Workers' Compensation

Definition

Simply defined, workers' compensation recompenses, gives something to a worker, one who performs labor for another, for services rendered or for injuries. This simple definition is taken in part from Webster's Ninth New Collegiate Dictionary and in studying this subject closely, we find this definition extremely accurate. Workers' compensation is not "insurance", rather, it is social insurance, much the same as unemployment compensation and social security. It is however, the oldest form of social insurance.

Insurance, as defined, is coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril. The very word "Insurance" comes from the Latin word for "Security". The word "Policy" comes from the Italian language meaning "Promise". Or in modern terms simply a means of financing risk over time.

The first evidence of insurance appeared in China around 3000 BC when merchants would divide their cargo into several ships, protecting their investments and dividing any losses among themselves.

This system was continued forward and in 1750 BC the Babylonians devised a system where the merchant would borrow money to finance his shipment of goods. He paid the lender an additional sum of money and in exchange for this additional sum, the lender agreed to cancel the loan should the shipment be lost or stolen. This system was recorded in the Code of Hammurabi around 1750 BC. The Romans are credited with developing life and health insurance through guilds or clubs around 600 AD.

Under the various workers' compensation systems, insurance is purchased or provided by employers through individual insurance companies, funds, or self insurance plans to provide the worker with the indemnity and medical benefits required by the laws or acts of the various states or provinces.

The Jones Act, Harbor worker's, Longshoremen's Act, the Federal Workers' Compensation act, are all under governmental regulation and administration but the purpose of these laws are all the same, to compensate the injured worker for loss of wages and medical benefits. All are meant to be self-executing and are constantly changing, but they are still there, protecting not only the worker, but the employer as well and have been for many years.

Moving through history, very little is found regarding workers' compensation, although other forms of protection against the liability of one against another come to light and the term known as "insurance" becomes popular. Common law was the avenue for claims against another. Under liability, the "duty" and "breach of duty" of one to and against another was the rule to follow.

It wasn't until the early 18th century that the "respondeat superior" doctrine under "Old English" law came into being. Under this doctrine, the master (employer) was held to be liable for damages to a third person caused by a servant's (employee) act or omission while the servant was acting within the course and scope of employment.

Not many workers were protected under this doctrine unless they were injured by a fellow worker. Overall, it was still another step in the right direction.

The Modern Birth in Europe

Germany took the lead in the protection of injured workers in 1838 by passing legislation protecting railroad employees and passengers in the event of accidents. Further changes were made in 1854 when a law was passed requiring certain classes of employers to contribute to sickness funds and in 1876 a "Voluntary Insurance Act" was passed, which failed in actual operation. Bismarck introduced a Compulsory Plan in 1881, which was enacted in stages and finalized in 1884 and is the model for our present system.

"Workingmen's" Compensation bloomed in England in 1880 when the English Parliament passed the "Employer's Liability Act." Industrialization swept across Europe like a storm in the 1800's. In England, under English Common Law, the injured worker had only one recourse and that was to sue the employer. It was virtually the same system that existed in Germany who, for many years, had been closely allied with England in many business ventures.

Enter the Legal Profession

Barristers, solicitors and others with legal knowledge and training came forward in increasingly large numbers from 1850 forward and represented the injured workers on a contingency or percentage of what they could collect basis. Although the burden of proof was on the worker as well as other legal expenses, the courts became backlogged and the general public suffered from this unfair and inefficient system as crowded dockets and few judges delayed other civil actions. In the midst of this chaos and confusion, it was noticed that the worker was beginning to prevail in these actions and with the growing legal profession's assistance were tying up attaching machinery, buildings and property of the employers through liens and attachments.

In 1897, England repealed the employer's liability act of 1880 and replaced it with a "workmen's" compensation act. Meanwhile, the storm that swept through Europe during this period of industrialization reached the shores of the United States fueled by the aftermath of the Civil War from 1861-1865.

Into the 20th Century

The northern states in this great conflict geared up for the war through the building of factories to produce various armaments with the iron and steel industries taking the lead. However, it was the garment industry in the New York/New Jersey area that brought attention to the plight of the injured worker. Previously making uniforms for the soldiers of the Union, this industry converted rapidly to the manufacturing of clothing for civilian wear after the war ended. These "sweatshops" paying very little yet demanding high production, became the target for the earliest litigation on behalf of injured workers who were usually paid nothing if they were injured on the job. Safety was nearly non-existent.

Through the 1880's to the turn of the century, the legal profession in the United States was also growing and the increase of lawsuits had the same effect on the judicial system in the United States that it had in England and Germany. First, the crowded dockets, second, few judges to handle the cases and third, and most important to the worker, judgments were rendered in favor of the worker at a steadily increasing rate. By 1908, the workers were winning in nearly 15% of all cases. The American concept of "workmen's" compensation was now based on that of Germany and England's philosophy, that industry is responsible for the costs of injuries inherent in industrial occupations.

