California Commission on Health and Safety
and Workers' Compensation 

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CHSWC and AB 749

Prepared for the Commission by

Charles Lawrence Swezey, CHSWC Consultant

CHSWC Members
Tom Rankin, Chair
Allen L. Davenport
Jill A. Dulich
Leonard C. McLeod
Kristen Schwenkmeyer
Robert B. Steinberg
Darrel "Shorty" Thacker
John C. Wilson

Christine Baker
Executive Officer

February 2002


Commission on Health and Safety and Workers’ Compensation

CHSWC AND AB 749

Assembly Bill 749, which was signed by the governor on February 15, 2002, and becomes effective on January 1, 2003, is the first major workers' compensation legislation since the 1989 and 1993 reform acts. It affects the Commercial and Insurance Codes and amends over 50, repeals five, and adds 17 sections of the Labor Code. Although the bill's major focus is on increasing benefits for injured workers, it also rectifies many reform act provisions that have not effectively served their intended purpose.

One provision of the 1993 act that has been effective was the creation of the Commission on Health and Safety and Workers' Compensation. CHSWC was directed to conduct a continuing examination of the workers' compensation system by conducting or contracting for necessary studies. Pursuant to this mandate, CHSWC studied and made recommendations on many facets of the system including the treating physician presumption, "baseball arbitration," pharmaceutical costs, adequacy of medical reports for permanent disability rating, lien claims, penalties, information for injured workers, audit procedures, and uninsured employers. The CHSWC recommendations on all of these subjects were adopted, in whole or in part, in the new legislation, and CHSWC was ordered to conduct studies or advise the administration on several other subjects.

Benefit Increases

The minimum weekly payment for temporary disability has been restored and will be $126 as will be the new minimum for permanent total disability. The maximum for both will be $602 for injuries in 2003, $728 in 2004, and $840 in 2005. Beginning in 2006 both the maximum and the minimum will be increased annually by the percentage of increase in the statewide average weekly wage. If a minor's probable earnings at age 18 cannot reasonably be determined, the average weekly earnings will be maximum.

For permanent partial disabilities less than 70 percent, the minimum increases to $100 and the maximum to $185 for injuries in 2003, $105 and $200 for 2004 injuries, $105 and $220 for 2005 injuries, and $130 and $230 for 2006 and later injuries. For 70 percent or greater ratings the minimums and maximums will be $100 and $230 for 2003 injuries, $105 and $250 for 2004, $105 and $270 for 2005, and $130 and $270 for injuries on or after January 1, 2006.

For injuries after 2003, the number of weeks of permanent disability payments has been increased for permanent disabilities less that 20 percent. Four weeks will be allowed for permanent disabilities under 10 percent and five weeks for 10 to 19-3/4 percent ratings. [CHSWC studies of the wage loss of permanently disabled workers by RAND showed that workers with low ratings suffered greater uncompensated wage losses.]

Weekly life pension payments for injuries after 2005 will be double the current amount.

 

Death benefits for injuries after 2005 will be:

$290,000 for two total dependents regardless of the number of partial dependents and for one total dependent and one or more partial dependents;

$250,000 for one total dependent and no partial dependents; and

$320,000 for three or more total dependents regardless of the number of partial dependents.

The death benefit for partial dependents if there are no total dependents will be eight times the amount annually devoted to the support of the partial dependents but not more than $250,000. If there are no dependents, $250,000 will be paid to the estate of the deceased employee. Surviving parents will be conclusively presumed wholly dependent if there are no other dependents. Death benefits to dependent incapacitated children will continue for their lives.

Procedural Changes

Procedural changes that were recommended by CHSWC were a restriction or repeal of the 4062.9 presumption of correctness of the treating physician's determinations and elimination of "baseball arbitration."

For injuries after 2002 the 4062.9 presumption will only apply to the findings of personal physicians or personal chiropractors predesignated before the injury. Section 4065, which required WCJs and the Board to choose between permanent disability ratings proposed by the parties and to adjust medical-legal costs according to which was chosen, has been repealed.

Other procedural changes permit an unrepresented employee that obtains an attorney after an evaluation under 4061(d) or 4062(b) to obtain the same reports at employer expense as an employee "that has been represented from the time the dispute arose." The additional reports are admissible, and the employer will have a corresponding right to secure an additional QME.

Provision will also be made for priority conference calendars and expedited hearings for cases in which the applicant is represented and the disputed issues are employment or injury. The disputes that must be arbitrated have been reduced to insurance coverage and contribution.

