Overview of Reform Legislation

On July 16, 1993, Governor Pete Wilson signed a package of bills that enacted major reform of California's workers' compensation system. These bills, AB 110 (Peace), AB 119 (Brulte), AB 1300 (W. Brown), SB 30 (Johnston), SB 484 (Johnston), SB 983 (Greene) and SB 1005 (Lockyer), together with cleanup legislation enacted later that year (SB 223, Lockyer), produced a sweeping reform of the system.

This legislation was designed to rein in the cost of a workers' compensation system that many believed to be out of control, causing too much to be spent on litigation, medical and medical-legal costs and causing too little to reach the pockets of injured workers.

The primary purposes of the law were to

• reduce insurance costs by deregulating workers' compensation insurance rates and eliminating the minimum rate law;
  

• decrease the cost of medical care by tightening the medical fee schedule and increasing the use of managed care for workers' compensation cases;
  

• cut the cost of medical-legal evaluations and reduce the number of evaluations obtained in disputed cases;
  

• decrease overall compensation costs by requiring a greater emphasis on workplace safety, especially among high-hazard employers;
  

• limit the cost of vocational rehabilitation by capping the benefit at $16,000;
  

• streamline adjudication procedures;
  

• reduce the compensability of psychiatric and post-termination claims; and
  

• increase penalties for workers' compensation fraud.
  

These changes were estimated by the Legislature to produce at least $1.5 billion in annual savings for California employers. Half of these savings (about $750 million) were to be returned to injured workers in the form of higher temporary and permanent disability benefits phased in over three years.

Impact of Reform on Workers' Compensation Community

The Commission believes that the workers' compensation reform legislation has made significant positive changes, including a decrease in the number of claims, a decrease in fraud, reduction in medical-legal vocational rehabilitation costs, reduction in psychiatric claims, and reduced premium levels.

The Commission believes that further innovations are needed to make improvements in the quality of benefits and services to injured workers, in the quality of medical report used for disability evaluation, in medical quality and cost control, and to meet the Constitutional mandate to provide service to injured workers which is "expeditious, inexpensive, and without encumbrance of any kind."

Impact of Reform on Workers

The Commission is concerned with the impact of the workers' compensation reform legislation on California workers. The Commission is taking several approaches to monitor how changes in the workers' compensation system are serving injured workers.

Temporary and Permanent Disability Benefit Increases

The workers' compensation reform legislation directly affected injured workers by providing benefit increases estimated to amount to $750 million over three years. The maximum weekly disability payments increased as follows:

Benefit Delivery

The Commission realizes that, if the injured worker is to be served well by the system, he or she must be aware of his or her rights and responsibilities under the changing workers' compensation program. To address this issue, the Commission decided to evaluate information services provided to injured workers by the Department of Industrial Relations and other participants in the workers' compensation system.

The Commission contracted with UC Berkeley's Labor Occupational Health Program (LOHP) to evaluate these services.

Information Services to Injured Workers project

This study examined information services provided by various governmental and private organizations designed to inform injured workers and assist them with their claims.

Conducted by the Labor Occupational Health Program at the University of California at Berkeley under contract with the Commission, the project was designed to assess the efficacy of information services currently available to the injured worker, analyze the strengths and weaknesses, and recommend ways to improve those services.

The project team worked with a volunteer project advisory committee consisting of Information and Assistance officers from the Division of Workers' Compensation, representatives from the Department of Industrial Relations, labor union representatives, injured worker organizations, applicant and defense attorneys and employer and insurance company representatives.

The methods used to evaluate information services consisted of focus groups of injured workers, discussion groups of I & A officers, individual interviews with other participants in the system, and review of information and assistance programs in other states.

The project findings include the following:

• Workers need to know at time of employment and again at time of injury what the workers' compensation program is, what steps they need to take, what they can expect in the process, and how they can receive information and assistance.

• Injured workers and system stakeholders both indicate that the workers' compensation system is too complex and very difficult to understand.

• Lack of coordination between state agencies and service providers in information provision appears to result in confusion and incomplete information needed by injured workers.

• Small employers may need additional information to assist them in carrying out their obligations in the complex workers' compensation system.

• Job insecurity and potential discrimination in employment are cited as major concerns of injured workers.

In August 1996, the Commission released the Injured Worker Study report entitled "Navigating the California Workers' Compensation System: The Injured Workers' Experience". The report, available upon request from CHSWC at no charge, is also accessible on the DIR-CHSWC web site on the Internet.

Workers' Compensation Information Prototype project

Pursuant to its findings from the "Information Services to Injured Workers" study, UC Berkeley's Labor Occupational Health Program proposed a project to create an informational video for injured workers and written information on workers' compensation for all workers.