American Workman's Compensation

Workers' compensation was one of the first social insurance programs adopted broadly throughout the United States. Under workers' compensation employers are required to make provisions such that workers who are injured in accidents arising "out of or in the course of employment" receive medical treatment and receive payments ranging up to roughly two-thirds of their wages to replace lost income. Workers' compensation laws were originally adopted by most states between 1911 and 1920 and the programs continue to be administered by state governments today.

The first "workmen's" compensation law passed in the United States was the Federal Employer's Liability act. Covering certain Federal Government employees engaged in hazardous occupational duties as well as employees of common carriers engaged in interstate and foreign commerce. It was adopted in 1908 at the urging of President Theodore Roosevelt. He pointed out to congress that "the burden of an accident fell upon the helpless man, his wife and children" and that this was "an outrage". So it was that the Federal Government took the lead in providing workers with protection in the event of on the job injuries in the United States.

Prior to 1908, there was an attempt by several states to do something for at least some workers. These attempts were in the form of legislation of employer liability acts. These acts were based on the theory that the employee must bear his own economic loss from an industrial accident unless he could show that some other person was directly responsible, because of a negligent act or omission, for the occurrence of the accident.

These acts brought some of the workers into the same arena of litigation as a common stranger and the employer's liability was limited to his own negligence or at most, for the liability of someone for whom he was directly responsible, under the doctrine of Respondeat Superior. Georgia passed their act in 1855 and by 1907, 26 states had passed employer liability acts.

None of these state acts embodied an actual compensation principle and most simply said, "prove it" and sue. In 1902 the state of Maryland came close, passing an act that provided for a cooperative accident insurance fund. Benefits were provided only for fatal accidents and the law was ruled unconstitutional 3 years later. In 1908, Massachusetts passed an act authorizing establishment of private plans for compensation upon the approval of the state board of conciliation and arbitration.

This act faded into obscurity soon after passage. New York adopted a workmen's compensation act which was compulsory for certain hazardous jobs and optional for others. One year later in 1911, the Court of Appeal of New York in the Ives v. South Buffalo Railway Company case ruled the act unconstitutional on the grounds of deprivation of property without due process of law.

The state of New York had been a controversial stage for "workmen's" compensation since 1898, when the Social Reform Club of New York drafted a bill to take before the state legislature that proposed compensation for certain types of industrial accidents. Labor unions, strangely enough, were the main opposition mainly because they feared that state control of worker's benefits would reduce the popularity of unions as well as the worker's loyalty. It essentially never got off the drawing board. "Workmen's" Compensation was on the move; the Federal Government took the first solid step with the Federal Employer's Liability Act, now the states took their turn.

The Great Trade Off

The individual states moved a little slower and the year 1911 is most significant in the history of workers' compensation in America. Wisconsin was the first state to adopt a "workmen's" compensation law that was to remain under debate for many weeks. The employers lobbied the state legislator for what is now known as the "great trade-off".

Through this legislation, the employer agreed to provide medical and indemnity (wage replacement) benefits and the injured employee agreed to give up his/her right to sue the employer. It was clear that the growing success of litigation was beginning to be felt by the business community. This same year, 1911, ten more states enacted "workmen's" compensation laws. Four more states adopted laws in 1912, and eight more passed laws in 1913. By 1948, all the states had at least some form of "workman's" compensation in effect including Alaska and Hawaii.

Although they did not acquire statehood until 1959, they had taken the step to adopt legislation in 1915 when they were territories. Today, in addition to the 50 states, workers' compensation laws are in effect in the District of Columbia, Puerto Rico, Virgin Islands, the Navajo Nation, the Dominion of Canada, and 12 Canadian Provinces. Workers' compensation has become the exclusive remedy for the injured worker. It also protects employers from damage suits filed by the injured worker as well as provides employers with a basis for calculating production costs.

As shown in Table 1, the vast majority of states adopted workers' compensation laws between 1911 and 1920. The last state to adopt was Mississippi in 1948.

State Year Type State Year Type
Alabama 1919 Private Nebraska 1913 Private
Arizona 1913 Competitive State New Hampshire 1911 Private
Arkansas 1939 Private New Jersey 1911 Private
California 1911 Competitive State New Mexico 1917 Private
Colorado 1915 Competitive State New York 1910 (1913)a Competitive State
Connecticut 1913 Private New York 1913 Competitive State
Delaware 1917 Private North Carolina 1929 Private
Florida 1935 Private North Dakota 1919 Competitive State
Georgia 1920 Private Ohio 1911 Competitive State
Idaho 1917 Competitive State Oklahoma 1915 Private
Illinois 1911 Private Oregon 1913 Competitive State
Indiana 1915 Private Pennsylvania 1915 Competitive State
Iowa 1913 Private Rhode Island 1912 Private
Kansas 1911 Private South Carolina 1935 Private
Kentucky 1914 (1916)a Private South Dakota 1917 Private
Louisiana 1914 Private Tennessee 1919 Private
Maine 1915 Private Texas 1913 Private
Maryland 1912 Competitive State Utah 1917 Competitive State
Massachusetts 1911 Private Vermont 1915 Private
Michigan 1912 Competitive State Virginia 1918 Private
Minnesota 1913 Private Washington 1911 Competitive State
Mississippi 1948 Private West Virginia 1913 Competitive State
Missouri 1919 (1926)a Private Wisconsin 1911 Private
Montana 1915 Competitive State Wyoming 1915 Competitive State