Organizational Changes

A major organizational change that did not result from a CHSWC study is the creation of the new position of a court administrator that will manage "the workers' compensation adjudicatory process at the trial level." The court administrator will be appointed by the Governor but hold office at the pleasure of the administrative director. Some of the functions of the court administrator will be approving or disapproving honoraria for WCJs, furthering uniformity and expeditiousness of trial proceedings, assuring that all WCJs are qualified and adhere to deadlines, adopting uniform rules for district office procedure, establishing uniform district office procedures, uniform forms, and uniform time of settings for all WCAB district offices, and taking reasonable steps to enforce those rules. Although WCJs will continue to be appointed by the AD, they will be supervised by the court administrator.

Provision for settlement conference referees has been repealed, but WCJs appointed after 2002 must be attorneys licensed to practice law in California for five or more years prior to appointment and have experience in workers' compensation law. All WCJs are made subject to the jurisdiction of the Commission on Judicial Performance.

A study of the WCAB judicial function by RAND for which CHSWC contracted is nearing completion, and among the organizational changes in the new law is express authority for the AD to employ necessary personnel "to implement new, efficient court management systems."

CHSWC will now be funded from the Workers' Compensation Administration Revolving Fund rather than exclusively from "ghost writing" (Labor Code 4628) and audit penalties. The Workplace Health and Safety Fund has been abolished, and audit and 4628 penalties will now be deposited in the administration revolving fund.

Medical Care

CHSWC studies of the quality of medical reports confirmed that many, particularly those of treating physicians, did not provide an adequate description of disability for rating purposes. AB 749 requires the administrative director, in consultation with the IMC, to develop educational materials to give treating physicians information and training in basic concepts of workers' compensation, the role of the treating physician, the conduct of permanent disability evaluations, and report writing.

The procedures by which employers and insurers contract with health care organizations to provide medical treatment to injured workers have been simplified. Among other things, it is no longer necessary to offer more than one HCO nor one that is compensated on a fee for service basis. The provision that an employee receiving employer provided health care from the same HCO that provides treatment for industrial injuries may be treated by a physician of his or her own choice only after 365 days has been eliminated.

The administrative director must adopt rules requiring medical bills to be on standardized forms, requiring employers to accept "electronic claims for payment of medical services," but protecting the confidentiality of medical information on the electronic claims.

Lien Claims

CHSWC did an extensive study of the lien claim backlog in some WCAB district offices and had several lien resolution roundtable sessions attended by interested members of the workers’ compensation community.  In its 1999-2000 Annual Report, the commission recommended that statutory limitations be placed on the filing of lien claims. 

New 4903.5 provides that no liens for medical or medical-legal expenses may be filed more than six months after a final decision on the merits of the injured worker's claim, five years after the injury, or one year from the date the services were provided, whichever is later. An exception is made in the case of health care providers, health care service plans, group disability insurers, employee benefit plans, and other entities that provided medical benefits on a nonindustrial basis. They may file a lien claim within six months after their first knowledge that an industrial injury is being claimed. 

Pharmaceutical Costs

Essentially following the recommendations of a CHSWC study, new 4600.1 and 4600.2 control the cost of pharmaceuticals. Pharmacies providing medicines and medical supplies for injured workers will dispense a generic drug equivalent unless the prescribing doctor states otherwise in writing. Employers and insurers are authorized to contract with pharmacies or pharmacy benefit networks to provide medicines and supplies to injured employees pursuant to standards adopted by the AD. The contracts may not affect the ability of employee-selected physicians to prescribe medicines and supplies that the physicians deem reasonably necessary and must require access to a pharmacy within a reasonable distance from an injured worker's home.

The AD will also adopt an official pharmaceutical fee schedule establishing maximum fees for medicines and medical supplies provided to injured workers. The schedule must include a single dispensing fee and provide for access to a pharmacy within a reasonable distance from the worker's home.

Outpatient Surgery Facilities

CHSWC is currently conducting a study of facility charges for outpatient surgeries. It is expected that the results will be useful for the administrative director in complying with the mandate of new 5307.21 to develop an outpatient surgery facility fee schedule that will include all facility charges for outpatient surgeries performed but not the fees of the doctors providing services in connection with the surgery. The fees allowed must be sufficient to cover the costs of each surgical procedure, minimize administrative costs, and ensure access to outpatient surgery services by injured workers.

