HR Management & Compliance

Workers’ Compensation: Governor Signs Reform Package, Employers to Soon See Savings

Gov. Davis has signed landmark legislation to reform California’s troubled workers’ compensation system and put a lid on the upward spiral in workers’ comp costs faced by California employers. And now, after having pored over the numbers, the Workers’ Compensation Insurance Rating Bureau (WCIRB) has recommended that the 12 percent pure premium rate increase scheduled for Jan. 1, 2004, be cancelled—and that the pure premium rate in effect as of July 1, 2003, be rolled back by 2.9 percent. Insurance Commissioner John Garamendi pointed out that the WCIRB estimates are conservative because they don’t account for savings that may be attained from new fraud controls and treatment guidelines, and additional hearings will be held to determine whether further rate reductions are appropriate.

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Reform Measures

Here’s a rundown of the key provisions of the legislation:


  • Rate setting and filing. For the period Jan. 1, 2004, through Dec. 31, 2004, insurers may not use rates any higher than the rates they had in effect on July 1, 2003. Also, for policies beginning on or after Jan. 1, 2004, rates filed by insurers must take into account the projected savings from the legislation as projected by the WCIRB. The legislation also requires the insurance commissioner to maintain information on its website comparing the rates of the 50 companies writing the highest volume of business in California, thus giving employers a tool to compare rates and coverage.


  • Medical utilization. The Division of Workers’ Compensation (DWC) must adopt a medical utilization schedule that, among other things, caps the number of chiropractic and physical therapy visits at 24 each. Plus, every employer must establish a utilization review process, either directly or through its insurer. The utilization review program must comply with specific time frames for making decisions regarding medical treatment recommendations.


  • Medical fee schedules. The DWC must adopt, and periodically revise, new medical fee schedules setting reasonable maximum fees for medical services, drugs, fees, and goods. The fees generally must not exceed 120 percent of fees allowed under the Medicare fee structure.


  • Vocational rehabilitation repealed. The legislation repeals the existing vocational rehabilitation law, which allowed up to $16,000 in benefits for worker retraining. The bill replaces the vocational rehab program with a voucher system—called a ‘supplemental job displacement benefit’—for education-related retraining or skill enhancement for injured workers with permanent partial disability who don’t return to work for the employer within 60 days of temporary disability termination. The new program applies to injuries suffered on or after Jan. 1, 2004.Vouchers are worth between $4,000 and $10,000, depending on the severity of the injury. Within 10 days of the last temporary disability payment, employers must provide notice of these new rights to the employee by certified mail. An employer won’t be liable for the supplemental job displacement benefit if it offers, and the employee rejects, modified or alternative work that meets the employee’s work restrictions and lasts at least 12 months. Workers’ comp attorney Jim Libien of Laughlin, Falbo, Levy and Moresi of Oakland, points out that the new law gives employers just 30 days after temporary disability payments end to make the offer, so employers will have to be vigilant to avoid missing the deadline.


  • Fraud. The legislation cracks down on workers’ compensation fraud by boosting the penalty for fraud to the greater of $150,000 or twice the amount of the fraud, up from the current cap of $50,000 or twice the amount of the fraud.


  • Physician financial interest. The law adds outpatient surgery to the list of medical goods and services for which it’s illegal for a physician to refer an injured worker if the physician, or their immediate family, has a financial interest in the person or company receiving the referral.


  • Generic medicines. Anyone dispensing medicine and medical supplies to an injured worker would have to provide the generic drug equivalent.


  • Payments. Employers would now have 45 days, instead of the current 60 days, to submit payment to a physician who has provided medical treatment to an injured worker, but employers whose payments are late will be faced with higher penalties. Government employers have 60 days to submit payment.In addition, employers must begin accepting electronic claims for payment by July 1, 2006, and those payments would be due within 15 days of being submitted.


  • IIPP reviews.Workers’ comp insurers must conduct a detailed review of an employer’s injury and illness prevention program within four months of the start of the initial policy term.


  • State Fund. The well-being of the State Compensation Insurance Fund, which is California’s biggest workers’ comp insurer, would be bolstered by a provision exempting it from hiring freezes and staff cutbacks required of other public agencies.


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