By Julius Young, Partner, Boxer & Gerson
2019 is done. It’s time to assess the most important developments in California Workers’ Comp in 2019:
In no particular order, here are my picks, together with links to some additional source material:
1. California legislature passes AB5 in an attempt to address widespread worker misclassification and the spread of gig employment
After a heated battle in the Capitol, the legislature adopted the standard used by the California Supreme Court in Dynamex, enacting language defining employment under a three part test that presumes employment unless the entity rebuts the prongs of the test. After Dynamex several cases declined to extend its rationale to workers’ comp, but AB5 will likely apply to California workers’ comp and not just to wage order cases.
AB5 carved out exceptions for a number of professions, but others seeking exceptions, including freelance writers, were unsuccessful. In response, Uber, Lyft and DoorDash unveiled a proposed initiative for the 2020 ballot, and several organizations sued to challenge the law. At year’s end, the California Trucking Association obtained a U.S. District Court temporary restraining order against application of the law to the trucker plaintiffs, who claim that AB5 is preempted by a 1994 Federal law governing interstate motor carriers and that it is an unconstitutional violation of the commerce clause:
Thus, as the new year begins it is apparent that the battle over AB5 will continue through much of 2020, on political and legal fronts.
2. Workers’ comp rate cuts continued for many employers, but insurer expenses remained very high in relation to medical payments and indemnity payments
Looking at the system from a macro standpoint, the numbers behind California’s workers’ comp system can be characterized with the glass half full or half-empty analogy.
In November 2019 Insurance Commissioner Ricardo Lara approved a reduction in the advisory (but not binding) pure premium (PP) rate to $1.52 per $100 of payroll starting 1/1/20. By comparison, in 2003, the PP was $4.27 per $100 of payroll. After the 2004 and 2012 major rounds of workers’ comp reforms (and various intervening legislative tinkering as well as regulatory actions), PP was at $2.19 in early 2017, then declining to $2.02 in mid 2017 , $1.94 as of January 2018, $1.74 in mid-2018, and $1.63 in 1st Q. 2019.
These numbers do not pertain to self-insureds and for insured employers there are a number of variables in what workers’ comp rates they actually pay, but average charged rates have also declined. The average charged rate during the 1st Q. 2019 was $2.04 per $100 of payroll.
In the Gray Davis and Schwarzenegger era, comp costs were a hot button political issue (for a number of reasons, average charged rates spiked to $6.02 in 2003), so many employers and politicians are generally happy with trends although some still complain that California is a high cost state relative to other states.
But now the glass half empty part.
Benefit delivery costs and the ratio of expenses to medical and indemnity payments are both atrocious.
As I noted at mid-year, a June 2019 WCIRB report indicated that 2018 insurer expenses ($6.6 Billion) exceeded the cost of medical services paid in 2018 ($4.6 Billion) and far exceeded the amount of indemnity payments made in 2018 ($3.8 Billion).
If medical and indemnity costs for 2018 are added they come to $8.4 Billion (i.e. $4.6B for medical and $3.8B for indemnity), so insurer expenses of $6.6B are basically over three quarters of the combined expenses paid to or on behalf for California workers!
Those figures are contained in the June 28, 2019 WCIRB report, “”2018 California Workers’ Compensation Losses and Expenses”:
Also worth checking are the stats in the most recent WCIRB Quarterly Experience Report (September 30, 2019):
Several trends are striking, including the following. In the glass half full side, indemnity claims are settling quicker. Claim frequency has continued to decline. Cumulative claims have increased in Southern California but decreased in other areas of the state. Pharmacy costs per claim have decreased more than 80% from 2012 to 2019. Lien filings continue to decline.
But on the glass half empty side, the ratio of allocated loss expenses to losses continued to rise from 13.9% in 2003 to 22.4% in 2018.
And the WCIRB 2019 “SB 863 Cost Monitoring Update” shows that the achieved savings from the 2012 SB 863 reform far outpaced the increased benefits to workers that were promised:
Workers and attorneys believe, with good reason, that they got the short end of the stick.
3. Possible revisions to California’s system to compensate QMEs remained problematic and were in play as 2019 ended
On August 6, 2019 the DWC posted proposed amendments to the Medical-Legal fee schedule, followed by an online public comment forum that closed several weeks later after a huge outpouring of comments by unhappy QMEs:
This followed a May 2018 DWC forum and various 2018 and 2019 stakeholder meetings.
Scores of QMEs have indicated that they may curtail participation in the system if adequate compensation is not provided. Workers complain of significant delays getting QME evals.
Additional stakeholder meetings on the issue have been held in late 2019, and more are set in early 2019. Meanwhile, the DWC is under the microscope due to problems in the QME system noted in the State Auditor report.
4. A November 2019 report by the California State Auditor found that the DIR/DWC failed to adequately address the decline in QMEs and improperly administered aspects of the QME system
Covered in my blog post “Taken to Task”, the report essentially notes the DWC has failed to act to preserve a well-functioning QME system, while the numbers of QMEs and availability of some specialties have continued to decline:
The report included a response by George Parisotto, Administrative Director of the DWC, as well as a point-by-point rebuttal from the State Auditor:
A Joint Legislative Audit Committee hearing has been scheduled for January 2020, so the issues concerning the QME system will remain on the front burner in 2020.
