Workers' Compensation Reform

On April 19, 2004, Governor Schwarzenegger approved SB 899, a comprehensive restructuring of California's Workers' Compensation system.  Though California employers pay the highest workers' compensation premiums in the nation, California employees injured on the job receive among the lowest benefits. In addition to its possible impact on insurance premiums, SB 899 offers concrete benefits for employers who take advantage of the new legislation. The changes directly impacting employers include: the option to deliver treatment through medical provider networks, modifications of the physician pre-designation process, and employer incentives for returning the injured employee to work. Because the California Legislature passed the bill as an urgency statute, most of its provisions are effective immediately.  

Treatment and Physician Pre-designation
SB 899 synthesizes employer-provided occupational and non-occupational medical treatment, and significantly changes an employer's options for treating injured employees. As of January 1, 2005, insurers or employers may establish a medical provider network to provide medical treatment for occupational injuries. The medical provider network must contain both physicians who primarily treat occupational injuries as well as those who primarily treat non-occupational injuries. Health care service plans and certified health care organizations must meet certain requirements in order to be approved under SB 899. If the employer or insurer has established such a plan, the injured employee must select his physician from within this network. An employee who is dissatisfied with medical treatment must obtain second and third opinions from within the network. If the employee is still dissatisfied with the treatment, he may submit the dispute to independent medical review, which is newly established under SB 899. If the employer is not participating in a network, the employee is free to choose his own physician after 30 days from the date the injury is reported. Employers can provide more consistent and legitimate healthcare by establishing a network rather than allowing employees to unilaterally choose their physician.

Under prior law, an employee could “pre-designate” a personal physician before the date of injury. If the employee pre-designated a physician, he was entitled to be treated by that physician instead of one chosen by the employer. SB 899 limits the circumstances in which employees may pre-designate and incorporates the new medical provider networks into the pre-designation process. Specifically, an employee may be treated by the pre-designated physician from the date of injury if: (1) the employer provides non-occupational group health coverage in a licensed health care service plan (a “Knox-Keene” plan), or (2) the employer provides non-occupational health coverage in a group health plan or group policy that meets the requirements of the new medical provider networks. Also under SB 899, the physician now must agree to be pre-designated. Existing provisions governing pre-designation of chiropractors and acupuncturists were not altered. However, the opinions of pre-designated physicians and chiropractors are no longer presumptively correct on issues regarding the extent and scope of medical treatment.

The law also requires employers to authorize and provide treatment for an alleged injury within one working day after an employee files a Workers' Compensation claim form.   The employer must continue providing treatment until the date that liability for the claim is accepted or rejected. The employer's liability for this treatment is capped at $10,000 until the date the claim is accepted or rejected.

Return to Work Incentives
SB 899 also creates incentives for employers to facilitate the injured employee's return to work. Employers with less than 50 full-time employees may be eligible for “modification expense reimbursements” under the Return to Work Program.   Modification expenses are those incurred in order to allow a temporarily disabled worker to perform modified or alternative work within a doctor's restrictions, or to allow a permanently disabled worker to return to sustained modified or alternative employment. Allowable expenses include: equipment, tools, furniture, physical modifications to the worksite, and other necessary costs of accommodation.  The maximum reimbursement for each temporarily disabled worker is $1,250. If the worker is permanently disabled, the maximum reimbursement is $2,500.

SB 899 also provides employers with return to work incentives that affect the computation of the employee's permanent disability benefits. If an employer offers the injured employee regular, modified or alternative work within 60 days of a disability becoming permanent and stationary, each of the employee's remaining disability payments will be decreased by 15%. This decrease in the benefit payment applies regardless of whether the employee accepts or rejects the employment offer.  It also applies to all employers regardless of size. If, however, an employer with 50 or more employees fails to offer regular, modified or alternative work within the 60-day period, the employee's remaining benefit payments will be increased by 15%.  

If the employee accepts an offer of regular, modified or alternative work, but is terminated before the expiration of the disability payment period, the remaining payments will be increased by 15% if the employer has more than 50 employees. This provision does not apply if the employee resigns. 

Penalties for Unreasonable Refusal to Pay
The bill also changes the penalties available when a compensation payment is unreasonably delayed or refused. Under existing law, the penalty for such a delay or refusal is a 10% increase in the full amount of the award. This provision will become inoperative on June 1, 2004. As of that date, the amount of the payment which was unreasonably delayed or refused will be increased up to 25% or $10,000, whichever is less. The new penalty provision will apply regardless of the date of injury. Under certain circumstances, employers may be eligible for a self imposed penalty of only 10%. Additionally, if an insurer or employer knowingly delays or refuses to pay compensation with a frequency that indicates a general business practice, it may be liable for penalties up to $400,000. Such penalties will be deposited into the return-to-work fund, and are not payable to the injured employee.

Other Aspects of SB 899
The foregoing presents only some of the major features of the complex new law.   SB 899 also:

              • Requires the Workers' Compensation Appeals Board to treat all parties (the employer and the employee) as “equal before the law.”

              •  Establishes a medical fee schedule for treatment and establishes medical treatment utilization schedules setting recommended guidelines for the extent and scope of treatment of various injuries.

              • Caps Temporary Disability at 104 weeks within a two-year period from the date of commencement of Temporary Disability payment, unless the employee suffers   from certain, specified conditions.

              • Clarifies that 2003's private attorney general law, which allows employee lawsuits based on any violation of the Labor Code, does not authorize such suits in connection with the Labor Code's Workers' Compensation provisions.

              • Allows employers in authorized labor-management agreements or collective bargaining agreements involving construction related activities to negotiate any aspect of the delivery of medical benefits and the delivery of disability compensation to employees who are eligible for non-occupational health care coverage through their employer.

              • Reenacts the vocational rehabilitation component of the system for employees who were injured prior to January 1, 2004.

SB 899 makes significant and complex changes to existing law that will directly affect the way California employers business.  Counsel should be consulted both to insure compliance with the reforms and to realize the potential benefits that the reforms offer.