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December 11, 2012

The New Year Is Upon Us

Summary:

If the California workers' compensation community understands what SB 863 will and will not do on January 1 and in 2013, 2014, and 2015, SB 863 might be the elusive long-term reform generations of employers and workers have wanted for so many decades.

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January 1 is going to be a day like none other in recent memory for the California workers’ compensation system. Most of the provisions of Senate Bill 863 (De León) will be operative. A flurry of regulatory initiatives near the end of this year will allow implementation of many of these provisions. There will be considerable confusion and costs associated with these new laws and procedures as they come on line. The goal and hope of virtually all in the system will be that in time the objectives of this major legislation will be met, and we will have a system that is more efficient and better aligned than what resulted from the last major reforms in 2003 and 2004.

Those in charge of implementing this legislation — largely in the Department of Industrial Relations and Division of Workers’ Compensation — have done an admirable job dealing with the intent and inherent conflicts in this new law. Their outreach through various forums — though maddening from a timing standpoint — has greatly assisted the community in its understanding of all the various nuances of SB 863 and its interaction with a voluminous body of regulations and court decisions already existing and in many cases left unaffected by this legislation. There are limits to what the Division can do, and those limits are largely set forth in the Labor Code as it will exist on January 1. Those who think that the regulatory process is a second bite at the apple to deal with issues inartfully drafted or largely ignored in the legislative process are going to be disappointed.

There is a debate as to whether SB 863 will reduce costs in 2013 and by how much. The benefit increases are hard dollar increases, while the various reforms intended to produce savings and offsets require both effective implementation and accurate analysis. They also take time. This dynamic is at the core of Commissioner Jones’ November 30th pure premium order. The Commissioner’s decision clearly showed, as did the actuarial analyses presented to him, that the reforms are mitigating the increased costs in the system from day one. It is equally clear that until there is experience under the reforms and the reforms are fully implemented, the full measure of savings cannot be completely or accurately estimated.

Prior reforms, specifically Assembly Bill 227 (Vargas) and Senate Bill 228 (Alarcon), combined system changes, such as mandatory utilization review, with well-defined elimination or reduction of benefits. These 2003 measures eliminated vocational rehabilitation and capped chiropractic treatments — changes that were easily quantifiable the moment the ink dried on then Governor Gray Davis’ signature. The next year, Senate Bill 899 (Poochigian) added reforms to medical control and permanent disability rating that quickly manifested additional considerable savings in medical and indemnity losses, but also resulted in higher loss adjustment and medical cost containment expenses. And, as we saw with the Almaraz, Guzman, and Ogilvie decisions, reforms of the permanent disability system eroded significantly once reshaped by the Courts.

SB 863 is an investment both in our injured workers and California’s businesses. It is a long-term investment. Measuring the return on that investment by new and renewal quotes for January 1, 2013 insurance policies is simply a mistake. This legislation was never intended to provide significant immediate cost savings. It is intended, however, to provide savings to more than offset the two years of benefit increases the Legislature adopted and Governor Brown signed into law once the most significant reforms are fully operational. The workers’ compensation community is served best by understanding what the new laws do — and don’t do — on January 1, and on July 1, and in 2014 and, ultimately, 2015. If we don’t do that, then this effort will just be the latest in a series of well-intentioned, but ultimately futile, efforts to return this system to its original promise. If we do, however, SB 863 might be the elusive long-term reform generations of employers and workers have wanted for so many decades.

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