Penalties

CHSWC staff and contracted researchers did a study of 5814 penalties and their application. The commission approved the report but made no recommendations for legislative action. Nevertheless, 5814 was amended to state that multiple increases may not be awarded for repeated delays in making a series of payments due for the same type of benefit unless there has been a legally significant event between the initial delay and the subsequent delay.

Labor Code 5814.5 has been amended to provide for an award of reasonable attorneys' fees for enforcing the payment of compensation found to have been unreasonably delayed or refused subsequent to an award against all employers, not merely against only self-insured public entities as at present.

A delay in the negotiation of a written instrument caused by application of banking laws or regulations is not subject to penalty, but the administrative director, with the assistance of CHSWC, must propose how to provide better access to funds in light of the requirements of laws and regulations governing the negotiability of disability indemnity payments.

Return to Work Programs

In February 2001, CHSWC and DWC hosted a Forum for Workplace Safety at which the latest research on return to work was presented and discussed. Literature reviews on facilitating, and barriers to, return to work were completed and continue. In its 2000-2001 Annual Report CHSWC recommended that return to work as soon as feasible be promoted and suggested ways of accomplishing it.

New Labor Code 139.47 requires the establishment of a program to encourage employers to provide early and sustained return to work after industrial injuries. The program will develop educational materials, guides, and training for employers, health care providers, employees, and unions.

During the years 2004 through 2008, but only if funds are appropriated by the Legislature, the AD will maintain a return to work program that will reimburse employers for wages, workplace modification, and insurance premiums. The money for program will come from the Workers' Compensation Return-to-Work Fund. It is the intent of the Legislature that the reimbursement expense be funded from the premium tax funds collected under Revenue and Taxation Code 12201 "attributable to the compensation benefit rates and amounts set forth in the Revenue and Taxation Code." If the program goes into effect, the AD must contract with an independent research organization to study it.

Information for Injured Workers

Adopting most of the recommendations in the CHSWC report Information for Injured Workers (2000), the legislature added additional information to that required to be on the notice that 3550 requires employers to keep posted in a conspicuous location and to the notice that 3551 requires employers to give to all new employees. The exact content of the latter notice will be prescribed by the AD after consultation with CHSWC. The content of the notice will be made available to employers and insurers, and insurers will be required to provide it to policyholders, with advice concerning the penalties for a failure to provide it. The notice must include a form for notifying the employer of the name of the employee's personal physician designated to treat any industrial injury. 3552 which only required an employer to provide the form on request is repealed.

Labor Code 138.4 which provides for benefit notices has been extensively revised and defines claims administrator. Whenever an injury results in lost time beyond the work shift or need for medical treatment beyond first aid, the claims administrator will provide the injured worker with a claim form and a notice of potential eligibility for benefits in three working days unless it knows that the employer has provided it. If it cannot determine whether the employer has provided a claim form and notice, the claims administrator must provide the form and notice to the employee within 30 days of the administrator's knowledge of the claim.

In addition to the existing requirement for regulations on notices dealing with payment, nonpayment, or delay in payment of temporary disability, permanent disability, death benefits, and the provision of vocational rehabilitation services, the AD must now require notices of any change in the amount or type of benefits being provided, termination of benefits, the rejection of any liability, and an accounting of benefits paid. The legislature has assigned CHSWC the duty of making recommendations to improvement and simplify benefit notices, and a study of this is already under way.

Labor Code 5401 which requires employers to provide a claim form and a notice of potential eligibility for benefits to injured employees whose injury results in lost time or requires medical treatment beyond first aid has been amended to clarify the definition of first aid and to provide that, insofar as practicable, the notice and the claim form shall be a single document. The form and content of the notice and claim form will be prescribed by the AD after consultation with the CHSWC. Among the things that the notice must include are the procedure to be used to commence proceedings to collect compensation, what happens to the claim form after it is filed, the role and function of the primary treating physician, the right to change physicians, and the protections against discrimination.

Claims administrators will now be required to include the IMC form for requesting a panel of qualified medical evaluators with the permanent disability notices to unrepresented injured workers mandated by that 4061.

Audit Procedures

Adopting essentially all of the recommendations of CHSWC Report on the Division of Workers’ Compensation Audit Function (1998), AB 749 amends 129 and 129.5 to assure that each audit unit will be audited at least once every five years and that good performers will be rewarded. A profile audit review of every audit subject will be done at least every five years. Any audit subject that fails to meet a profile audit standard established by the AD will be given a full compliance audit. Any audit subject that fails to meet or exceed the full compliance audit performance standard will be audited again within two years. Targeted profile audit reviews or full compliance audits may also be conducted at any time based on information indicating that an insurer, self-insured employer, or third-party administrator is failing to meet its obligations.

