BILL ANALYSIS
SB 1717
Page 1
SENATE THIRD READING
SB 1717 (Perata)
As Amended May 1, 2008
Majority vote
SENATE VOTE :23-14
INSURANCE 7-3
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|Ayes:|Coto, Berg, Charles | | |
| |Calderon, Carter, De | | |
| |Leon, Lieber, Parra | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Benoit, Duvall, Garrick | | |
| | | | |
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SUMMARY : Increases the number of weeks that permanent
disability benefits are paid, thereby increasing the amount of
money received for each percent of disability. Specifically,
this bill :
1)Declares legislative intent that:
a) The 2003 and 2004 workers' compensation reforms were
intended to be fair to all parties involved;
b) The Legislature should ensure that permanently disabled
workers receive adequate compensation; and,
c) Providing adequate compensation to these workers should
not undermine the positive effects of the workers'
compensation reforms.
2)Increases the number of weeks that permanent disability
benefits are paid in each of the next three years, resulting
in a doubling of benefits by the third year increase.
3)Repeals the provisions of law that result in a 15% reduction
of the permanent disability award otherwise due an injured
worker if the employer has offered the same or qualified
modified work to the employee within 60 days after the
employee has become permanent and stationary.
SB 1717
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EXISTING LAW :
1)Establishes a system of workers' compensation benefits to
compensate injured workers for, among other things, their
permanent disability losses caused by on-the-job injuries.
2)Directs the Administrative Director of the Division of
Workers' Compensation (AD) to establish a permanent disability
rating schedule (PDRS) to determine the percentage of
disability an injured worker suffers from the on-the-job
injury.
3)Provides that the PDRS shall take into account the nature of
the physical injury or disfigurement, the occupation of the
injured employee, age at the time of injury, and the
employee's diminished future earning capacity.
4)Specifies that the "nature of the physical injury or
disfigurement" be based on the American Medical Association
Guides to the Evaluation of Permanent Impairment (AMA Guides).
5)Specifies that "diminished future earning capacity" shall be a
numeric formula based on empirical data and findings that
aggregate the average percentage of long-term loss of income
resulting from each type of injury for similarly situated
employees.
6)Converts impairment ratings into benefit dollars according to
a schedule that pays the injured workers two thirds of his/her
average weekly wage, as defined, for a specified number of
weeks that increases with the severity of the disability.
7)Requires the AD to base the initial post-reform adjustments to
the schedule on a study that was released in 2003 by the RAND
Institute for Civil Justice.
8)Provides for a 15% "bump up" or "bump down" of the permanent
disability award depending on whether the employer makes a
qualifying job offer within 60 days after the employee has
become permanent and stationary.
FISCAL EFFECT : Potentially significant costs to the state for
SB 1717
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increased workers' compensation benefits for injured state
employees.
COMMENTS :
1)Purpose : According to the author, there is now sufficient
evidence that the new PRDS is generating unintended low
ratings to justify action to increase the ratings. Since the
evidence suggests that benefits have been cut by an average of
50% for injuries that have been determined by objective
medical findings, the bill's goal is to recover these benefits
over a 3-year period.
In addition, the bill originally repealed the "bump up/bump
down" factor, which had been requested by employers during the
2003-2004 reform debate as an incentive designed to encourage
return to work offers by employers. This program has had
mixed results, at best. However, since a repeal was
determined to result in a net reduction in already inadequate
benefits, the bill now only proposes to repeal half of the
program.
2)Background : In 2004, the Legislature passed major workers'
compensation reforms in SB 899 (Poochigian), Chapter 34,
Statutes of 2004. The bill was negotiated with the Governor
early in the 2004 legislative year as the Governor was in the
process of qualifying an initiative for the November, 2004
General Election ballot. SB 899 addressed a wide range of
issues, including the permanent disability (PD) system. There
were two primary changes to the existing system.
First, the old PD system was criticized as being overly
subjective. Similar injuries would receive widely divergent
ratings by different raters; many injuries that did not have
"objective medical findings" were nonetheless rated as having
compensable permanent disabilities. The response was to adopt
the American Medical Association Guides to the Evaluation of
Permanent Impairment (AMA Guides). These guidelines are
designed to enable the physicians who make disability reports
to objectively measure the degree of impairment that various
injuries cause for the injured worker. The AMA Guides
recognize only objective medically identifiable injuries and
impairments.
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The second major change to the PD system involves one of the
standards used to convert an "impairment rating" into a
permanent disability rating (which then is translated into the
degree of monetary compensation paid to the injured worker.)