Workers Compensation in California

Workers' compensation is the oldest social insurance program; it was adopted in most states, including California, during the second decade of the 20th century. It is a no-fault system, meaning that injured employees need not prove the injury was someone else's fault in order to receive workers' compensation benefits for an on-the-job injury.

The workers' compensation system is premised on a trade-off between employees and employers -- employees are supposed to promptly receive the limited statutory workers' compensation benefits for on-the-job injuries, and in return, the limited workers' compensation benefits are the exclusive remedy for injured employees against their employer, even when the employer negligently caused the injury.

This no-fault structure was designed to -- and in fact did -- eliminate the then prevalent litigation over whether employers were negligent in causing workers' injuries. Litigation is now over other issues, such as whether the injury was sustained on-the-job or how much in benefits an injured worker is entitled to receive.

There are three basic parts to the workers' compensation system:

The benefit structure

The benefit delivery system

The benefit financing system

History and Overview

Workers' compensation in the United States grew out of the Progressive Era early in the 20th century when the number of workplace injuries was rising and there was little effective legislation to insure fair reparation to employees or to shield companies from expensive lawsuits. As a result, workers' compensation was initiated in many states with California being one of the first to adopt such a system.

California's first workers' compensation law was established under the Compensation Act in 1911 (the Roseberry Act), 1911 Cal. 399, in which participation was voluntary for employers. A compulsory system was established two years later as the Workers' Compensation, Insurance and Safety Act of 1913 (the Boynton Act), 1913 Cal. 176 (see California Assembly Legislative Documents Archive), which required employers to provide benefits for all employees on the job and generally prohibited employees from suing their employers over their injuries. The Act blocked employees from recovering money for pain and suffering or from seeking punitive damages, and called for the establishment of a competitive state insurance fund. It remains the foundation for workers' compensation in California today.

The workers' compensation system has been revised and reformed repeatedly since the passage of the Boynton Act in 1913. Legislators have grappled with issues of inflation, benefit increases, fraudulent injury claims, and fluctuations in the economy. In April 2004 Governor Arnold Schwarzenegger signed the latest reform attempt, SB 899, into law. It remains to be seen how this latest attempt will fare in a system that has grown increasingly complex and expensive over the years.

How Workers' Compensation Works

All California employers must provide workers' compensation benefits to their employees under California Labor Code Section 3700. There are five basic types of workers' compensation benefits

Medical care,

Temporary disability benefits,

Permanent disability benefits,

Vocational rehabilitation services,

Death benefits.

How Is Coverage Structured in a Workers' Compensation Policy?

Workers' compensation coverage is offered under Part One of a workers' compensation insurance policy. In Part one, the insurance company agrees to promptly pay all benefits and compensation due to an injured worker. Employers Liability insurance can provide important coverage in addition to workers' compensation insurance. Employers Liability is offered under Part Two of a workers' compensation and Employers Liability Insurance policy. Employers Liability Part Two protects the employer against instances where an employee's injury or disease is not considered work related.

How Is Workers' Compensation Insurance Purchased?

Employers must purchase workers' compensation insurance from either a licensed insurance company or through the State Compensation Insurance Fund (SCIF). SCIF is a state-operated entity that exists in order to transact workers' compensation on a non-profit basis. SCIF competes with private workers' compensation insurance companies for business and also operates as the insurer of last resort if private companies are not willing to offer workers' compensation insurance

What Happens to an Employer Who Does Not Purchase Workers' Compensation Insurance?

Employers who fail to purchase workers' compensation insurance are in violation of the California Labor Code. The Director of the Department of Industrial Relations has the authority to issue a stop order against any company who is discovered to be unlawfully uninsured for workers' compensation. A stop order closes down business operations until workers' compensation insurance is secured.

How Are Workers' Compensation Premiums Calculated?

Classification

Workers' compensation premium calculation is based upon how employees are classified according to their specific work duties and the rate assigned to each corresponding employee classification. Classifications are developed and assigned by the workers' compensation Insurance Rating Bureau (WCIRB) in most cases.

