California's Senate Bill 899 and workers' compensation reform

Workers' compensation insurance was first enacted in the State of California in the year 1913. It started as an agreement between labor unions and employers, where employers agreed to provide no-fault insurance coverage for work-related injuries and employees agreed to pursue all claims under the workers compensation system and not under the torts system. According to the agreement, workers' compensation benefits included temporary disability benefits, the payment of both evaluation and treatment medical expenses, vocational rehabilitation and supplemental job displace benefits, permanent disability benefits and death benefits.

Although the system was originally set up to be non-profit based and mutually beneficial to both parties, since its enactment both workers and employers have found ways to manipulate the system and thus profit from it. For this reason, such reform measures as Senate Bill 899 have been enacted. Although reform measures like Senate Bill 899 have had a positive effect on workers compensation, particularly to making it more efficient, it has had a substantial effect on the way workers compensation is done. This is especially true for the workers compensation law practice where, due to the new rules, regulations and procedures mandated by Senate Bill 899, the practice of workers' compensation, whether for the employer or employee, has changed. This means that the workers' compensation practitioner has to make internal adjustments.

II. Overview of Senate Bill 899

Senate Bill 899 was enacted as a means to attempt to save jobs, reduce the costs of carrying workers' compensation insurance for employers, and improve the overall care available for the injured workers. The law was passed by the legislature with overwhelming, bipartisan support and was signed into law on April 19, 2004 by Governor Schwarzenegger.

In summary, the reforms provided by Senate Bill 899 focuses primarily on controlling the ever-escalating costs of medial treatment. At the time of the bill's passing, medical costs accounted for fifty-one percent of every dollar and indemnity benefit, which accounted for forty-nine percent of every workers' compensation dollar spent. These expenses had all significantly risen over a period of less than ten years. For example, in 1997 it was estimated that California employers paid a total of $3.4 billion dollars in indemnity costs. By 2003 this number was at an estimated $5.8 billion. In 1997 an estimated 2.6 billion in medical costs was paid, whereas by 2003 the number had increased to $6.1 billion. Finally, the total costs spent by all California employers on workers' compensation (indemnity, medical, etc.) was at an estimated $8.3 billion in 1997. By 2003 this number was at an estimated $26.7 Billion. It was this problematic trend that Senate Bill 899 was aimed at reversing, or at least controlling.

Senate Bill 899 focuses on controlling the problems associated with the escalating costs of providing effective and efficient medical treatment and benefits to injured workers. As these costs rise, it becomes more and more difficult for the employer to provide the needed compensation, which in turn means that it becomes more and more difficult for the injured worker to recover and return to earning a living at work. Thus, the initial purpose of the workers' compensation system is thwarted. To do this, Senate Bill 899 focuses on Medical Provider Networks, who provide a process for providing the injured worker with effective medical treatment; Medical Treatment Guidelines, which can be used to guide the determinacy of the necessary medical treatment; a new permanent disability rating schedule, which assists with providing objective, standardized and consistent methodology in determining an employees rate of disability and/or permanent impairment; and specific return to work provisions which include set incentives for employers to return injured workers to the job in light duty positions. The planned result is that this incentive will encourage employers to treat injuries and quickly return the workers to work, thus limiting the incentive for injured workers to hold out in order to receive higher disability awards.

Senate Bill 899 also focuses on producing net cost savings. Workers' compensation rates are set and controlled by the Workers' Compensation Insurance Rating Bureau of California. In 2003, the Bureau reported a peak rate level of $6.35 per $100 of payroll. However, by the third quarter of 2004, after the implementation of the Senate Bill 899 measures, this rate had dropped to $5.34 per $100 of payroll, or a reduction of sixteen percent. The measures also required further rate drops, including a 2.2% decrease on January 1, 2005, and another 10.4% decrease on July 1, 2005. As a result, there has been a 26.3% decrease from the 2003 peak rates. According to a report in the Sacramento Bee, "California business owners saw the average annual premium for workers' compensation insurance drop between 13.9% and 16.6% in the last six months, according to records from the state Department of Insurance."

Senate Bill 899 also focused on creating fewer disputed claims needing arbitration and instead focused on having a fair and accurate payment of benefits given at the time of the injury. For example, in April 2003, 71,104 new disputed workers' compensation claims were filed. However, after the implementation of Senate Bill 899's provisions, this number was reduced by thirty-six percent, with a total of 10,878 claims filed in 2005.

III. Effects of Senate Bill 899

Clearly, Senate Bill 899 and its numerous changes that it mandates for the workers' compensation system will have a profound effect on the law office practicing in workers' compensation law. First and foremost, there will be a decrease in demand for litigation attorneys as the statistics already show a decrease in workers' compensation arbitration claims being filed. Other changes will be in terms of procedural changes, a financial impact, need for training and retraining of legal personal and staff, and an understanding of compliance regulations and possible penalties for compliance failure.

Financial Impact

Clearly, these procedural changes will have a financial effect on the workers' compensation practitioner. As previously mentioned, one of the most noticeable changes will be a lack of claims available. As less and less workers file claims for workers' compensation benefits, the need for workers' compensation attorneys will decrease. This will not only decrease the overall fees coming in to the attorney's office, it will also increase the need for comprehensive advertising and marketing measurers in order to get these diminishing claims. As money decreases and expenses change, office reorganization may be in call, including downsizing the amount of legal support staff available. More so, the attorney should consider new approaches for remaining viable in the workers' compensation field. For example, marketing oneself as an adviser to an injured worker in terms of reviewing their case to ensure they get the proper treatment and benefits in the new system may be the way of the future for workers' compensation practitioners.

Retraining Issues

With the new workers compensation system and the new departments and divisions now making up the department of workers' compensation, any workers' compensation law firm or legal department should spend time retraining staff on the changes implemented by Senate Bill 899. For instance, any retraining measures should focus primarily on the Medical Provider Network and the Independent Medical Evaluator as these issues will be where a majority of client questions will come in. When a potential client calls with a question regarding getting medical treatment for a work injury, a staff member must be capable of both providing accurate information and in convincing the caller that professional legal services are needed. To do this, all staff involved in the workers' compensation process must be trained on the new rules and policies and procedures of Senate Bill 899.

Penalties for Noncompliance

In order to limit corruption and profiting from the system, Senate Bill 899 has included strict compliance regulations and stiff penalties for noncompliance. Thus, staff training becomes even more important. Training a legal assistant or associate attorney in compliance and giving them the job of compliance assurance will be beneficial as the Department of Workers' Compensation and its various agencies regularly issue new rulings that effect compliance. In order to reduce the risk of being penalized under the new policies and procedures, all workers' compensation practitioners must place great importance on the role of compliance assurance.

IV. Conclusion

As can be seen from the aforementioned information and overview, Senate Bill 899 has had a significant effect on the practice of workers' compensation in the State of California. Although its provisions are benefiting the injured worker in terms of efficiency, it has significantly reduced the amount of work available for the claimant's lawyer. Further, it has created a new system of administrative regulation and procedures for the practitioner and his or her office to learn and comply with.