Under the old PD system, state law required an attempt to
measure the extent to which the injury impeded the ability of
the inured worker to compete in the labor market. Again, an
attempt was made in SB 899 to inject a more objective
approach. In this case, the "compete in the labor market"
standard was replaced with a standard intended to measure the
extent to which the injured worker's future earning capacity
was adversely affected. Specifically, Labor Code Section 4660
provides, in pertinent part, "employee diminished future
earning capacity shall be a numeric formula based on empirical
data and findings that aggregate the average percentage of
long-term loss of income resulting from each type of injury
for similarly situated employees."
The manner in which the AD implemented this new diminished
future earning capacity (FEC) factor, and the way this FEC
multiplier is built into the formula that produces disability
ratings, has generated substantial controversy. Without
getting into the minutia of the formulas, it became apparent
very soon after implementation of the new PDRS that ratings
were coming out much lower than under the old system. Some
results were expected. For example, certain injuries that
received low to moderate ratings under the old system, but for
which there were no "objective medical findings" to support
the impairment, received a rating of no PD under the new
rules. Many of these so-called "zeros" were expected.
However, many injured workers who have significant,
objectively verifiable injuries saw their PD ratings come out
much lower than under the old system, often 40-50% or more
lower.
It should also be noted that the pre-reform PD system was
criticized as allowing far too many cases to receive benefits.
In California, a much higher percentage of injury cases
resulted in some level of PD award than in other states.
Thus, costs in California were among the highest, if not the
highest, in the country. However, the proponents of the
reform bill did NOT argue that, for those workers with
legitimate, medically objective injuries, the system was
paying a benefit that was too high on an individual case
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basis.
While the shift to the new system using the AMA Guides involved
a degree of uncertainty, it is fair to say that few predicted
a ratings reduction of the magnitude that we have experienced,
in particular for the types of injuries involved.
In April, 2008, an administrative proposal was finally made by
the Administration. The proposal calls for, on average, a 16%
increase in PD benefits. To illustrate the impact, if we
assume a worker with objective, agreed upon injuries used to
receive $100, this benefit was cut in half to approximately
$50 under the 2004 reforms. The recent administrative
proposal would raise this $50 benefit to $58, still 42% less
than under the former rating system.
3)AMA Guides : The AMA Guides are designed to measure physical
impairment. By explicit language in the Guides, they are NOT
intended to be used to generate bottom line disability
ratings. Instead, they are intended to be one of the building
blocks that lead to the ultimate permanent disability rating
for a particular injured worker. Thus, additional factors,
such as those noted in 3) of the Existing Law section of this
analysis, are necessary components of a permanent disability
rating system. In the end, it is a policy judgment about
adequacy of compensation that must occur when taking the AMA
Guides and using them as a foundation for a PDRS. The Guides
ensure that the system is based on medically objective
findings; however, the remaining components of the system must
ensure that the results provide adequate compensation to the
injured worker. AMA Guides-based objectivity is not, of
itself, a sufficient policy goal in constructing a PDRS.
4)Prior legislation : The Legislature passed SB 815 (Perata) of
2006, and SB 936 of 2007, both of which were virtually the
same as this bill. However, the Governor vetoed the bills.
5)Support : Supporters offer a number of arguments in support of
the bill. Fundamentally, they argue that the SB 899 reforms
have saved employers over $10 billion, that insurer loss
ratios are in the 30% range, and that it is simply unfair for
injured workers, in particular those injured workers whose
disability has been determined based on objective medical
findings, as required by the reforms, to have their benefits
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reduced by 50%.
More specifically, supporters point out that SB 899 reduced
overall PD benefits in four ways: it reduced the number of
weeks of benefit payments in most cases; provided for a
reduction of 15% if the employer makes a qualifying job offer;
allowed apportionment of the disability to other causes; and,
required the "objective findings" of the AMA Guides.
Supporters argue that the deepest cuts in PD benefits are
occurring AFTER all of these reductions are taken into
consideration, because the regulations adopted by the AD
substantially undervalue the actual wage loss that injured
workers face.
6)Opposition : The California Chamber of Commerce and other
opponents acknowledge that PD ratings are down under the new
system, but argue it is not clear that these reductions are a
problem. They argue that pre-reform PD claims in California
were filed at a rate three times the national average, and
that the data, in particular from the Commission on Health and
Safety and Workers' Compensation, paints an incomplete
picture. The Chamber argues that the pre-reform data was
taken from the year prior to the reforms, that this particular
year was when PD costs were at their height, and thus do not
form the basis of a fair comparison. Other opponents make
similar arguments that the existing state of the data is
incomplete, or fails to properly measure the relevant time
frames. They argue that changes to the PDRS need to be based
on empirical data that all stakeholders understand and trust.
In this regard, they generally support the administrative
process that the AD has initiated with the proposal estimated
to result in a 16% increase in PD benefits. Opponents also
argue that there is not yet a consensus on exactly what level
of PD benefits are adequate, and therefore merely returning to
pre-SB 899 levels begs the adequacy question.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0005582