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Kelly Johnson, Silicon Valley/San Jose Business Journal
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Steven Greenhut, www.calwatchdog.com
Published in The Orange County Register
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John Duncan, California Department of Industrial Relations
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The case (Duncan v. Workers' Compensation Appeals Board) is being pressed by Department of Industrial Relations Director John Duncan under his role as administrator of the subsequent injuries benefits trust fund (SIF). (For additional coverage see Administration Seeks and Could Be Costly …)

At issue is when cost of living adjustments should be applied to the awards-- do they go back to date of injury, the date an injured worker actually becomes eligible for the benefits or January 1, 2004. In its en banc ruling the WCAB said it was the former, while the Sixth District Court of Appeal said it was the latter. The upshot of the appeals court's rationale, which was suggested by the California Applicants’ Attorneys Association in a brief, is that as we move further from that hard date the cost of cases will balloon with year's worth of COLA adjustments added on for years worth of inflation that occurred before the worker was injured.

Because the supreme court agreed to hear the case, the Appeals Court's ruling effectively ceases to exist while the case is pending. A ruling by the Supreme Court, however, is not expected anytime soon as it often takes the court a year and a half or longer to hear a case and issue a decision.

The California Workers' Compensation Institute recently released a report on the state Office of Self-Insurance Plans' latest data which found that workers' comp costs for public self-insureds increased for the third year in a row. The OSIP's initial summary of public self-insured data offered the first look at the number of claims, total loss payments, and total incurred (paid losses plus reserves for future payments) for the year ending June 30, 2009. The figures are compiled annually by California from workers' comp reports submitted by hundreds of public self-insured entities, including cities and counties, local fire, school, transit, utility, and special districts and joint powers authorities.

Even though the number of covered employees in the latest summary (2.1 million) was up 8 percent from FY 2008, the number of reported claims edged down 1.9 percent to 126,029. However, despite fewer claims, researchers found that public self-insureds' paid losses rose to $311 million, which was an increase of $11.6 million (3.9 percent) from FY 2008 data and up $51 million (19.6 percent) from the post-reform low of $260 million in FY 2006. Most of the increase in public self-insured loss payments over the past three years was fueled by growth in medical losses which have climbed 19.8 percent from the post-reform low of $1,073 to $1,285 last year, putting them back above the pre-reform level. The average indemnity paid per claim rose 6.4 percent from $1,112 to $1,183.

Researchers from the CWCI said incurred results for public self-insured employers tell a similar story. Comparing initial report data from the last six years shows California public self-insured's incurred losses rose from a post-reform low of $852 million ($369.4 million indemnity plus $483.5 million medical) in FY 2006 to $1.01 billion ($393.7 million indemnity plus $619.8 million medical) in FY 2009 -- up 18.9 percent in three years. The study noted that the increase in total incurred losses since the post-reform low reflects a slight increase in the number of claims reported at the first valuation combined with higher average incurred per claim, primarily on the medical side. In the past three years, average incurred medical per public self-insured claim is up 21 percent -- from $4,065 to $4,918 -- while average incurred indemnity has fluctuated less than $100 per claim over the last four years. Average incurred indemnity came in at $3,124 per claim for FY 2009, up less than 0.6 percent from the $3,106 level reported for FY 2006.

Read more at the WORKERSCOMP Forum homepage.

Claim costs are rising for California workers injured on the job in nondurable goods manufacturing, a new analysis has found.

The average amount paid on lost-time workers’ compensation claims for these workers increased 38 percent to $12,583 in 2007 from a low in 2005 of $9,140 following workers’ comp system reforms. That’s according to the California Workers’ Compensation Institute, an Oakland research organization backed by the insurance industry and self-insured employers.

The institute released results this week of its review of claims experience between 2000 and 2008 of workers who make “soft goods” items, such as clothes, food, cleaning products and plastic goods. The study looked at 136,742 job injury claims, totalling almost $1.78 billion.

The average amount paid on workers’ comp lost-time claims in the nondurable goods manufacturing sector declined briefly after major system reforms, but average payments are heading back up, the organization reported.

Workers in nondurable goods manufacturing made up 6.7 percent of all on-the-job injuries in the Golden State and 6.1 percent of paid losses between 2000 and 2008, the institute said. But the sector’s share of workers’ comp claims shrank toward the end of the review period, given that the manufacturing job base in California has been declining. In 2002 the sector represented 7.2 percent of claims and 7.7 percent of workers’ compensation loss payments. By 2008, the proportion dwindled to 4.4 percent of the claims and 3.8 percent of paid losses, the institute reported.

All the data reflects the year that claims occurred instead of employers’ policy year.

One of Schwarzenegger's first acts six years ago was bulldozing the Legislature into a sweeping overhaul of workers' compensation, reducing both eligibility for direct payments to disabled workers and medical care costs.

