BILL ANALYSIS
SB 223
Page 1
Date of Hearing: July 9, 2003
ASSEMBLY COMMITTEE ON INSURANCE
Juan Vargas, Chair
SB 223 (Margett) - As Proposed to be Amended: July 9, 2003
SENATE VOTE : 40-0
SUBJECT : Workers' compensation.
SUMMARY : States that it is the intent of the Legislature to
improve the workers' compensation system by promoting the
efficient delivery of high quality appropriate medical care.
EXISTING LAW:
Workers' compensation, implemented in California in 1913, is a
no-fault system, entitling workers to compensation for illness
or injury arising out of and in the course of work duties,
regardless of the blame which might otherwise be placed on the
employer or the employee. The workers' compensation system is
premised on a bargain between employers and employees: employees
are supposed to receive benefits for on-the-job injuries, and in
return, the benefits are the exclusive remedy for injured
employees against their employer, even when the employer
negligently caused the injury.
The Benefit Structure :
There are five basic types of workers' compensation benefits
available, depending on the nature and severity of the worker's
injury: (1) medical care; (2) temporary disability benefits; (3)
permanent disability; (4) vocational rehabilitation services;
and, (5) death benefits.
Temporary Disability Benefits :
Those workers unable to return to work within three days are
entitled to temporary disability benefits to partially replace
wages lost as a result of the injury. The benefits are generally
designed to replace two-thirds of the lost wages, up to a
specified maximum. Beginning 1/1/03 the maximum is $602, which
increases to $728 on 1/1/04 and to $840 on 1/1/05. For injuries
occurring in 2006, the maximum temporary disability rate will be
$840 per week or the state average weekly wage (SWAA), whichever
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is greater. Starting with injuries in 2007, the maximum limit
will be $840 plus the percent increase in SAWW or the actual
SAWW, whichever is greater. For dates of injury in 2003 through
2006, injured employees who are temporarily disabled with wages
less than $189 are entitled to a weekly TD rate of $126.
Starting with injuries in 2007, the minimum limit will be $126
plus the percent increase in the SAWW. After 2007, the TD
minimum and maximum limits will be indexed every year to the
percent increase in the SAWW. Temporary disability benefits are
payable every two weeks, on a day designated with the first
payment, until the employee is able to return to work or until
the employee's condition becomes permanent and stationary.
Permanent Disability Benefits :
Injured workers who are permanently disabled are entitled to
receive permanent disability benefits. A worker who is
determined to have a permanent total disability receives the
temporary disability benefit for life. A worker determined to
have a permanent partial disability receives weekly benefits for
a period which increases with the percentage of disability.
Permanent partial disability benefits are also payable at
two-thirds of the injured workers' average weekly wages, but are
subject to a lower maximum. The maximum permanent disability
(PD) rate increases from $185 in 2003 to $230 by 1/1/06 for
those cases claiming less than 70 percent PD and from $230 to
2003 to $270 by 1/1/06 for those claiming 70 percent or more.
The minimum PD rate increases from $100 in 2003 to $130 in 2006.
Vocational Rehabilitation Services :
Injured workers who are unable to return to their former type of
work are entitled to vocational rehabilitation services if these
services can reasonably be expected to return the worker to
suitable gainful employment. This includes the development of a
suitable plan, the cost of any training, and a maintenance
allowance while participation in rehabilitation. The maintenance
allowance payable to an injured worker while in rehabilitation
is, like temporary disability benefits, designed to replace
two-thirds of lost earnings, but the maximum weekly amount is
lower -- $246 per week. The worker may, however, supplement the
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maintenance allowance with advances of permanent disability
benefits up to the point where the worker is receiving the same
weekly amount as he or she received in temporary disability
benefits. Total costs for rehabilitation are limited to $16,000.
For injuries that occur on or after 1/1/03 an employer and a
represented employee may settle the employee's right to
prospective vocational rehabilitation services with a one-time
payment to the employee not to exceed $10,000 for the employee's
use in self-directed vocational rehabilitation.
