Pennsylvania will see an increase in workers compensation claim costs as a result of the state Supreme Court’s impairment evaluation ruling, according to experts.

In June, the Pennsylvania Supreme Court struck down the state’s impairment rating evaluation process as unconstitutional. The court ruled that the “General Assembly unconstitutionally delegated to the American Medical Association the authority to establish criteria for evaluating permanent impairment.”

Employers can request an impairment evaluation where a physician determines the degree of an injured employee’s impairment under the Pennsylvania Workers Compensation Act. The provision in the state’s workers comp act required physicians to apply the methodology from the American Medical Association Guides to the Evaluation of Permanent Impairment. The law had been in place since 1996.

In 2007, Mary Ann Protz sustained a work-related knee injury and began receiving temporary total disability benefits from her employer. A physician assigned Ms. Protz a 10% impairment rating based on the AMA guide and her employer filed a petition to change her disability status from total to partial, which would limit the duration of her workers comp benefits.

Ms. Protz appealed to the Workers Compensation Appeal Board, arguing that the General Assembly unconstitutionally delegated to the AMA the authority to establish criteria for evaluating permanent impairment. The board rejected this argument, but the commonwealth court reversed that decision on appeal and the Supreme Court of Pennsylvania agreed that the provision was unconstitutional.

“We consider whether this mandate violates the constitutional requirement that all legislative power be vested in a General Assembly, which shall consist of a Senate and a House of Representatives,” the Pennsylvania Supreme Court said in June “We hold that it does.”

In response to the Supreme Court decision, the Pennsylvania Compensation Rating Bureau recently filed a 6.06% loss cost increase.

The impairment evaluation rating process “was very straightforward ... because of this IRE process many claims were settled long before the 104 weeks (when an injured worker reaches 104 weeks of disability pay an IRE can be requested) came up … it was a measure that everyone knew was in the system. It was a consideration for injured workers if they hired an attorney, the attorney would also figure into this. They would make the decision about whether to settle the claim and how much they would settle for based on the existence of an IRE or the possibility of one. It had a big influence on claims, said John Pendrick, Philadelphia-based, vice president of actuarial services at the Pennsylvania Compensation Rating Bureau.

“Now this (IRE process is) not there, and we believe that costs are going to rise similar to a level we saw before Act 57. We will have more claims that become permanent total claims and that is the reason behind our 6.06% increase,” said Mr. Pendrick.

Insurance trade organizations agree, saying costs will rise in Pennsylvania due to the impact of the Protz vs. Workers Compensation Appeal Board (Derry Area School District) decision.

“The ruling will likely increase costs for employers and add a level of uncertainty to the workers compensation claims process going forward,” said Steve Bennett, Washington, D.C.-based associate general counsel for the American Insurance Association. “We hope a legislative remedy comes quickly.”

“The Protz decision will result in a significant increase in claim costs in Pennsylvania,” said Keith Bateman, Chicago-based vice president of workers compensation at the Property Casualty Insurers Association of America. “The decision did not address which claims are affected by the decision. If it is applied retroactively, and the extent to which it is applied retroactively, will play a large role in its potential ultimate impact. It should be noted that the Pennsylvania Compensation Rating Bureau stated that its filing did not consider the impact of retroactive application.”

In a recent statement, the Pennsylvania Chamber of Insurance stated that the 6.06% loss cost increase could lead to “significant additional burdens on Pennsylvania employers.”

The bureau would withdraw the filing if the legislature were to meet soon and completely reverse the impact of the Protz decision, “but time is of the essence,” said Mr. Pendrick. “This filing was proposed to go into effect Nov. 1 so polices are soon going to be written and quoted by insurance companies with effective dates Nov. 1 and later. Employers and insurers in the state need to know soon what the loss costs are.”