Reform Package Leaves Questions To Be Addressed
By HOWARD FINE
Employers who are banking on savings this year from the workers' compensation reform package Gov. Arnold Schwarzenegger signed into law last week may be surprised to find out they will have to wait.
As new policy quotes come in, premiums are likely to be higher once again, not lower.
That's because the most significant reforms aren't set to kick in until next January; they could be delayed even further thanks to an expected flurry of political haggling over regulations needed to implement the reforms. There's also the threat of litigation that could tie up some of the reforms for months, if not years.
"It's going to be the middle of next year before we see any significant and widespread savings materialize from these reforms," said Dale O'Brien, president of ClearComp, a Woodland Hills workers' compensation consulting firm. "A lot of employers are looking for a rate decrease in July; when a decrease doesn't happen in September or October or even next January, they will beat the drum and could even claim that this agreement was a bum deal."
Insurance Commissioner John Garamendi himself expects lawsuits likely will be filed over parts of the reform package. And in his proposed 2004-05 budget, L.A. Mayor James Hahn has a 17 percent projected increase in workers' compensation costs. (The city is self-insured, so it doesn't depend on insurers to pass on savings.) The mayor said he was told by Garamendi not to count on any savings for the next fiscal year.
The biggest holdup is likely to come over the centerpiece of the package: limitations on doctor choice for injured workers.
Currently, for the first 30 days after an injury is reported, the injured worker must go to a physician designated by the employer; after that, the worker can go to any doctor, setting up a "dueling doctor" scenario that can drag out claims and drive up costs.
Under the new law, injured workers who did not select a doctor beforehand can only go to a doctor within the employer-designated network. If the injured worker does not like the first doctor, he or she can choose up to two more, but they must also be from that same network.
The intent is to give employers and insurers more control over medical treatment and to help speed claims along. In effect, these networks are supposed to function like HMOs and reduce claims costs for employers and insurers.
The trouble is, there are no guidelines as to how big those networks must be or who can qualify to be a part of them. The task has been left to the state Division of Workers' Compensation, which must come up with and implement regulations by Jan. 1, 2005.
"This is where the battleground is going to be as the regulations get drawn up," O'Brien said.
Labor groups and injured worker attorneys and advocates will try to have these physician networks be as large as possible, maybe even including many of the doctors who now work with plaintiffs attorneys.
"We want to make sure that there's a large group of doctors that injured workers can choose from," said Frank Russo, an Oakland attorney and past president of the California Applicants Attorneys Association. "Furthermore, we're going to insist upon some built-in protections so that these doctors are truly independent of the employer and the insurer."
Employer groups and insurers, on the other hand, would prefer these health networks to be fairly tight-knit and consist of doctors who have extensive training in industrial medicine.
"The key is to provide access to quality doctors," said Stu Baron, president of Los Alamitos-based Workers' Compensation Claims Control Co. "Once we do that, employers will really see some savings."
The Division of Workers' Compensation will also face a challenge just meeting the deadlines. For the last several years, this agency has been underfunded as the state's budget crisis has deepened, leaving it ill-equipped to handle an onslaught of new regulations. Workers' comp reforms implemented last year brought an infusion of funding, as employers were assessed a surcharge to pay for more staff members.
The division is still staffing up, but playing catch-up. It already missed several deadlines set out in last year's reforms, said Dave DePaolo, president and chief executive of Workcompcentral.com, a Camarillo-based information service for the workers' compensation industry.
"This is a huge burden on that department," he said. "I would not be at all surprised if the deadlines here are also missed."
Drawing up regulations
The Division of Workers' Compensation will also have to draw up regulations for other provisions of the new law, including those governing return-to-work procedures. Under the law, injured workers whose employers offer modified work options would see their disability payments docked 15 percent from the proscribed levels. The idea is to convince injured workers to return to work quickly.
On the other hand, if no offer of modified work is made, the injured worker gets a 15 percent increase in disability payments.
The controversy in drawing up these regulations is likely to surround two questions: After how much treatment can the offer of modified work be made, and what constitutes a reasonable offer of modified work? Injured worker advocates say they are concerned employers will force employees back to work before their injuries are completely treated.
The return-to-work portion of the law also contains what could be an unpleasant surprise for employers: a surcharge designed to raise $50 million for a fund to help small employers offset the cost of modifying their workplaces.
However, DePaolo said the law doesn't mandate that the fund be used exclusively for this purpose. Unless it's more clearly spelled out in the regulations, he said some of the money could conceivably end up going to finance the operations of the Division of Workers' Compensation.
Despite the delays and potential pitfalls, DePaolo and other workers' comp watchers said that employers should, over time, see significant savings.
"This law gives employers the tools they need. If employers take just a few crucial steps to implement this, they will see cases close more quickly," Baron said. "That's the key to savings."
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