How Solid are the Workers' Compensation Reforms?
 March 31, 2009

In 2004 when SB 899 passed in California, it was hailed as "workers’compensation reform". Prior to that, many employers had come to the conclusion that without changes to the burdensome workers’ compensation system they could not afford to operate in California. This would adversely affect employment in the state and would have horrible consequences for California’ economy.

Almost immediately after SB 899 was signed into law, it created a workers’ compensation environment in California where insurance companies once again wanted to do business. Employers that had previously considering moving out of California because of the high cost of workers’ compensation insurance now had a host of responsible and financially sound insurance companies competing for their business. This allowed employers to invest in expanding their operations, creating jobs and funding practices that made their companies safe places to work.

The reforms have had their challenges, but survived each attack and maintained their integrity. But last month the foundation of the reforms cracked when the Workers’ Compensation Appeals Board rendered a decision that can only increase workers’ compensation costs in California and drive workers’ compensation rates up for employers that are already struggling in a difficult economy.

The WCAB stated in an en banc decision (Almaraz/Guzman and Oglivie) that a party may rebut the American Medical Association (AMA) Guides portion of the 2005 Permanent Disability Rating Schedule by showing that an impairment rating based on the guides would be unfair. Once a party has rebutted this portion of the 2005 schedule, the WCAB may base impairment determinations upon medical opinions that are partially based or not based on the AMA Guides.

The number of articles, blogs and opinions focusing on how this decision positively affects injured workers grows each day. But, how will this affect California employers? Initially, attorneys representing injured workers will develop a process for taking advantage of opportunities this decision has created. There will be a change in the way permanent disability issues are resolved and claims will remain open longer, defense costs will increase and ultimately benefit costs will rise as well. Short answer, this will have a decidedly adverse effect on employers.

In California, most employers purchase workers’ compensation insurance. While self-insured employers and those employers that pre-fund losses will experience direct increased loss costs, insured employers will see insurance companies begin to raise rates in short order in anticipation of increased loss costs. No employer will be immune from the effects of this decision, which runs contra to the legislation passed into law in 2004.

What can employers do? The simple answer is, avoid accidents. Although the answer is simple, the process is not. Sound safety practices go beyond just identifying and addressing hazards. Employers that realize safety is fundamental to protecting their business make it an operational priority. They have a recognizable profile:

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