The project is developing seven fact sheets in both English and Spanish designed for all workers, i.e., uninjured workers and workers who are at various stages of a claim. Topics include

• Before You Get Hurt on the Job

• After You Get Hurt on the Job

• Temporary Disability Benefits

• Permanent Disability Benefits

• For More Information

• Hurt on the Job?: Information Alert for Teens
  

The instructional prototype video -- "Introduction to Workers' Compensation" -- will provide a general introduction to workers' compensation that would be applicable to injured workers who are just entering the workers' compensation system. It will explain the basic terms, acronyms, and benefits in workers' compensation, the chronology of a typical claim, steps the injured worker should take, and available resources. The video will be accompanied by a fact sheet that will allow injured workers to retain some of the essential information shown in the video.

The Commission is working with DWC and an Advisory Group from the workers' compensation community to provide recommendations for such materials. The Advisory Committee has met several times and is in the process of reviewing proposed fact sheets and video script. The project is expected to be completed by the end of 1997.

CHSWC Educational Conference for Workers

At its April 1997 meeting, the Commission voted unanimously to sponsor a one day "Workers guide to Workers' Compensation" educational conference, tentatively scheduled for May 1998. The prototype informational materials will be presented and distributed to the community and the public.

Impact of Reform on Employers

The reform legislation affected California employers in two significant ways. The elimination in the workers' compensation minimum rate law has resulted in lower premiums and the passage of a group of provisions known as the "employers bill of rights" has given employers more information and control over workers' compensation claims.

Employer Bill of Rights

The provisions of the 1993 reform legislation known as the "employer bill of rights" are summarized as follows:

• Limits the grounds for cancellation of a workers' compensation insurance policy;
  

• Requires insurers to provide employers with certain information about claims, loss experience and rates;
  

• Creates the position of policyholder ombudsman to help employers obtain policy information;
  

• Requires employers to notify insurers of information that may help disprove claims;
  

• Requires insurers to provide employers with information regarding claims, reserves and offers to settle claims;
  

• Permits employers to insure themselves for workers' compensation obligations through a group self-insurance mechanism.
  

Before the implementation of these provision, insurers would not disclose its reserves on workers' compensation cases to employers. Yet the larger the reserve, the larger the employer's experience modification would be resulting in a higher premium charged.

Premium Rates

The reform legislation repealed California's 80-year-old minimum rate law as of January 1, 1995, and replaced it with an open-competition system of rate regulation in which insurers set their own rates based on advisory loss costs developed by the Workers' Compensation Insurance Rating Bureau. This transition to what is termed "open rating" has intensified competition among insurers and so far appears to be driving rates down even further.

The California Insurance Commissioner ordered a seven-percent reduction in the workers' compensation minimum rate on July 16, 1993, then a 12.7 percent cut effective January 1, 1994 and another 16 percent cut on October 1, 1994.

On October 13, 1995, Insurance Commissioner Chuck Quackenbush approved an 11.3% increase in the advisory pure premium rate for 1996.

Although the WCIRB recommended a 2.6 percent decrease in the pure premium advisory rates, on October 22, 1996 the Insurance Commissioner approved a 6.2 percent decrease effective January 1, 1997. Insurance Commissioner Quackenbush indicated that this reduction was due in part to several aspects of the 1993 reforms: the fight against fraud which has reduced costs; an increased attention to workplace health and safety which has led to a decrease in injuries and claims; and the abolition of the minimum rate law.

On July 29, 1997, the WCIRB filed for a 3.5 percent decrease with the Department of Insurance for 1998 pure premium rates.

Elimination of Minimum Rate Law (Open Rating)

The potential impact of the elimination of the minimum rate law to the California economy has been predicted to be in the millions of dollars by lowering total workers' compensation premiums paid by businesses. The Commission is concerned with the effect of the elimination of the minimum rate law on both employers and employees.

Some observers continue to question how long insurers can maintain such low rates before concerns about profitability push rates up again. And, the issue of insurer insolvency is periodically raised. Industry analysts also worry that in order to offer competitive rates, insurers are feeling pressure to cut expenses in areas that help contain workers' compensation costs, such as loss control services, fraud investigation and claims adjustment.

Executive Summary: Findings and Recommendations

Section I The Commission on Health and Safety and Workers' Compensation

Section II Reform Legislation Impact on the Workers' Compensation Community

Section III Workers' Compensation Issues

Section IV Health and Safety Issues

Section V Program and Agency Operations

Section VI Commission's Future Activities

Acknowledgments