How Will Workers' Compensation Reform Affect Future Claims Frequency and Costs?

On September 18, 2012 Governor Jerry Brown signed Senate Bill 863, a comprehensive workers’ compensation reform package that will result in significant changes. It is estimated to increase benefits to injured workers by more than $700 million while reducing frictional costs in the system by estimates as high as $1.2 billion. Studies reflect an overall savings of $770 million in the first year and $335 million in the second year. The overall savings continue to be debated and will ultimately depend on the effectiveness of the new regulations.

What Is Included in SB 863 Reforms?

The bill affects many aspects of the workers’ compensation system and will be implemented over the next two years. Important changes include:

Increased Permanent Disability Benefits to Injured Workers – estimated 40% overall increase
Elimination of Permanent Disability “add-ons” such as sleep dysfunction, sexual dysfunction and certain psychiatric claims
Creation of a new Independent Medical Review (IMR) process to resolve disputes over medical cost containment decisions
New fee schedules for medical providers, ambulatory surgery centers, home health care, interpreters and copy service
New procedures for liens
Fine tuning for MPN’s
Elimination of mandatory surgical second opinions

The Cyclical Nature of Reform

Major reform in workers’ compensation typically occurs every 7 to 8 years. There are usually immediate results in claim costs and frequency that can be measured primarily due to rate changes, adjustments to schedules, and caps on treatment and benefits. With time, however, there will be erosion of the new laws and regulations through litigation, case law, and “work arounds” not anticipated by the legislators.

The Task of Writing Regulations

Once a bill is signed into law regulators begin the task of writing new rules and procedures, developing new forms, and formulating new schedules. This must be done in a relatively short period of time in order to satisfy operational requirements for 1/1/2013 effective dates. The DWC has already announced the initial schedule for stakeholder working groups to begin discussing regulation proposals. The ultimate savings generated by the reform will hinge primarily on how quickly the regulations can be put in place and how effective they are implemented.

What Can We Expect Now that SB 863 is Law?

With the wide range of changes included in SB 863 there will likely be both immediate and long-term responses from the workers’ compensation community. There may be an increase in liens filed by providers who will want to file under the old rules. Any time there is a benefit rate increase there could be an uptick in the number of claims filed. New litigation will definitely occur as the parties begin to sort out the details of the new law and regulations.

Often with new procedures, new cottage industries will spring up in response to the new requirements. There will likely be additional drivers generated in response to the new regulations that were not even contemplated in the original conception of this bill. We may also see constitutional challenges to the new law, particularly as a result of the new Independent Medical Review (IMR) process, which limits the avenues of appeal. The impact of SB 863 will become clearer as the details of the bill continue to develop.

How Will Workers’ Compensation Reform Affect Future Claims Frequency and Costs?