California Construction Trucking Association (CCTA)

SACRAMENTO —Introduced just four days before the close of the legislative session, lawmakers approved sweeping changes to California’s workers’ compensation system in the final hours, sending Gov. Jerry Brown a 170-page bill that has both pluses and minuses for business and those the system is supposed to help.

The bill got bipartisan support with the Senate passing SB 863, 34-4 a few hours after the Assembly approved the bill on a 68-4 vote, all in the last minutes of the last day.  Supporters included the political odd-fellows, the California Chamber of Commerce and the California Federation of Labor. Opponents included the attorneys who make their living suing on these claims, chiropractors and an unlikely-sounding front group “Voters Injured at Work.”

The bill is supposed to limit the roles of both the lawyers and the chiropractors. It changes how benefits are calculated for injured workers, creates a binding arbitration process to resolve coverage disputes and eliminates coverage for conditions that most commonly lead to lawsuits, including insomnia and mental health problems.

The changes were sought by some business groups concerned about ever-escalating insurance costs and labor unions that have been working for years to regain benefits that were eroded in the 2004 Schwarzenegger overhaul of the $16 billion system.

“This is what our businesses need in California to create jobs,” said Sen. Kevin de Leon, D-Los Angeles, who carried the bill in the Senate. “This is an historic compromise that deserves bipartisan support.”

The bill aims to prevent lawsuits by establishing a binding independent review system to resolve medical disputes and shortens the timeline for approval of treatment, which can currently take up to two years, to three months.

Where it gets tricky is about the money.  Everybody agrees that the new law will increase compensation for disabled workers by $700 million a year, boosting benefits by an average of 30 percent for individual disabled workers.

Where the rub comes is in the alleged savings with estimates ranging from $1 billion to less than one-tenth of that to be derived by keeping the lawyers out of the process and speeding up the medical treatment side of the equation. 

In many ways the new law is remarkably like the “alternate dispute resolution” process established by the legislature in 1994, but which only benefits certain union-signatory companies.

The rising costs associated with worker claims could force insurers to hike premiums by more than 10 percent next year.  The Workers’ Compensation Insurance Rating Bureau (WCIRB) has put in for a pure premium increase of 11 percent effective January 1, 2013.

WCIRB issued a study saying the bill could produce a savings of nearly half-a-billion-dollars. That savings, according to the WCIRB, will be reduced by benefit increases provided for in the bill, but still increasing system-wide savings approximately $300 million annually.

Insurance Commissioner Dave Jones issued a statement in which he expressed concerned about rising costs in the system, stating that “The analysis by the WCIRB indicates that SB 863 has cost savings that significantly offset the costs of providing needed increases of permanent disability benefits for California’s injured workers…I remain concerned about continued rising costs in the system, however, particularly medical costs and the expenses to adjust workers’ compensation claims, and encourage all stakeholders to look for additional ways to reduce system costs.”

Governor Jerry Brown praised the bipartisan support for the legislation and said it “helps injured workers and averts an imminent crisis of skyrocketing rates.”
Supporters say the legislation could reduce rates by as much as 7 percent by slowing the upward climb of medical and legal costs.

On the day before the session closed, the bill w2as poised to fail, with labor concerned that it did not do enough to protect the permanently disabled. It was resurrected with the addition of a clause sweetening the pot by establishing a $120 million pool to compensate injured workers for lost future earnings.
Sacramento Bee columnist Dan Walters recently opined that it sometimes takes months, or even years, to figure out what these last-minute pieces of legislation actually mean.  SB 863 looks very much like one of those bills.