BILL ANALYSIS
Senate Committee on Labor and Industrial Relations
Carole Migden, Chair
Date of Hearing: April 23, 2008 2007-2008 Regular
Session
Consultant: Rodger Dillon Fiscal:No
Urgency: No
Bill No: SB 1717
Author: Perata
Amended: April 15, 2008
SUBJECT
Workers' compensation: permanent partial disability benefits.
KEY ISSUES
Should the provision for a 15% increase or decrease in permanent
partial disability indemnity benefits that is dependent on
whether an injured employee returns to work be eliminated?
Should indemnity benefit payments to employees who are injured
at work and who suffer a permanent disability be increased and,
if so, what is an appropriate mechanism for delivering the
increase?
PURPOSE
To delete from law a provision designed to provide an incentive
to get injured employees back to work with their employer, which
incentive is seen to be ineffective.
To increase the number of weeks of indemnity payments for the
range of percentages of permanent partial disability ratings.
ANALYSIS
Existing law:
Requires generally that employers provide workers'
compensation for employees who are injured in the course and
scope of their employment.
Provides for temporary disability (TD) payments to be paid to
an injured worker by the employer's workers' compensation
insurance plan during a limited period while the worker is
recovering from the injury. The payments are approximately
two-thirds of annual average earnings, subject to a minimum
and maximum.
Provides for specified permanent partial disability (PPD)
payments and permanent total disability (PTD) payments to
workers that suffer a permanent disability. The amount of
these indemnity payments is based on a percentage permanent
disability rating that is derived from a calculation
involving evaluated bodily impairment, estimated future
earnings losses, and an age and occupation adjustment.
Provides a schedule of the number of weeks of permanent
disability payments to which injured employees with specified
percentages of permanent disability are entitled. The
permanent disability schedule of weeks is set forth for
injuries occurring prior to January 1, 1992, for injuries
occurring on or after January 1, 1992, for injuries occurring
on or after January 1, 2004, and for injuries occurring on or
after the effective date of the revised permanent disability
rating procedure adopted by the administrative director of
the Division of Workers' Compensation (i.e., the current
procedure, adopted on January 1, 2005, after the passage of
SB899 in April, 2004).
Creates a 15% "bump-up/bump-down" incentive which either: (a)
entitles a injured worker to an increase of 15% in his or her
permanent disability benefit payments if the employer does
not -within 60 days of the worker's disability becoming
permanent and stationary - give the worker an offer to return
to work for at least 12 months, or (b) conversely, allows the
employer to reduce the permanent disability payments by 15%
if the employer offers regular work, modified work, or
alternative work for a period of at least 12 months.
This Bill:
States that it is the intent of the Legislature that disabled
workers receive fair compensation, that until the full
Hearing Date: April 23, 2008 SB 1717
Consultant: Rodger Dillon Page 2
Senate Committee on Labor and Industrial Relations
effects of recent reforms are known the Legislature should
ensure permanently disabled workers receive adequate
benefits, and that it is not the intent of the Legislature to
undermine the positive effects reform has had on California
employers and workers;
Increases, over a period of three years, the number of weeks
of benefit payments to permanently disabled workers for
specified percentages of permanent disability. At the end of
the three-year period the number of weeks for each level of
permanent disability, as specified, is doubled.
Proposed Schedule of Increases
------------------------------------------------------
| Range of | Current | Weeks | Weeks | Weeks |
|percentage| number of | allowed | allowed | allowed |
| of | weeks for |effective |effective |effective|
|permanent | which 2/3 | 1/1/09 | 1/1/10 | 1/1/11 |
|disability|of average | | | |
| incurred | weekly | | | |
| | earnings | | | |
| | are | | | |
| | allowed | | | |
|----------+-----------+----------+----------+---------|
| 0 - 9.75 | 3 | 4 | 5 | 6 |
|----------+-----------+----------+----------+---------|
|10 -14.75 | 4 | 5 | 7 | 8 |
|----------+-----------+----------+----------+---------|
| 15 - | 5 | 7 | 8 | 10 |
| 24.75 | | | | |
|----------+-----------+----------+----------+---------|
| 25 - | 6 | 8 | 10 | 12 |
| 29.75 | | | | |
|----------+-----------+----------+----------+---------|
| 30 - | 7 | 9 | 12 | 14 |
| 49.75 | | | | |
|----------+-----------+----------+----------+---------|
| 50 - | 8 | 11 | 13 | 16 |
| 69.75 | | | | |
|----------+-----------+----------+----------+---------|
| 70 - | 16 | 21 | 27 |32 |
Hearing Date: April 23, 2008 SB 1717
Consultant: Rodger Dillon Page 3
Senate Committee on Labor and Industrial Relations
| 99.75 | | | | |
------------------------------------------------------
Deletes the bump-up/bump down incentive program.
COMMENTS
1. Need for this bill?
The existing permanent disability rating procedure referred to
above was adopted by the administrative director subsequent to
the passage of SB899 (Poochigian) in April, 2004. The
procedure adopted by the administrative director was a major
departure from the prior procedure for rating permanent
disability. The resulting permanent disability rating
schedule (as distinct from the schedule of weeks of indemnity
payments) has resulted in a general decline in PD ratings and
thus in a decline in indemnity payments to injured workers.
The California Commission on Health and Safety and Workers'
Compensation (CHSWC) has estimated that permanent disability
indemnity benefits have declined by over 50% due to the new PD
rating schedule. With respect to the bump-up/bump down
incentive, various parties in the work comp system believe the
incentive program is ineffective; thus there may be no need
for the program to continue if representatives of both
employer and employees see no value in it.