Death Benefits :
In the event a worker is fatally injured, reasonable burial
expenses, up to $5,000, are paid. In addition, the worker's
dependents may receive support payments for a period of time.
These payments are generally payable in the same manner and
amount as temporary disability benefits, but the minimum rate of
payment is $224 per week. Effective 1/1/06 death benefits will
double: from $125,000 to $250,000 for one dependent; from
$145,000 to $290,000 for two dependents; and from $160,000 to
$320,000 for three dependents. Effective 1/1/04; if no
dependents exist, a benefit payment of $250,000 will go the
employee's estate.
The Benefit Financing System :
The benefit financing system is the process by which employers
finance their liability for workers' compensation benefits.
Employers may finance their liability for workers' compensation
benefits by one of the three methods: (1) self-insurance, (2)
private insurance, or (3) state insurance.
Self-Insurance -- Most large, stable employers and most
government agencies are self-insured for workers' compensation.
To become self-insured, employers must obtain a certificate from
the Department of Industrial Relations. Private employers must
post security as a condition of receiving a certificate of
consent to self-insure.
Private Insurance -- Employers may purchase insurance from
private insurance companies which are licensed by the Department
of Insurance to transact workers' compensation insurance in
California. Insurance companies are free to price this
insurance at a level they deem appropriate for the insurance and
services provided.
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State Insurance -- Employers may also purchase insurance from
the State Compensation Insurance Fund, a state operated entity
that exists solely to transact workers' compensation insurance
on a non-profit basis. It actively competes with private
insurers for business, and it also effectively operates as the
assigned risk pool for workers' compensation insurance.
FISCAL EFFECT : Unknown
COMMENTS :
Workers' compensation carriers, service providers, and attorneys
all agree with the employers who pay workers' compensation
premiums and the employees who rely on the workers' compensation
benefits that the California workers' compensation system is in
the midst of a crisis. The costs of the system, which was
originally created to achieve the dual purpose of (1) ensuring
compensation for occupational injuries, and (2) protection of
employers from the high costs of occupational injury litigation,
have increased dramatically over the past few years. These
skyrocketing costs have resulted in employers threatening to
take action such as discontinuing employee coverage, diminishing
other employee benefits or closing their businesses.
Increased workers' compensation costs:
Workers' compensation costs have increased for a number of
reasons. In 1993, the minimum rate law was repealed in an
attempt to spur competition in the sluggish insurance market.
As a result insurers began under-pricing their product. Rates
plunged during the ensuing price war; falling nearly 50% between
'93 and '99. Insurance was being sold below cost, but the
Department of Insurance (DOI), under Commissioner Quackenbush,
failed to require insurers to use adequate rates.
A growing workforce and higher payroll during the 1990s meant
there were higher potential losses, but rates and premiums
remained inadequate. Several California insurers were bankrupted
by inadequate rates, and the surviving national insurers ended
the price war and sharply increased rates.
Approximately 25% of the private workers' compensation carriers
in California failed, creating further stress on the entire
system. The State Compensation Insurance Fund (SCIF), a part of
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the Department of Industrial Relations (DIR), had to absorb the
bulk of the business that had been insured by insurers that had
become insolvent, increasing their market to approximately 50%.
The California Insurance Guarantee Association (CIGA) had to
step in to the shoes of the failed insurers to pay their
workers' compensation benefit obligations. As a result,
approximately 75% of the workers' compensation market are in
government hands.
Rates also increased due to national conditions, a $40 billion
loss from the 9/11 attacks led to the first annual loss for the
insurance industry ever. Because insurer profits were heavily
reliant on investment income, the stock market collapse and
economic slowdown was probable cause for insurers to raise rates
across-the-board.
California increases were particularly high because the
insurance industry rate war ended just as rates were increasing
due to 9/11 losses and lower investment income. Although the
average rate level in 2002 was only 8% higher than in 1993,
employers have been harmed by the steep erratic price swings of
the last few years.