To reward good performers, profile audit subjects that meet or exceed the profile audit review performance standard will not be liable for any penalties but will be required to pay any unpaid compensation. Full compliance audit subjects that meet or exceed standards will only be required to pay penalties for unpaid or late paid compensation and any unpaid compensation.

To mitigate inequality between total penalties assessed against small and large audit subjects, the size of the audit unit will be considered by the AD in developing the penalty schedule. Audit subjects that fail to meet the full compliance audit performance standards will be assessed penalties as provided in a schedule adopted by the AD.

Labor Code 129.5(e) is amended to provide for civil penalties up to $100,000 if an employer, insurer, or third-party administrator has knowingly committed or (rather than and) has performed with sufficient frequency to indicate a general business practice acts discharging or administering its obligations in specified improper manners. Failure to meet the full compliance audit performance standards in two consecutive full compliance audits will be rebuttably presumed to be engaging in a general business practice of discharging and administering compensation obligations in an improper manner.

Review of the civil penalties assessed will be obtained by written request for a hearing before the WCAB rather than by application for a writ of mandate in the Superior Court. Judicial review of the Board's findings and order will be as provided 5950 et seq.

Penalties collected under 129.5 and unclaimed assessments for unpaid compensation under 129 will be credited to the Workers' Compensation Administration Revolving Fund.

Uninsured Employers

Following recommendations in the CHSWC report Employers Illegally Uninsured for Workers’ Compensation – CHSWC Recommendations to Identify Them and Bring them Into Compliance (1998) and several solutions developed in the course of meetings of the Uninsured Employers Task Force and Round Table, but not included in the report, new 90.3 declares that it is the policy of the state to vigorously enforce the laws requiring employers to secure the payment of compensation and to protect employers that comply with the law from those that attempt to gain a competitive advantage at the expense of their workers by failing to secure the payment of compensation.

Pursuant to this policy, the investigations undertaken by the Labor Commissioner's field enforcement unit will concentrate on industries, occupations, and areas with high rates of non-insurance as well as those in which employees are relatively low paid and unskilled and in which there has been a history of other labor law violations.

The Labor Commissioner will also be required to "target" employers in industries with the highest incidence of uninsured employers from data from the Uninsured Employers' Fund, the Employment Development Department, the California Workers' Compensation Insurance Rating Bureau, and other sources. Employers with payroll but no record of workers' compensation coverage will be contacted, and if they have no valid reason for the lack of record of coverage, they will be inspected on a priority basis.

Whenever an employer has been uninsured for over a week, a penalty assessment will be made requiring the uninsured employer to pay the greater of (1) twice the amount the employer would have paid in premiums during the period the employer was uninsured, or (2) $1,000 for each employee employed during that period.

Willful failure to secure payment of workers' compensation is added to the crimes for which the Department of Insurance and district attorneys can receive moneys from the Workers' Compensation Fraud Account to investigate and prosecute.

Fraud

Making or causing a false statement to obtain or deny any of the benefits or reimbursement provided in the Return-to-Work Program (Labor Code 139.48) or to discourage an employer from claiming any of the benefits or reimbursement provided in that program is added to the definition of workers' compensation fraud.

The membership of the Fraud Assessment Commission is increased to seven (two representatives of organized labor, two of self-insured employers, one of insured employers, one of insurers, and the president of the State Fund or a designee). The specific manner in which the Director of Industrial Relations will levy and collect from employers the amount determined necessary by the Fraud Assessment Commission for the fraud account is described.

The Bureau of State Audits is directed to evaluate and report to the legislature on the effectiveness of the Fraud Assessment Commission, the Bureau of Fraudulent Claims, the Department of Insurance, the Department of Industrial Relations, local law enforcement agencies, and district attorneys in identifying, investigating, and prosecuting workers' compensation fraud and willful failure to secure payment of workers' compensation.

The civil penalties for fraud and solicitation provided in 3820 are increased. New 3822 requires the AD annually to warn every employer, claims adjuster, third party administrator, physician, and attorney that participates in the workers' compensation system against committing workers' compensation fraud and to specify the penalties.