The system is so large that the legislation and the administration's subsequent implementation rules cut employers' costs by about $15 billion a year, or approaching $100 billion so far.

Workers' comp politics being what they are, however, the changes generated fierce opposition from those on the other end of the pipeline, namely unions, disability attorneys and medical care providers.

The latter have been trying for years to overhaul the overhaul. And with Schwarzenegger still resisting change, it's one of the important, if subliminal, issues of this year's election.

A Democratic Legislature certainly would be willing to undo much of what it wrought six years ago. In fact, a Democratic governor could undo much of it himself, since the portions of the overhaul that generate the most criticism are administrative rules that tighten access to benefits.

Under the 2004 legislation, Schwarzenegger's Division of Workers' Compensation was to have reviewed and amended the rules governing permanent disability eligibility, adopted in 2005, by Jan. 1, 2010. But the administration isn't complying.

The governor says that he won't do anything that would increase employers' costs in the midst of a severe recession. Goaded by the system's critics, Democratic legislative leaders have sent a letter to the workers' comp agency, complaining that the delay is "a flagrant violation of law and legislative intent."

The simmering workers' comp situation is complicated even more by two decisions of the Workers' Compensation Appeals Board that undermine the disability benefit rules – decisions that employers say plainly violate the 2004 legislation and the implementing regulations.

None of the Republican candidates for governor would likely agree to change, so the real question is whether Democrat Jerry Brown, if elected, would loosen up on workers' comp benefits.

There would be a certain irony in having it land on Brown's desk, since he attempted – and failed – to overhaul workers' compensation three decades ago during his first stint as governor.

His friend and legal adviser, Tony Kline, took on the job personally, famously telling workers' comp lobbyists that they were of no more importance "than a flea on a gnat's ass." When the lobbyists torpedoed Kline's effort, they began wearing lapel buttons saying, "Proud to be a flea."

In his final days as governor, however, Brown signed an increase in workers' comp benefits of $3 billion per year over employers' objections.

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Workers' compensation insurance costs continued to decline in California this year but could be pushed upward by two landmark decisions by the Workers' Compensation Appeals Board, a new report indicates.

States may not realize this is going to occur and may fail to compute it into their estimates of the cost of raising the maximum weekly benefit, wrote study author Frank Schmid, a senior economist with the National Council.

States can end up being unpleasantly surprised.

"Higher benefits mean lower opportunity costs of being away from work," said Schmid, explaining the relation he found. "Benefits are less than the pre-injury weekly wage. So, being away from work comes at a cost; this cost is the difference between the pre-injury weekly wage and the weekly benefits. The smaller this cost difference, the less unattractive it is to be away from work. This is a straightforward economic argument."

Schmid looked at data from two states Oregon and New Mexico, and what happened after each increased its maximum allowed benefit.

Oregon increased it benefit from 100 percent of the average weekly wage to 133 percent in 2002. The increase resulted in an increase in temporary total disability indemnity payments of about 4 percent, and 31% of that increase was due to persons making claims longer. The average duration of payments increased by 3-4 days.

New Mexico raised its benefit from 85 percent to 100 percent of the average weekly wage in 2000. That resulted in a rise in temporary total disability payments of about 5 percent, and 29 percent of the increase was due longer payment duration. The average duration of payments increased by 2-3 days.

Schmid wrote that other studies have found a similar effect. He said it is a maxim that a 20 percent increase in benefits creates a 10 percent increase in utilization.

Bob Young, a spokesperson for the California Workers' Compensation Institute, said that while he was not familiar with Schmid's study specifically, he thought that Schmid's relationship might not always be true.

California has tied workers' compensation benefits to the average weekly wage automatically since the 1990s.

In January, his group published a report on temporary disability payments before and after reform in the state in 2004. That report said that duration of benefits declined even while weekly payments increased following the report, Young said.

The difference between the two studies may be that the California study looked at payments and duration of payments overall, while Schmid's study controlled carefully in order to isolate the effect on duration and took into account the fact that those individuals not receiving the maximum benefit would not likely have any change in how long they collected that benefit.

"My study finds that it is the short-duration claims that are most sensitive to the increase in the maximum weekly benefit," Schmid said. "The seriously injured worker—that is, long duration claims--has much less discretion in the return-to-work decision."

June Ann Lucena, 46, was sentenced in August 2008 to seven years in state prison on a variety of insurance fraud-related charges.

After suffering an injury at work, Lucena received workers’ compensation benefits. She also filed for disability retirement with CalPERS. After she recovered, she continued to claim she was severely restricted in her physical activities, a news release said. But surveillance videos showed her riding a jet ski and going down water slides with ease.

The $244,400 restitution is the amount of money Lucena fraudulently obtained from CalPERS, including interest, the release said.