One reason insurance premiums are increasing is the cost of
medical care in the system. Medical care in California's
workers' compensation system is estimated to be approximately
50-100% higher than medical care in non-occupational medical
systems.
Medical costs are high in the California workers' compensation
system for a number of reasons. Medical billing for provider
services and in-patient hospital facility fees in workers'
compensation is regulated by the Official Medical Fee Schedule
(OMFS). Many have argued that the OMFS is outdated and does not
have applicable codes for many medical services. Additionally,
there is no requirement that providers bill at the fee schedule
rate rather than their regular and customary charge rate, and
providers, employers and insurers are able to contract for
alternate rates. Furthermore, no fee schedules exist at all for
certain areas such as outpatient surgical center facilities.
While the Administrative Director of the Division of Workers'
Compensation (DWC) within DIR is statutorily obligated to update
the OMFS biennially, due to staffing shortages, budgetary
constraints and an overly complex and cumbersome fee scheduling
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system, the fee schedule has not been thoroughly and adequately
updated for several years.
In addition, the system which was created to avoid costly and
time consuming litigation, has given rise through its complex
makeup to litigation regarding appropriateness and adequacy of
care, disability ratings and myriad other issues.
Conference Committee:
While there is agreement among the parties that the system is in
need of repair, what remains subject for debate is what the real
systemic problems are and how best to address them without
diminishing the arguably meager benefits injured workers receive
in this state.
Workers' Compensation Bills:
There are 20 workers' compensation measures, which have passed
out of their houses of origin this session. These bills cover
such complex and varied subject matter areas as medical fee
scheduling, utilization and insurance market regulation.
With the agreement of Senate and Assembly Leadership, the Chairs
of the Senate Labor and Industrial Relations Committee and the
Assembly Committee on Insurance, and the authors of this
session's workers' compensation legislation, all workers'
compensation bills will be submitted to conference committee to
ensure comprehensive workers' compensation reform. To that end,
all such workers' compensation bills will be amended to reflect
the same intent language prior to submission to conference.
The following Senate bills will be amended to reflect the same
intent language for submission to conference committee:
SB 191 (Alarcon), regulates and stabilizes the workers
compensation insurance market, by requiring that workers'
compensation insurance rates not be excessive. Provides a
formula for the Insurance Commissioner (IC) to determine whether
rates are excessive. Requires IC to disapprove rates, which are
excessive. Requires IC to maintain an online comparison guide
for workers' compensation insurance rates. Requires insurers,
desiring to use rates lower than the IC's pure premium rates, to
file an application with the IC, and to provide for a method of
review, determination and appeal as specified. Requires an
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experience rating plan to contain a provision for rewarding
employers that have been claim free for a specified length of
time.
SB 223 (Margett), clarifies that the generic drug requirements
from last year's AB 749 (Calderon) be applied to hospitals,
clinics and physicians. Currently, it applies only to
pharmacies.
SB 228 (Alarcon), establishes a fee schedule, effective January
1, 2004, for provider fees, inpatient facility fees and
outpatient facility fees at 120% of Medicare and for
pharmaceuticals and pharmacy services at 100% of Medi-cal;
provides that this fee schedule shall remain in effect until the
AD adopts an OMFS, which may not exceed 120% of Medicare for
provider fees, inpatient facility fees and outpatient facility
fees, and 100% of Medi-Cal for pharmaceuticals and pharmacy
services; authorizes providers, insurers and employers to
contract for rates outside of the fee schedule; repeals all fee
scheduling provisions within existing law; provides that the fee
scheduling provisions of this bill will not become operative if
the AD establishes fee schedules for out-patient facilities and
pharmaceuticals and updates the OMFS by January 1, 2004.
SB 229 (Burton), prohibits the State Compensation Insurance Fund
(SCIF) from raising small employers premiums, for a two year
period, if such small employers are claim free for five years
and if they provide health insurance coverage for their
employees. Requires the SCIF to submit their findings to the
Legislature by January 1, 2005.
