and it limited the maximum duration of temporary disability benefits to 2 years (down from 5).  But the worst part of the bill came in the regulations adopted by Schwarzenegger’s Director of the Division of Workers’ Compensation, who, by regulation, adopted a new permanent disability schedule which robbed injured workers of hundreds of millions of dollars in benefits.

It has been eight years since the passage of SB 899 and injured workers have yet to see a benefit increase, except in temporary disability benefits which the Federation managed to index in 2002.  SB 863 provides us with the opportunity to give over 700 million dollars of new benefits to injured workers and their families.

With an 18% premium increase for employers looming in January, the political climate for achieving a much needed benefit increase will only get worse.  Just how does the California Applicants’ Attorneys Association, which so adamantly opposes this bill, intend to put $700 million into the pockets of injured workers in the next two years?

This is not a perfect bill.  There never will be one – too much money and too many powerful interests are involved in workers’ compensation.  But SB 863 is a product of the two core parties to the system – Labor, which represents the interests of the workers covered by workers’ compensation insurance, and the employers who employ them and who pay for the coverage.  Everyone else involved makes money off the system and this inevitably colors their response to any effort to change it.