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SAN FRANCISCO-Workers compensation payers contend a California administrator has increased some workers comp benefits for permanent disabilities without the proper oversight or legislative authority.
Modifications to California's Schedule for Rating Permanent Disabilities will lead to increases in premiums, claims-handling expenses and settlement disputes, said Ed Woodward, president of the California Workers' Compensation Institute, a San Francisco-based research organization supported by insurers and self-insured employers.
But Casey Young, administrative director for California's Department of Industrial Relations, Division of Workers' Compensation, contends those assertions are false. Mr. Young also said that critics had an opportunity to evaluate the changes before his department implemented them.
California's disability rating schedule provides claims handlers with legislatively mandated benchmarks for rating employee impairments and work limitations associated with most disabling conditions. It also provides procedures for adjusting the rating according to the injured employee's occupation and age.
The Division of Workers' Compensation merely modified the rating schedule's list of occupation descriptions, as mandated by 1993 legislative reforms, Mr. Young said. Those descriptions had not been updated in more than 50 years, he said. About half the 1,800 occupational titles listed are new, but he said he did not significantly alter the state's standard disability ratings themselves-a step that would have required review by a commission created to evaluate the state workers comp system.
The changes, adopted at the end of last year, are effective for injuries that occur on or after April 1, 1997.
The acrimonious debate could matter little, though, because the RAND Institute is conducting an exhaustive study of California's disability rating system, observers said.
The research is expected to generate proposals for fundamental structural changes to the state's method of disability rating. The study was ordered by the state Commission on Health, Safety and Workers' Compensation, which was created under the 1993 reforms to examine California's workers comp system and to examine the state's efforts to prevent occupational injuries. Its eight members are appointed by the governor and the state Senate and Assembly.
The scheduled release of RAND's report later this summer is one reason that the Sacramento-based Californians for Compensation Reform, an employer group, so far has remained neutral on the changes, said Lori Kamerer, the group's managing director.
The proposals that follow the RAND study could have greater impact on employers, she said.
Workers comp observers outside California are not surprised that disability rating adjustments have led to controversy.
"The calculation of permanent partial disability is probably one of the toughest issues in the comp system. It's very political, very controversial," said Nancy Schroeder, director of workers compensation for the National Assn. of Independent Insurers in Des Plaines, Ill.
States vary in their approach to rating workers' permanent partial disabilities, Ms. Schroeder said. Oregon and New Mexico have schedules similar to California's, though theirs have undergone more clarification. Other states, such as Nevada and Kentucky, rely on American Medical Assn. guidelines to evaluate impairments. Still other states rely on individual doctors' subjective assessments to determine the percentage of lost earning capacity, then they compare that to a schedule for disability payments.
Part of the controversy in California appears to be over whether Mr. Young's changes to the occupation and age adjustment portion of the rating schedule first required approval from the workers comp commission.
According to reform legislation, Mr. Young was to update the occupation descriptions in the rating schedule and the standard disability ratings. But changes to the standard disability ratings require the commission's approval, while the occupation changes do not, Mr. Young said. So he left the disability ratings alone.
"What he has done is to say, 'Well, I didn't directly modify any ratings,'" the CWCI's Mr. Woodward said. "In my opinion, it's a rather legalistic interpretation he is hiding behind."
By including new occupation and age classification plans and by adding administrative interpretations to work capacity guidelines, Mr. Young essentially changed the ratings, Mr. Woodward said. The change in work capacity guidelines could prove particularly contentious, because they make determination of permanent disability awards and claim reserves more subjective, he added.
The CWCI's initial analysis found the effect will vary by industry and occupation, with a tendency to reduce benefits for workers in jobs requiring greater physical labor while increasing benefits for those in more sedentary occupations.
And the changes ultimately amount to benefit increases, which require legislative approval, Mr. Woodward said.
Both sides fault each other's data analysis.
Greg Vach, workers comp manager for Interstate Brands in San Diego and a member of the workers comp commission, said he believes Mr. Young has changed some standard ratings. Yet the definition of standard rating in existing law is ambiguous, said Mr. Vach, who added he can see why Mr. Young believes the line wasn't crossed.
Some workers comp commission members are disturbed that Mr. Young did not consult them more, according to Mr. Vach, who said he will call for the state's Office of Administrative Law to review the changes.
In fact, Mr. Young's detractors point out that the administrator adopted the changes on Dec. 31, just hours before a new state law would have required automatic review by the Office of Administrative Law.
"Because of the way it was done, it was sort of snuck in at the last minute, people are just barely now beginning to wonder if there is an effect or not," said Mr. Vach. "So I don't think the employer community is alerted in any way."
A spokesman for Mr. Young said the Workers' Compensation Division did hurry to adopt the occupation alterations before the OAL review would have been required. But that was done so that claims adjusters would have time to learn and integrate the new procedures by April 1.
As for cost increases, the jury is still out on that, Mr. Vach said. He believes some employers will see increases in disability costs as a result of the changes, particularly those with clerical or office workers and especially those in the public sector.
Mr. Young said his work is as close to cost-neutral as possible and will reduce claims-handling costs and disputes because of the clarity provided by adopting the new classifications. The old classifications had not been changed in 50 years, long before the workforce began to use computers, he noted.
The CWCI's Mr. Woodward contends, though, that adjusters now will be working from two schedules, one that applies before April 1, and one for claims filed after that date, which could increase claims disputes. And soon there could be a third schedule, depending on the RAND Institute's proposals.
Some of Mr. Young's critics say he should have waited to see what proposals the RAND study will produce, both because of the entity that commissioned it and because of the study's potential for greater impact.
But waiting wasn't an option, Mr. Young said. Adopting any proposed RAND changes could be far off.
"You can imagine, if there is this kind of controversy starting to bubble up now over deferred maintenance to the schedule, what is going to happen when you start talking abut changing the basic structure of it?" he asked.
Meanwhile, to pre-empt future ambiguity problems, the Sacramento-based Assn. of California Insurance Cos. is sponsoring legislation introduced recently in the state Assembly that would clarify that any changes to the state's permanent disability rating schedule could not increase or decrease the cost of workers comp disability payments.
A.B. 1239, introduced by Assemblywoman Marilyn Brewer, also would require the Legislature to hold public hearings on the pending RAND study and the proposals it generates.