SB 354 (Speier), sets a limit of 15 one-hour visits to a
chiropractor, absent approval by a Medical Doctor (MD) for more
visits; doubles the maximum fine for fraudulent claims to
$100,000 or double the value of the fraud, whichever is greater;
doubles the maximum fine on employers who fraudulently obtain
lower premiums to $100,000 or double the value of the fraud,
whichever is greater; and prohibits MD's from referring workers'
compensation claimants to outpatient surgical centers owned by
the referring M.D, or immediate family member.
SB 457 (McPherson), expresses legislative intent that DWC review
the effectiveness of specified provisions of current law in
penalizing and deterring unreasonably late and denied benefit
payments.
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SB 757 (Poochigian), mandates out patient surgery fee schedule
based on "national standards"; mandates "utilization schedule"
based on national standards; mandates that medical providers are
required to provide only tests, evaluations and treatments,
necessary to diagnose and treat work-related injury; and
mandates that work related injury must be 50% of cause of injury
to be compensable.
SB 899 (Poochigian), provides that a physician can not refer a
person to an outpatient surgery facility in which he has a
financial interest.
SB 1007 (Speier), expands the definition of "common trade or
business" for the purposes of association or trade group
workers' compensation insurance policies to include
manufacturing facilities as identified in the North American
Industry Classification System.
SB 1071 (Vincent), requires that if any corporation provides any
medical judgement or independent review and interpretation of
diagnostic test results that they meet specified legal
requirements regarding the corporate practice of medicine.
The following Assembly bills will be amended in Senate Labor and
Industrial Relations Committee to reflect the same intent
language for submission to conference committee:
AB 149 (Cohn), extends the statute of limitations for claims for
workers' compensation death benefits in the case of firefighters
whose death results from asbestosis.
AB 227 (Vargas), requires the Administrative Director (AD) of
the Division of Workers' Compensation (DWC) in the Department of
Industrial Relations (DIR) to adopt an interim outpatient
surgery facility fee schedule using data that meets specified
criteria pending development of a fee schedule.
AB 968 (Correa), clarifies that any injury suffered by an
employee as a result of a vaccination administered to prevent
infection by a biochemical substance or blood-borne infectious
disease arises out of and in the course of employment for
workers' compensation purposes.
AB 1099 (Negrete Mcleod), clarifies current law by including the
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Employment Development Department (EDD) among the agencies
authorized to request and receive information related to
workers' compensation fraud investigations, and provides that
licensed rating organizations are authorized to release
information regarding workers' compensation fraud.
AB 1215 (Vargas), requires the State Compensation Insurance Fund
(SCIF) to develop a program that allows workers' compensation
insurers to have access to quarterly wage reports filed by
employers with the California Employment Development Department
(EDD) for the sole purpose of detecting workers' compensation
insurance fraud.
AB 1262 (Matthews), requires insurers to certify that their
claims adjusters meet minimum standards. Requires the Department
of Insurance (DOI) to adopt applicable regulations setting forth
those standards.
AB 1324 (Steinberg), provides that an employee's dependent who
contracts a blood-borne infectious disease from the employee may
be compensated for health care costs associated with the
disease.
AB 1483 (Richman), requires physicians who treat and evaluate
injured workers to be certified by the Industrial Medical
Council (IMC); educates physicians through a certification
process; requires AD to contract with a university or policy
institute to develop physician utilization management, billing,
quality of care, and outcome measurement data; and, requires
mandatory training on the medical coordination of workers'
compensation claims.
AB 1578 (Vargas), increases the fine for committing workers'
compensation insurance fraud from $50,000 to $150,000.
