The Insurance Report - April 2005

FINALLY SOME REFORM
By Roland L. Enz - President, California Plus Insurance Service, Inc.

California’s Workers’ Compensation is the oldest social program in the state. It was first established in 1911 as a voluntary program for employers. A compulsory system was established two years later as the Workers’ Compensation, Insurance and Safety Act of 1913. The Workers’ Compensation System has been revised and reformed repeatedly since its original passage. In 2004, Governor Arnold Schwarzenegger signed what was touted as Workers’ Compensation Reform, Senate Bill 899. The system has grown increasingly complex and expensive, and it remains to be seen if reform has been successful. There will be challenges from the legal and labor sectors.

Generally, the system pays medical payments and may replace lost income through temporary or permanent disability payments to those employees that were injured and/or disabled at work or who have had a work-related injury, industrial disease or occupational illness. Workers’ Compensation will pay for the medical treatment for injuries or illness if the injury occurred at work or the disease or illness was job-related, assuming that the injured worker is an employee and not an independent contractor who suffered an injury on the job. The system will also replace some of the worker’s lost wages or income if the injury or industrial illness was caused by a work-related activity. Coverage also provides for rehabilitation and/or job retaining.

In California, Workers’ Compensation is written through various insurance companies that choose to write this type of coverage. California also has a quasi government agency (mandated by the legislature) known as the State Compensation Insurance Fund. The Fund was created as a source of last resort. In the early 1990’s, Workers’ Compensation was deregulated. During those years, insurance carriers came into California in droves, writing Workers’ Compensation at drastic discounts. As the saying goes, what goes around comes around.

Workers’ Compensation in California was out of control, with the legal and medical industries reaping the benefits. Large monetary awards were awarded through our judicial system. Workers’ Compensation, as an insuring product, has a long tail and many claims do not come out until years later. Insurance companies lost their shorts. Many companies went out of business or just left the state. The State Compensation Insurance Fund became the only writer, for the most part, of compensation in the state, which caused it to grow by three fold.

Eventually, the California State Insurance Commissioner put the brakes on the Fund and mandated that they increase their reserves and reduce the volume. At that time, the state was set for Governor Schwarzenegger’s push for Workers’ Compensation reform. The “Governator” was poised to take action by taking the problem to the people in the form of a ballot initiative. The legislature came through just in time by passing SB899. This bill was touted as true reform and promised that the system would soon bring back competition and rates would decrease. Reform has taken place and there is some indication that rates will be reduced. What did reform bring to the employer and what limits did it bring to employees?

It is impossible to outline the changes that have come about in these reform packages in a one-page article. Overall, it has given the employer a larger say in the outcome of treatment and control. It also limits chiropractor, physical and occupational therapy visits by the employee. Benefits have increased, but scrutiny and limits are part of the program. Fee schedules are being adopted for services, capping medical expenditures.

If you are an employer, your existing Workers’ Compensation carrier will provide you with material that should be distributed to your existing (as well as to new) employees outlining the new benefits and changes in coverage. If you are an employee, your employer should have already provided these materials to you, or they should get them to you in the very near future.

After attending several Workers’ Compensation reform seminars, I am convinced that it is imperative that the employer should take a proactive position in their pre-employment practices, relating to the medical well being of their employees. Pre-employment medical screening should be on the top of your list to complete a new employee employment file. Outside providers are available that will provide this service. Reform limits any loss, if there was previous injury, to a percentage of any new injury. Pre-employment screening would indicate any previous injuries that may affect future Workers’ Compensation claims. The major points of reform are to reduce costs, provide service, eliminate fraud, and to return the injured employee back to work quickly.

If you have any comments or would like to discuss any other insurance-related issues, please feel free to contact me, Roland L. Enz, at California Plus Insurance Service in Modesto, California, by calling toll free 1-800-699-7101.