Rating

Workers' compensation insurers assign a specific rate to each occupational classification code. Currently, California workers' compensation insurers operate under an "open" rating system. This means that individual companies set rates based on their ability to adequately cover losses and expenses in each classification (occupational business class). Open rating requires that all workers' compensation insurers file their rates and all applicable supplementary rate information with the California Dept. of Insurance. Rates must be adequate to maintain the solvency of an insurance company.

The Insurance Commissioner will not approve rates if they are inadequate to cover an insurer's losses and expenses, unfairly discriminatory, or create a monopoly in the marketplace. The rate itself is expressed in dollars and cents and is multiplied by each $100 of payroll per classification.

Insurance Claims

The California Dept. of Industrial Relations, Division of Workers' Compensation assists employers and employees with workers' compensation claims. When disputes arise regarding a workers' compensation claim, the Information and Assistance Unit attempts to resolve the dispute. If they are unable to resolve the dispute, then a formal application for adjudication can be filed with the Workers' Compensation Appeals Board. The Workers' Compensation Appeals Board has exclusive jurisdiction over dispute resolution.

Issues That Complicate the Workers' Compensation System in California

Despite what appears to be a straightforward and well orchestrated system, there are many issues that complicate the efficient and cost-effective implementation of workers' compensation in California, among those issues are:

The cost to employers of insurance premiums

Type and scope of coverage;

Determination of injury or illness;

Benefit amounts;

Cost of vocational rehabilitation;

Fraud on the part of doctors, workers and employers;

Timeliness of benefit payments; uncovered workers; attorneys' fees.



Players Involved in the Implementation of the Workers' Compensation Program

There many players involved in the many facets of the implementation of the workers' compensation system in California. They include:

Injured workers

Labor unions and workers' organizations

Insurance companies

Employers and employer organizations

Attorneys and their organizations

The medical profession in the broadest definition of 'medical'

State agencies that regulate and implement the program:

Workers' compensation Insurance Rating Bureau

Dept. of Insurance

Dept. of Industrial Relations and its various divisions, including the Division of Occupational Safety and Health, and the Division of Workers' Compensation

The State Compensation Insurance Fund, and the Insurance Commissioner.

Reform 1989-2003

One of the most significant legislative efforts to reform the workers' compensation system was the Margolin-Bill Greene Workers' Compensation Reform Act of 1989, which was aimed at lawyers and doctors who were perceived, especially by employers, as being too costly to the system. While doctors experienced a reduction in fees under the reform, lawyers actually saw a rise in new-client calls rather than a decline. Critics maintained that the system had grown more complicated, not less. For a thorough history of workers' compensation policy in California through 1990 see Shor, The

Evolution of Workers' Compensation Policy in California

In 1993, the Legislature passed an employer- and labor-supported package of reform bills which targeted perceived fraud, the rising number of "stress" cases and the costs associated with vocational rehabilitation benefits. Fraud penalties were increased and psychiatric cases over stress were eliminated in many cases. Vocational rehabilitation was capped at $16,000 per employee.

Legislation passed in 1994 SB 30 (Johnston, D-Stockton) removed the floor on premiums which insurance companies specializing in the sale of workers' compensation insurance could charge. Effective January 1, 1995, insurance companies could sell workers' compensation coverage for whatever they wanted, reportedly 7-15% below cost. Insurance Commissioner Chuck Quackenbush reported that employers paid $3.9 billion less in insurance premiums in 1995 than in 1993. By 1997 insurance companies dealing in workers' compensation policies were beginning to go out of business or were taken over by the California Dept. of Insurance when audits revealed large shortfalls in cash reserves to cover claims.

Although tax rates for unemployment insurance decreased 3 years in a row during the last 3 years of the Wilson administration (1995-97), and insurers were charging employers less for coverage, workers' disability benefits had not changed since 1991. When Gray Davis was elected governor in 1998 he pledged to support legislation increasing workers' benefits. However, between 1999 and 2001 Governor Davis vetoed three measures to raise workers' benefits, citing unacceptable costs to employers and the risk of driving jobs out of California.

The 2001 measure, SB 71 (Burton, D-San Francisco) was widely believed to be a compromise that both business and labor would approve. However, Davis vetoed the legislation on the ground that the unexpectedly severe energy crisis was already a serious deterrent to job growth in California and he was unwilling to add more costs to employers for workers' compensation benefits.

Gray Davis faced re-election in 2002. On November 28, 2001 the California Federation of Labor endorsed him on the understanding that he would re-open talks on workers' compensation reform. On February 15, 2002 Davis signed AB 749 (Calderon, D-Norwalk).

AB 749 increased minimum and maximum weekly payments for temporary and permanent disability in addition to doubling death benefits for workers' families. It assessed harsher penalties for failure of businesses to carry workers' compensation insurance and for fraud practiced by both employee and employer. Premiums for the state's largest provider of workers' compensation insurance were projected to decline an average of 2.9% in January, 2003. While critics said this fell far below the 14.9% cuts sought by state officials, many considered it a more straightforward piece of legislation than many of its predecessors.