AB 1579 (Cogdill), extends the prohibition against self referral
to providers who have a financial interest in out-patient
facilities; requires certification of all physicians providing
workers' compensation treatment by the Industrial Medical
Council; requires the Administrative Director (AD) to contract
with a research entity to develop physician utilization
management, quality of care, billing, and outcome measurement
data, and to publish a report regarding same; requires the AD to
establish a mandatory annual training program for persons who
determine permanent disability ratings for injured workers;
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requires the AD to establish a mandatory annual insurance claim
administrator training program; repeals provisions in existing
law authorizing carve-outs, as specified, for the aerospace and
timber industries; expands carve-outs in existing law, to be
non-industry specific, but eliminates vocational rehabilitation
provisions in these carve-outs; amends the definition of injury
for purposes of workers' compensation to rely on objective
medical findings; amends liberal construction provision in
current law to apply only after the injury has been deemed to
have arisen out of and in the course of employment, is specific
and results in serious bodily harm; requires employees to prove
by a preponderance of evidence that the injury was substantially
caused by employment in order for a cumulative injury to be
compensable; requires psychiatric injuries be proved by clear
and convincing evidence; requires that incarcerated individuals
pre-incarceration average weekly wage be the basis for their
compensation for work-related injuries and provides that the
injured inmate's injury must be the predominant cause of the
injury and may not be the result of the criminal act for which
he has been convicted; makes vocational rehabilitation
voluntary rather than mandatory, at the option of the employer
and would provide for a one time payment of benefits; requires
applicants for employment to disclose whether they have ever
been adjudicated to have committed a fraudulent act relating to
workers' compensation; authorizes an employer to contract with a
PPO for health care services to be provided to injured employees
under the workers' compensation laws and would provide for
Independent Medical Review (IMR) under these contracts; extends
the time frame during which an employee who has not
pre-designated a physician must be under the control of the
employer for medical treatment from 30 to 120 days; provides
that where an employee has failed to pre-designate and a health
care service is disputed, the employee may request IMR; extends
the generic unless otherwise prescribed pharmaceutical provision
to all pharmaceutical dispensers; imposes additional reporting
requirements on physicians; requires employers to pay medical
bills stemming from authorized treatment within 45 days of
receipt; provides that if the employer contests, denies, or
seeks review of medical billing, the employer shall only be
required to pay any interest or increase in compensation for
delayed payment if the provider objects in writing to the
employer's written explanation for contesting, denying, or
seeking review of the billing within 45 calendar days of receipt
of payment, notice of nonpayment, or explanation of review and,
precludes the provider from seeking further reimbursement or
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filing a lien if the provider fails to make this objection
within the 45 calendar day period; repeals the provision in
existing law providing for a 10% increase to awards where
benefits have been unreasonably delayed or denied; prescribes
procedures under which the amount of the payment unreasonably
delayed or denied would be increased to 25%, not to exceed $500;
requires physicians to bill at the fee schedule rate and
requires the AD to adopt an out-patient facility fee schedule;
requires the AD to consult with the Industrial Medical Council
prior to the adoption of an update to the official medical fee
schedule; requires the AD to adopt a utilization schedule and
provides for IMR; provides that in apportionment determinations,
the appeals board may not rely on any report that does not fully
address the issue of apportionment; provides for a conclusive
presumption that a prior injury existed at the time of the
subsequent injury if an applicant has received a prior permanent
disability award; precludes the accumulation of permanent
disability awards from exceeding 100% unless the employee's
injury or illness is conclusively presumed to be total in
character; prohibits the payment of permanent disability and
death benefits unless the industrial injury is the predominant
cause of the death or disability; provides that the burden of
proof for apportionment is borne by the injured worker; requires
that all evaluations and reports regarding degree of permanent
disability be based on demonstrable medical evidence using
established medical guidelines regarding restriction of bodily
function; and, prohibits disability ratings from being based on
evaluations and reports that do not follow established medical
guideline.
REGISTERED SUPPORT / OPPOSITION :
Support
None as amended.
Opposition
None as amended.
Analysis Prepared by : Michael Mattoch / INS. / (916) 319-2086