Legislation imposing sweeping reforms on the California workers' compensation system was passed by the state legislature late Friday and sent to Gov. Jerry Brown for signature.

The bill is S.B. 863.

Insurance industry officials had voiced concern with the legislation, pointing to an analysis that cast doubt on the cost-savings components of the legislation.

Nicole Mahrt Ganley, public affairs director for the Association of California Insurance Companies, says the critical issue “is managing the expectations of the projected savings.”

Citing reforms on the system made in 1992 and 2004, “most of the time the results are different than expected,” Ganley says.

Marjorie Berte, western region vice president for the American Insurance Association, said that while the bill contains beneficial reform components that address many well-documented cost-drivers, “its projected savings are minimal.”

One of the factors driving the bill was the unintended consequences of 2004 reforms pushed in 2004 by then-Gov. Arnold Schwarzenegger that unexpectedly reduced benefits for permanently injured workers.

In general, the new bill seeks to increase benefits to workers, especially those on long-term disability, by 30 percent. It pays for this by imposing certain reforms, including changing how benefits are calculated for injured workers, creating a binding arbitration process to resolve coverage disputes and eliminating coverage for conditions that most commonly lead to lawsuits.

It also seeks to reform the unique “lien system” in the California system that allows medical providers to seek additional payments when they feel short-changed for services by imposing a filing fee.

Supporters projected that the original changes would increase benefits to injured workers by $700 million, partly paying for it by imposing reforms that would save $400 million a year.

Supporters said the legislation could reduce rates by as much as 7 percent by slowing the upward climb of medical and legal costs in the $16 billion system.

However, a late compromise demanded by advocates for the permanently disabled adds a $120 million pool to compensate injured workers for lost future earnings.

This will be paid for through a special assessment on employers that finances the system.

At the same time, another compromise requires the Workers' Compensation Insurance Rating Bureau, which advises the state on workers compensation fund costs, to rethink a 12.6 percent advisory pure premium rate increase it proposed to be effective in January.

The WCIRB agreed to begin work on that re-evaluation starting Wednesday, and to hold a public hearing before making a final recommendation.

In a statement issued after the Senate vote, Gov. Brown praised the bipartisan support for the legislation, saying it “helps injured workers and averts an imminent crisis of skyrocketing rates.”

Berte of the AIA says that the WCIRB has projected the bill will provide $880 million in savings but will add $610 million in 2014 benefit increases.

The estimated savings of $270 million on 2014 injuries represents a decrease of just 1.4 percent in total system costs, she says.

She adds that the AIA would have preferred the adoption of legislation that contained additional cost-cutting measures that would result in greater savings.

Correction: The name of the advisor to the state compensation fund was originally incorrect and was corrected to Workers' Compensation Insurance Rating Bureau.

Special Reports /

California Workers' Comp Bill Passes Legislature; Insurer Groups Cautious

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