In 2003 additional reforms were included in two bills signed by Governor Davis in the waning days of his administration. AB 227 and SB 228 established standardized rates for every medical care provider, including outpatient surgery centers, set fee schedules for pharmaceuticals, capped the number of visits to chiropractors and physical therapists, and required "utilization reviews" which would set care standards for injuries. Although hailed as a major overhaul of workers' compensation by Davis, who maintained that the bills would cut over $6 billion from workers' compensation costs, business leaders and Republicans in the Legislature questioned the savings estimates. The Workers' Compensation Insurance Rating Bureau, the leading insurance industry research group, calculated that the reforms would save only $3 to $5 billion. Compensation costs in California have risen from $9 billion in 1993 to $32 billion in 2002.

Despite these reforms, workers' compensation in California remained one of the most expensive systems in the country, costing employers more than in any other state and providing the third lowest benefit to workers.

Reform 2004

One of Governor Arnold Schwarzenegger's major initiatives following his October 2003 election was reforming the workers' compensation system. In his State of the State message on January 6, 2004, Governor Schwarzenegger addressed the workers' compensation issue: "... We must fix the state's business climate. And we must start with workers' compensation reform. Our workers' comp costs are the highest in the nation - nearly twice the national average. California employers are bleeding red ink from the workers' comp system. Our high costs are driving away jobs and businesses. My proposal brings California's workers' comp standards and costs in line with the rest of the country. To heal injured workers, it emphasizes the importance of health care and doctors rather than lawyers and judges. It requires nationally recognized guidelines for permanent disability. And it provides for innovative approaches. I call on the legislators to deliver real workers' comp reform to my desk by March 1st. modest reform is not enough. If modest reform is all that lands on my desk, I am prepared to take my workers' comp solution directly to the people and I will put it on the ballot in November."

The bills that emerged from the special legislative session Schwarzenegger called at the end of November, SBX4 3 (Poochigian, R-Fresno), and ABX4 1 (Maldonado, R-Santa Maria) proposed bundling workers' compensation coverage with regular health care that would be insured by managed-care companies such as Kaiser Permanente. In early December, 2003 Insurance Commissioner John Garamendi proposed his own workers' compensation reform plan which he said would cut costs and improve treatment of injured workers. He called for tougher fraud enforcement and subjecting uninsured employers to felony charges. Other features resembled the Governor's plan, such as creation of a review panel to assess whether an injured worker was permanently disabled. As of early February 2004, employers had not yet seen the drop in the cost of premiums promised by the Davis-signed legislation and Governor Schwarzenegger had vetoed two bills that dealt with pieces of the workers' compensation issue. In his veto messages the governor reiterated his commitment to broad, not piecemeal, reform of the California workers' compensation system.

After his successful campaign to pass Propositions 57 and 58 in the March 2004 primary, Governor Schwarzenegger met with legislative leaders to start work on an overhaul of the workers' compensation system. It was understood that the Governor would campaign for passage of a workers' compensation reform initiative for the November 2004 ballot if a satisfactory compromise could not be reached.

The initiative, called the Workers' Compensation Reform and Accountability Act, was already in the signature gathering phase and was strongly supported by California Chamber of Commerce and other business groups. Under intense pressure to arrive at a compromise and working late into the night of April 14, 2004, a legislative conference committee, working in cooperation with the governor, approved a workers' compensation reform package, SB 899. The full legislature overwhelmingly approved SB 899 on April 16, and the governor signed it into law on April 19. Schwarzenegger prevailed on two key provisions: insurance rates were not regulated, and injured workers were required to select doctors from a pool of doctors approved by employers and insurers. The law also tightened eligibility for permanent disability payments, capped payments for temporary disability at two years, and permitted injured workers to seek immediate medical attention paid for by the employer. Labor and attorneys' groups criticized the law for lacking rate regulation and for not giving injured workers enough choice in choosing a doctor. Democrats quickly introduced legislation in both houses to regulate rates charged by insurance companies (ABX4 16 in the Assembly and SBX4 16 in the Senate).

2005 Reform

In January of 2005, State Sen. Richard Alacron, who heads the Senate Labor and Industrial Committee, introduced SB 46 which would permit a panel of officials picked by the governor, insurance commissioner and attorney general to create a limit on how much insurers can charge for workers' compensation coverage. Alacron claims that insurers have been reaping higher profits while failing to make reductions in the rates they charge for coverage. In addition, he says that injured workers have received cuts in their benefits since workers' compensation reforms were passed in 2004. Critics of the proposal charge that additional regulations will scare insurers away from the state.