2. Proponents :
Proponents argue that injured workers are being dramatically
under-compensated for their industrial injuries. Proponents
cite RAND Institute studies showing that even under the
previous PD rating procedure the schedule replaced only 37% of
lost wages. CHSWC studies conducted since the passage of
SB899 and the introduction of the new PD rating procedure PD
benefits have been further reduced by 50%-70%, in large part
because the administrative director did not properly take into
account empirical data on earnings losses - as required by law
- in creating the new Permanent Disability Rating Schedule.
Proponents say that according to the U.S. Chamber of Commerce,
California's permanent disability benefits now are among the
lowest in the nation. Supporters of this bill believe the
Hearing Date: April 23, 2008 SB 1717
Consultant: Rodger Dillon Page 4
Senate Committee on Labor and Industrial Relations
measure does not go far enough, but they think it is a step in
the right direction. The bill would not require any increase
in premiums to employers since insurers are reporting
unprecedented profits and could easily absorb the increase in
payouts, according to supporters. They note the pure premium
rates adopted by the Insurance Commissioner last July
anticipated a legislative increase in benefits, so no further
adjustment would be called for.
On the 15% incentive issue, the author notes that employers
and carriers have stated the provision neither reduces costs
significantly nor is manageable. Moreover, return to work
studies by RAND in 2004, as well as the administration last
year, show that this provision and similar ones in other
states, like Oregon, have, at best, only a negligible impact
on the rate of return to work. Most injured workers who
return to their employer work for large employers for whom the
15% reduction is not significant. But on the one hand, for
the injured worker whose PPD benefits already have been
slashed by more than 50%, the 15% reduction upon return to
work is both gratuitous and punitive. Similarly, on the other
hand, the 15% increase where there is no return to work is
deceptive and largely inconsequential.
3. Opponents :
Opponents believe it is unreasonable to make substantial
changes to PD benefits until a full study of the ramifications
of SB899 are analyzed. They argue that SB899 removed much of
the abuse in the system. They would remind supporters of this
bill that until recently California had the most expensive
workers' compensation system in the country while California's
injured workers were experiencing the highest earnings losses.
Clearly, they say, paying higher PD rates across the board is
not the answer. More injured workers are returning to work
now and objectivity has been added to the system. SB899
required employers to increase their contribution to the costs
of administering the work comp system, yet employers were
already paying into the Uninsured Employer Benefit Trust Fund,
the Workers' Compensation Fraud Assessment Trust Fund, and the
Hearing Date: April 23, 2008 SB 1717
Consultant: Rodger Dillon Page 5
Senate Committee on Labor and Industrial Relations
Subsequent Injury Benefit Trust Fund. Opponents do not want
to go down a path leading back to the days of skyrocketing
premiums, adversarial litigation, and an unbalanced system.
4. Prior Legislation :
Two bills similar to this measure [SB815 (Perata) in 2006, and
SB936 (Perata) in 2007] have been introduced and vetoed by the
governor. The two previous bills did not contain the language
deleting the bump-up/bump-down incentive program. The
governor's veto message on SB936 stated, among other things,
that:
This bill . . . arbitrarily doubles the number of weeks
a person may be eligible to receive permanent
disability benefits. It substantially increase costs
for all permanent disability awards regardless of
severity and without relying on empirical data to
validate the increase. I cannot support making such
arbitrary changes to the system we worked so hard to
reform. Instead, I am directing the Administrative
Director of the Division of Workers' Compensation to
finalize her review of the new schedule and commence
rulemaking as soon as possible to make any changes
deemed necessary.
SUPPORT
California Applicants' Attorneys Association
Peace Officers Research Association of California
United Domestic Workers of America
OPPOSITION
American Electronics Association
American Insurance Association
Associated Builders and Contractors of California
Associated General Contractors
Bolton and Company
Hearing Date: April 23, 2008 SB 1717
Consultant: Rodger Dillon Page 6
Senate Committee on Labor and Industrial Relations
California Aerospace Technology Association
California Association of Joint Powers Authorities
California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Coalition on Workers' Compensation
California Farm Bureau Federation
California Grocers Association
California Hospital Association
California Hotel and Lodging Association
California Independent Grocers Association
California Independent Oil Marketers Association
California Independent Petroleum Association
California League of Food Processors
California Manufacturers and Technology Association
California Newspaper Publishers Association
California Restaurant Association
California Self-Insurers Association
Costco Wholesale
County of San Bernardino
CSAC-Excess Insurance Authority - California Joint Powers
Authority
Grimmway Farms
GSG Associates, Inc.
Hotchkiss & Associates Landscape Contracting, Inc.
In-N-Out Burger
League of California Cities
Long Beach Chamber of Commerce
Lumber Association of California and Nevada
McDermott & Clawson, LLP
Monterey Mushrooms, Inc.
National Federation of Independent Business (NFIB)
North Bay Schools Insurance Authority
Providence Health Care and Services, CA Region
Regional Council of Rural Counties
San Mateo Area Chamber of Commerce
Schools Insurance Authority
Schools Insurance Group
Special District Risk Management Authority (SDRMA)
St. Helena Hospital
The Boeing Company
Tiger Lines, LLC
Hearing Date: April 23, 2008 SB 1717
Consultant: Rodger Dillon Page 7
Senate Committee on Labor and Industrial Relations
Ukiah Valley Medical Center
Versafab Corp.
Western Growers
Wine Institute
* * *
Hearing Date: April 23, 2008 SB 1717
Consultant: Rodger Dillon Page 8
Senate Committee on Labor and Industrial Relations