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SACRAMENTO, Calif. -- Employers and insurers fear that policy recommendations in an analysis of California's permanent partial disability system may lead to benefit increases, and they suspect the study may have based certain conclusions on flawed data.

Employers also were expecting that the $450,000 Rand Corp. study would produce definitive recommendations for improving the state's PPD rating system, which determines disability benefits. Instead, the Santa Monica, Calif.-based organization recommends creating a task force to "improve the validity, reliability and efficiency of the PPD ratings process and the disability schedule used in that process."

That smacks of past recommendations, employers say.

"I've been in this business for years and I've seen about four major task forces and study groups formed, and each one has taken the position that PPD benefits are too complex to deal with at this time and they should be studied at a later date by a different group," said Joseph Markey, president of the California Self-Insurers Assn. in Sacramento. "Now Rand buys into the same thing by saying, 'We ought to have a task force.' "

Rand was hired by California's Commission on Health and Safety and Workers Compensation to evaluate the PPD component of workers compensation. The commission was created as part of the state's 1993 workers comp reforms to evaluate the PPD system and oversee workers comp changes.

Rand has acknowledged some weakness in its study and is recommending further research of some points. But the methodology did take into account certain issues being raised by employers, and Rand stands behind its work as the best possible study that could have been done at this time, said Robert Reville, co-author of the study. Mr. Reville led a wage-loss evaluation of the PPD system. The wage-loss study constitutes a significant portion of Rand's work and is central to its policy recommendations.

Mr. Reville was scheduled to present Rand's findings in San Francisco Nov. 21 at a commission-sponsored summit on permanent disability. Insurers and employers also were scheduled to present their views at last Friday's meeting.

The commission can recommend legislative changes, but so far has been tight-lipped on its assessment of Rand's recommendations.

Commission officials have said they will base their recommendations on Rand's study and public input.

Employers did not push for changes to the PPD system, though they acknowledge it is a cumbersome and slow system that could be improved. Because the issue has been hanging over their heads and proposed changes are often highly contentious, they were counting on Rand's work to resolve the matter (BI, May 5).

"What I was looking for was a definitive strategy that could be immediately implemented," said Jill Dulich, regional director for Marriott International Inc.'s claims services for the Western region in Santa Ana, Calif.

Ms. Dulich is also board chairwoman for the Sacramento-based Californians for Compensation Reform, and she was scheduled to voice her concerns at the summit.

Rand recommends making the state's schedule for rating disabilities more equitable by correlating it to wage loss. It found that the current schedule is, for the vast majority of claims, not related to wage loss even though the purpose of the system is to compensate for lost wages.

But PPD claimants compared with workers who have not been injured receive "substantially lower wages" and face more unemployment, Rand found. It also found that workers comp benefits compensate for only a "small fraction of wage loss for the vast majority of workers with minor permanent partial disabilities."

In the first five years after reporting an injury, workers lose 40% of their wages, yet get less than half that amount back in benefits. They suffer economic losses indefinitely.

An overhaul based on those findings could be a "horrendous cost driver," Ms. Dulich said. She fears that to reach its conclusion that many workers do not return to similar jobs after an injury, Rand overlooked the transient nature of lower-paid workers in fields like the hotel industry.

"It is not uncommon for one of our associates who has a minor disability to not come back to work for us, because they are working for several other employers (during the same period) and they really don't have a need to come back to work for us," she said.

Mark Webb, vp for the American Insurance Assn. regional office in Sacramento, points out that Rand relied on data taken during several years when California was in the midst of a severe recession. Recession-year data is questionable because laid-off workers tend to file more claims and behave differently regarding workers compensation to make up for job losses, he said.

The AIA is also critical of Rand's assumption that the purpose of PPD benefits is to replace lost wages. Legislators have never endorsed that notion, Mr. Webb said.

Additionally, the Rand study did not include data from self-insured companies, which typically are more successful at returning injured employees to work, Mr. Webb said.

Rand acknowledges its reliance on recession-year data is an issue of concern and is therefore recommending further study, Mr. Reville said. The organization needed five years of post-injury data and California has only recently moved out of its recession.

As for concerns that Rand did not weigh the transitory nature of low-wage workers, Mr. Reville said Rand compared the activity of injured workers to a control group of comparable employees working at the same companies at the same time as the injured workers.

It found that before an injury, workers were making the same wages and had similar work attachment as the control group. "And then at the time of the injury everything changes," he said.

He also said that by compiling data showing the inadequacy of the current rating system, Rand laid the groundwork for creating an improved system. Rand also made other recommendations such as implementing a fast-track system for compensating minor claims (BI, Nov. 3). But the AIA contends that recommendation could increase costs and resolution time by adding another layer to the system.

Meanwhile, the Sacramento-based Assn. of California Insurance Cos. filed a lawsuit Nov. 18 in Sacramento Superior Court against the Division of Workers Compensation. The suit seeks to stop the DWC from implementing its recent revision of the Permanent Disability Rating Schedule and alleges that the DWC acted illegally in implementing those changes (BI, Oct. 27).