Workers' compensation premiums have dropped an estimated 10.4 percent since the middle of 2003. The cost to insurers is estimated to have dropped by 22.4 percent, according to the state Insurance Department. In addition to SB 46, three other workers' compensation bills were introduced in the spring of 2005. AB 681 by Assemblyman Juan Vargas, D-San Diego, would hold a 5 percent cut in physician fees through 2010. Under current law, the state can set new fees next year, which some critics fear could lead to bigger reductions. The freeze would allow doctors to negotiate new fees without losing more money in the meantime. AB 1549 by Assemblyman Paul Koretz, D-West Hollywood would allow acupuncturists to become qualified medical providers. It would also allow specialists such as chiropractors, psychologists, and dentists to be defined as independent medical reviewers. Finally, SB 538 by Sen. Sheila Kuehl, D-Santa Monica, would mandate an evaluation of new medical provider networks and health care organizations to discover how adequately they provide treatment to injured workers.

Legislation Summary, 1989-2005

AB 276, 1989. Margolin-Bill Greene Workers' Compensation Reform Act, 1989 Cal. 892.*
AB 110. Workers' compensation, 1993 Cal. 121.
AB 119. Workers' compensation: post termination benefits, 1993 Cal. 118.
AB 1300. Workers' compensation: Board certified doctors, 1993 Cal. 120.
SB 983. Workers' compensation: collective bargaining agreements, 1993 Cal. 117.
SB 484. Workers' compensation, 1993 Cal. 119.
SB 1005. Workers' compensation, 1993 Cal. 227.
SB 30, 1994. Workers' compenstion, 1994 Cal. 228.
SB 71, 2001. Workers' compensation: administration and benefits, [Vetoed].
AB 749, 2002. Workers' compensation: administration and benefits, 2002 Cal. 6.
SB 228, 2003. Workers' compensation, 2003 Cal. 639.
AB 227, 2003. Workers' compensation, 2003 Cal. 635.
SB 899, 2004. Workers' compensation, 2004 Cal. 34.
SB 46 , 2005. Workers' compensation insurance.
AB 681, 2005. Workers' compensation: official medical fees schedule.
AB 1549, 2005. Workers' compensation: qualified medical evaluators and independent      medical reviewers.
SB 538, 2005. Workers' compensation.

The benefit structure

The benefit structure defines what injured workers are entitled to receive when they sustain an injury "arising out of and in the course of" their employment. There are six basic types of workers' compensation benefits available, depending on the nature, date and severity of the worker's injury:

Medical care: Injured workers are entitled to receive all medical care reasonably required to cure or relieve the effects of the injury, with no deductible or co-payments by the injured worker. For dates of injury on or after Jan. 1, 2004, an injured worker is limited to 24 chiropractic and 24 physical therapy visits.

Generally, the employer controls the medical treatment for the first 30 days after the injury is reported, and the employee is then free to select any treating physician or facility. However, if the employee has notified the employer in writing prior to the injury that he or she has a "personal physician" -- a physician or surgeon who has previously treated the employee -- the employee may be treated by that physician from the date of injury. Choice of treating physician differs, however, if the employer and employee have opted for a managed care program.

Temporary disability benefits: Those workers unable to return to work within three days are entitled to temporary disability benefits to partially replace wages lost as a result of the injury. The benefits are generally designed to replace two-thirds of the lost wages, up to a maximum of $728 per week. Temporary disability benefits are payable every two weeks, on a day designated with the first payment, until the employee is able to return to work or until the employee's condition becomes permanent and stationary.

Permanent disability benefits: Injured workers who are permanently disabled -- those who have a permanent labor market handicap -- are entitled to receive permanent disability benefits. A worker who is determined to have a permanent total disability receives the temporary disability benefit -- up to $728 per week -- for life. A worker determined to have a permanent partial disability receives weekly benefits for a period which increases with the percentage of disability, from four weeks for a one percent permanent disability up to 694.25 weeks for a 99.75 percent disability. Permanent partial disability benefits are also payable at two-thirds of the injured worker's average weekly wages, but are subject to a much lower maximum. As of Jan. 1, 2004, the rates are $220 per week for disabilities less than 69.75 percent and $270 per week for disabilities rated at 70 to 99.75 percent. Those with a permanent partial disability of 70 percent or more also receive a small life pension -- a maximum of $257.69 per week -- following the final payment of permanent partial disability benefits. The percentage of permanent disability is determined by using the Permanent Disability Rating Schedule and an assessment of the injured worker's permanent impairment and limitations.

The Permanent Disability Rating Schedule specifies standard percentage ratings for permanent impairments and limitations, and provides for the modification of these standard ratings based on the injured worker's age and occupation. The standard rating is adjusted for age by lowering the rating for younger workers and increasing it for older workers on the theory that it is easier for younger people to adjust to a permanent handicap. The standard rating is adjusted for occupation by increasing the rating if the permanent impairment or limitation will be more of an impediment in performing the worker's occupation, and lowering the rating if it will have a lesser impact.