Vocational Rehabilitation

An employer and a represented employee will be able to settle the employee's right to prospective vocational rehabilitation for not over $10,000 for "use in self-directed vocational rehabilitation" if the settlement is approved by the vocational rehabilitation unit after finding that the employee "knowingly and voluntarily agreed to relinquish his or her rehabilitation rights." A settlement may only be disapproved if the RU finds that rehabilitation services are necessary to return the employee to suitable gainful employment.

Loss Control Services

It will no longer be necessary for insurers to have their occupational safety and health loss control consultation services certified by the Director of Industrial Relations, but they must continue to offer services that are adequate to identify the hazards exposing the insured to significant workers' compensation losses, and to advise the insured of steps needed to mitigate the losses.

In place of the certification program, there will be a loss control services coordinator who will inform employers of the availability of loss control consultation services and respond to their questions and complaints about the services provided by their insurer. If an employer and an insurer are unable to agree on a solution to a complaint, the coordinator will investigate and recommend action necessary to bring the loss control program into compliance. The cost of providing the coordinator services will come from the Workers' Occupational Safety and Health Education Fund, but no more than 20 percent of that fund may be expended annually for that purpose.

The remainder of the fund, which will be financed by assessments on insurers, will be expended by CHSWC for a worker occupational safety and health training and education program to promote awareness of the need for prevention education, to develop and provide injury and illness prevention education programs for employees, and to deliver these programs through a statewide network of providers. The programs may be conducted directly by CHSWC or by contracts or interagency agreements. An employer and worker advisory board will guide development of curricula, teaching methods, and specific occupational safety and health course material. This board will also assist in providing links to the target audience and broadening partnerships with worker, labor, and other organizations able to reach the target audience.

The curricula will include the elements of prevention programs and hazard communication. Additional training will be provided for industries on the high hazard list, hazards causing significant worker injuries or compensation costs, industries or trades with numerous or significant injuries, groups with special needs (such as language barriers or limited literacy), young workers, and other traditionally underserved groups of workers. Priority will be given to training workers able to train others and workers with health and safety responsibilities. The program will operate libraries and distribution systems for occupational safety and health training material.

Insurance

The Speaker of the Assembly and the President pro Tempore of the Senate, or their designees, are added to the board of directors of the State Compensation Insurance Fund as ex officio, nonvoting members. The voting members must have been policyholders (or employees or members of a policyholder) for a year immediately preceding appointment, and must continue in this status during the entire term as director.

All advertisements of the Fund must state "The State Compensation Insurance Fund is not a branch of the State of California." The Fund may commission an independent study, with the assistance of an investment banking firm, to determine the feasibility of the Fund's issuing bonds or securities. Fund reserves will be invested "in a way as to realize the maximum return consistent with safe and prudent management practices" rather than the current 3-1/2 percent.

Several obsolete provisions relating to the Fund are amended to reflect current realities, e.g., premium rates will be set by the board of directors rather than by the Industrial Accident Commission. The Fund need no longer file its rates with DIR and all county and city clerks.

Insurance companies are authorized to increase rates on policies issued before January 1, 2003, up to the pure premium rate increase approved by the Insurance Commissioner reflecting the cost of the change in benefit levels authorized by AB 749.

Miscellaneous Provisions

The portions of Labor Code 3762 restricting the medical information that an insurer or third-party administrator may give to the employer have been amended to make permissible the diagnosis of the mental or physical condition for which compensation is claimed and the treatment provided for the condition in addition to medical information necessary for the employer to have in order to modify the employee's work duties.

New Labor Code 3201.7 permits carve outs in the aerospace or timber industries. The provisions are essentially the same as those in 3201.5 (construction industry carve outs), but there is an added requirement that an employer include with its original application an agreed framework for implementation of their alternative system.

Commercial Code 9109 is amended to exempt from the definition of security interest in personal property a claim or right of an employee or employee's dependents to receive workers' compensation benefits.

New CHSWC Functions

In drafting AB 749, the Legislature not only relied heavily on CHSWC studies and recommendations, but also directed CHSWC to provide on going advice to others. For example, the administrative director, in consultation with CHSWC and others, must conduct a study of medical treatment provided to injured workers covering the rising costs and utilization of medical treatment, case management, ways to attain early and sustained return to work, physician utilization, quality of care, outcome measurement, and patient satisfaction. Similarly, the AD, with the assistance of CHSWC and the Employment Development Department, must make recommendations regarding payments to migratory and seasonal farm workers.