The assessment of the injured worker's permanent impairment and limitations is made by either the treating physician or a "Qualified Medical Evaluator" (QME). The Division of Workers' Compensation's Medical Unit appoints and regulates QME's. If there is disagreement with the treating physician's opinion and the worker is not represented by an attorney, he or she chooses a physician from a three member panel obtained from the DWC Medical Unit. If the worker is represented by an attorney, the parties must attempt to agree on a physician to perform the evaluation. If they are unable to agree, each side may obtain evaluations from a QME of their choice. If the evaluations are disparate, the amount of permanent disability will be determined by negotiation or, if necessary, litigation.

Vocational rehabilitation services (for injuries before Jan. 1, 2004)

Injured workers who are unable to return to their former type of work are entitled to vocational rehabilitation services if these services can reasonably be expected to return the worker to suitable gainful employment. This includes the development of a suitable plan, the cost of any training, and a maintenance allowance while participating in rehabilitation.

Once an injured worker is determined unable to return to his or her previous type of work, the employer and worker jointly select a rehabilitation counselor who will determine whether vocational rehabilitation is feasible, and if appropriate, develop a suitable rehabilitation plan. The goal of a rehabilitation plan is to return the injured worker to "suitable gainful employment" -- employment or self-employment that is reasonably attainable and which offers an opportunity to restore the injured worker as soon as practicable and as near as possible to maximum self-support.

The maintenance allowance payable to an injured worker while in rehabilitation is, like temporary disability benefits, designed to replace two-thirds of lost earnings, but the maximum weekly amount is lower -- $246 per week. The worker may, however, supplement the maintenance allowance with advances of permanent disability benefits up to the point where the worker is receiving the same weekly amount as he or she received in temporary disability benefits. Total costs for rehabilitation are now limited to $16,000 for workers injured on or after Jan. 1, 1994.

For dates of injury on or after Jan. 1, 2003, injured workers who have legal representation may settle vocational rehabilitation for a lump sum. Vocational rehabilitation does not apply for dates of injury after Jan. 1, 2004.

Supplemental job displacement benefit (for injuries on or after Jan. 1, 2004)

This is a nontransferable voucher for education-related retraining or skill enhancement, or both, payable to a state approved or accredited school if the worker is injured on or after Jan. 1, 2004. To qualify for this benefit, the injury must result in a permanent disability, the injured employee does not return to work within 60 days after temporary disability ends, and the employer does not offer modified or alternative work. The maximum voucher amount is $10,000.

Death benefits

In the event a worker is fatally injured, reasonable burial expenses, up to $5,000, are paid. In addition, the worker's dependents may receive support payments for a period of time. These payments are generally payable in the same manner and amount as temporary disability benefits, but the minimum rate of payment is $224 per week.

The total aggregate amount of support payments depends on the number of dependents and the extent of their dependency. Generally, the maximum (where three or more total dependents are eligible) is $160,000, though additional benefits are payable if there continues to be any dependent children after the basic death benefit has been paid.

The benefit delivery system:

Unlike most social insurance programs (e.g., social security, unemployment compensation), workers' compensation in California, as well as in most other states, is not administered by a government agency. Workers' compensation benefits are administered primarily by private parties -- insurance companies authorized to transact workers' compensation and those employers secure enough to be permitted to self-insure their workers' compensation liability. When an employer becomes aware of an on-the-job injury, the employer is expected to begin the process of providing the injured worker the benefits to which he or she is entitled under the law. The benefits are paid by either the employer (if the employer is authorized to self-insure) or the employer's insurer.

The state's role in benefit delivery is to oversee the provision of workers' compensation benefits, provide information and assistance to employees, employers, and others involved in the system, and to resolve disputes that arise in the process. The vast majority of workers' compensation claims are handled expeditiously and are administered without dispute or litigation. These are, for the most part, the smaller claims -- those in which only medical care is provided and those in which the injured worker is disabled for only a few days. These smaller claims account for more than three quarters of all workers' compensation claims.

The balance of the claims -- those in which there are significant periods of disability or permanent disability -- account for the vast majority of costs and litigation. In these more serious cases, litigation is common. Most workers' compensation cases are litigated initially before workers' compensation referees employed by the Division of Workers' Compensation (DWC). Rehabilitation disputes are first heard by a consultant in the DWC Rehabilitation Unit, and that decision can be appealed to a workers' compensation referee. The decisions of workers' compensation referees are subject to reconsideration by the seven member Workers' Compensation Appeals Board (WCAB). A WCAB decision is reviewable only by the appellate courts.

Most disputed or "litigated" cases are settled without a decision being rendered by a workers' compensation referee. Most case dispositions are compromise and release settlements -- settlements in which all future liability is released in return for a stipulated amount. Applicant's attorney's fees must be approved by a workers' compensation referee, and are generally 9 to 15 percent of the settlement amount. Defense attorneys' fees are not regulated.

The benefit financing system

The benefit financing system is the process by which employers finance their liability for workers' compensation benefits. Employers may finance their liability for workers' compensation benefits by one of three methods:

Self-Insurance -- Most large, stable employers and most government agencies are self-insured for workers' compensation. To become self-insured, employers must obtain a certificate from the Department of Industrial Relations. Private employers must post security as a condition of receiving a certificate of consent to self-insure.

Private Insurance -- Employers may purchase insurance from any of the approximately 300 private insurance companies which are licensed by the Department of Insurance to transact workers' compensation insurance in California. Insurance companies are free to price this insurance at a level they deem appropriate for the insurance and services provided.

State Insurance - Employers may also purchase insurance from the State Compensation Insurance Fund, a state operated entity that exists solely to transact workers' compensation insurance on a non-profit basis. It actively competes with private insurers for business, and it also effectively operates as the assigned risk pool for workers' compensation insurance.

Special funds

In addition, there are two special funds that pay benefits to injured workers under some circumstances: (1) the Uninsured Employers Fund, and (2) the Subsequent Injuries Fund.

Uninsured Employers Fund - When an employee is injured while working for an employer who is unlawfully uninsured, and the employer fails to pay or post a bond to pay the compensation due the employee, the employee's compensation is paid from the Uninsured Employers Fund. An attempt is made to recover the amount paid from the uninsured employer.

About 1,000 to 1,500 new claims are filed with the Uninsured Employers Fund annually, at a cost that has reached about $26 million per year. Most of this cost is paid from the Uninsured Employers Benefit Trust Fund, which is financed by an annual assessment paid by all employers.

Subsequent Injuries Fund - When an employee has a previous permanent disability or impairment and sustains a subsequent injury, the employer is not liable for the combined disability, but only for that caused by the later injury. However, when the combined permanent disability is at least 70 percent and certain other criteria are met, the employee may receive additional compensation from the Subsequent Injuries Fund.

About 500 claims are filed with the Subsequent Injuries Fund per year, at a cost of about $6.5 million. Claims are paid from the Subsequent Injury Benefit Trust Fund account, into which all employers are required to pay an annual assessment.

California Workers' Compensation - Related Statutes

California Labor Code California Insurance Code California Unemployment Insurance Code California Welfare and Institutions Code Search the California Code California Code of Regulations, Title 8 - California State Law Topics California Workers' Compensation Appeals Board California State Law Resources General Workers' Compensation Law

History of Workers' Compensation Timeline

10th Century B.C. Kings and Temples and Book of Genesis, first possible indication of a form of "workman's" compensation

1855 United States, Georgia passes Employer Liability Act in the state legislature. 26 other states pass similar acts between 1855-1907. These acts were simply permission to sue the employer if employee proved a negligent act or omission.

1861-1865 United States Civil War, Industrialization in the North for the war effort. When the war ends, factories convert from manufacturing uniforms to regular clothing. Birth of the infamous "sweatshops".

1880 England, Parliament passes "Employer's Liability Act"

1884 Germany passes "Industry Compensation Act"

1897 England repeals "Employer's Liability Act" and replaces with a "Working Man's Compensation Act".

1898 New York, the New York Social Club drafts a bill for "Partial Compensation for Workers". No action taken by state legislature. Largest opponent is labor unions.

1901 Maryland passes legislation for a "Cooperative Accident Insurance Fund".

1905 Maryland Act ruled "unconstitutional" by state Supreme Court.

1908 Massachusetts passes legislation establishing private plans for compensation. Never signed by the governor and passed into obscurity.

1908 Federal Employer's Liability Act passed by the U.S. Congress at the urging of President Theodore Roosevelt. This is the first "workman's" compensation Law in the United States.

1910 New York, legislature passes a partial "workman's" compensation act.

1911 New York Court of Appeals rules that the act is "unconstitutional".

1911 New York, Triangle Shirtwaist Company Fire in New York City, over 146 workers jump to their deaths to escape fire in 10-story building. Exits were blocked, many law suits. Entire nation shocked at this tragedy. New York City immediately adopts first safety codes.

1911 Wisconsin becomes first state in the union to adopt a true "workman's" compensation law. Called the "Great Trade Off"; employers provide coverage, employees give up right to sue.

1911 Triangle Shirt Waist Company Fire in New York City, Workers, mostly female immigrants trapped in 10 story building, 146 jump to their deaths. Major safety reforms sweep New York and the country.

1911 California Passes Worker compensation Law under the Compensation Act (Roseberry Act) Cal. 399

1913 California Passes Workers Compensation Insurance Act (Boynton Act) Cal.176 Compulsory System

1915 Alaska and Hawaii pass "workman's" compensation laws even though they are only territories.

1948 All states in the union have "Workman's" Compensation Laws. Mississippi is the final state to adopt workers compensation laws

For more information on Workers' Compensation, contact AVI Services or visit the Department of Labor online.


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