The State Auditor QME report was not the only 2019 State Auditor report critical of the DIR. A March 2019 State Auditor Report and an April 2019 report from the State Personnel Board (SPB) both documented malfeasance by former DIR director Christine Baker and others at DIR. The SPB revoked the authority of the DIR to make civil service appointments and placed a proctor over DIR hiring. This was all covered in my post “More Dominoes Fall”:
5. The Department of Industrial Relations announced substantial increases in the employer assessments required to operate various DIR funds
A November 27, 2019 letter from Victoria Hassid (Chief Deputy Director of the DIR since Governor Newsom has yet to appoint a DIR director) outlines the FY 2019/2020 assessments:
Those assessments fund the costs of administering the workers’ comp system. In addition, they fund the UEBTF (uninsured employers fund), the SIBTF (subsequent injuries fund), the Occupational Safety and Health Fund (OSHF), the Labor Enforcement and Compliance Fund (LECF), and the Workers’ Compensation Fraud Account. Overall, the increases were some 13.75%, with the largest increases being for the SIBTF and the LECF.
6. 2019 regulatory activity by the DWC was fairly routine, but the WCAB did adopt new rules
Other than evidence based updates to the MTUS and periodic adjustments to treatment fee schedules, there was a paucity of DWC regulatory activity in 2019. In 2018 the DWC had held a forum on interpreter regs. In January 2019, a UR regs forum closed and in August 2019 the DWC posted proposed copy service regs for online comment:
However, there was no announced rulemaking on any of these by the end of 2019.
Over at the WCAB, however, it was a different story. In June 2019 the WCAB posted proposed updates to the Rules of Practice and Procedure. After much public negative comment on a July 2019 forum, revised RPP rules were proposed, comments taken at a September 2019 public forum and then promulgated and approved by the Office of Administrative Law to go into effect January 1, 2020:
7. AB5 aside, there were other noteworthy comp bills signed by Governor Newsom, as well as a veto:
The list of notables that Newsom signed includes:
• SB 537 (Hill), which is aimed addressing problems with MPNs, UR and medical treatment. My blog post on the bill, “Another Done Deal: SB 537”, which includes a link to the legislative analysis, can be found here:
•AB 1804 and AB 1805, both of which were signed by Governor Newsom on August 30th. AB 1804 amends Labor Code 6409.1 to create an online mechanism (to be established by Cal/OSHA) that allows employers to report serious injury, illness or death. AB 1805 makes changes in the definition of “serious injury or illness” under Labor Code 6302 and 6309. In 2015 federal OSHA broadened regulations on types of work-related injuries employers must report. AB 1805 brings California in line with federal standards. The bill also amends the standard for a serious Cal OSHA violation by specifying the new standard as a “realistic possibility” instead of substantial probability that death or serious harm could result from an alleged actual hazard.
•AB 542 (Stern), which creates a rebuttable presumption that firefighters and certain peace officers diagnosed with PTSD have incurred an industrial injury. The bill was explained in my blog post “Done Deal: SB 542 & Police/Fire Presumptions.”
•AB 528 (Low), which amends sections of the Business and Professions Code and the Health and Safety Code, was signed by the Governor on October 9. The bill tightens requirements for reporting prescription drugs to the California CURES system, Among other things, pharmacists will be required to report Schedule V drugs to CURES and the time for reporting to CURES will be reduced to the next business day. Compliance with the bill will be phased in.
•AB 25 (Chau) was signed by Governor Newsom on October 11 after unanimous passage by the California Senate and Assembly. The impetus of the bill was concerns about how the California Consumer Privacy Act of 2019 (CCPA) would affect the ability of businesses to collect information within employment-related contexts and how to harmonize the CCPA with existing privacy protections under several California Insurance Code sections. Before passage of AB 25, among the concerns was how the CCPA would affect collection of personal information in the context of retaining information for administration of benefits. The bill was a compromise hammered out between privacy advocates and business groups, but has a one-year sunset provision. Therefore, we will see further legislation on this in the future.
A link to the text and legislative analysis of AB 25 can be found here:
•AB 668 (Gonzalez), signed by Governor Newsom on October 12, 2019 adds Section 43.54 to the Civil Code and amends Section 177 of the Code of Civil Procedure in an effort to protect litigants from immigration enforcement at California courts. This legislation was drafted out of concern that courthouse appearances could be used as the site of immigration enforcement arrests, discouraging claimants from using the justice system.
•AB 51 (Gonzalez) which will end forced arbitration as a condition of employment for employment contracts entered into, modified or extended on or after January 1, 2020.
Governor Newsom issued his first workers’ comp veto, nixing AB 346 (Cooper). The bill would have expanded Labor Code 4850- leave pay to certain school and community college police.
And the Governor was willing to tangle with other traditional allies as he vetoed several bills supported by labor and plaintiff attorneys, including AB 1478 (Carillo) (expanding civil remedy where employers discriminate due to employee being a harassment or domestic violence victim), AB 171 (Gonzalez) (expanding sexual harassment remedies), and AB 403 (Kalra) (extending the time for filing complaints alleging violation of labor standards with the DLSE).
Although it may be too soon to draw definite conclusions, it appears that the Governor favors consensus comp bills but will not look favorably on bills that may raise public entity costs.
8. 2019 was the year that the WCAB finally defined “catastrophic injury”.
In Kris Wilson v. State of California Cal-Fire the WCAB issued an en banc decision explaining how it views “catastrophic injury”, which is one of the exceptions under the 2012 reforms which allows psyche “add-on” claims for permanent disability only in limited situations. Wilson notes that the focus under Labor Code 4660.1(c)(2)(B) is on the nature of the injury rather than the mechanism of the injury.
My post, “Catastrophic Defined”, outlines some of the factors that a workers’ comp judge may consider relevant in making the determination whether an injury is “catastrophic”:
9. 2019 was not a year for major cases in the California Appellate courts
In 2019 there were many interesting WCAB panel decisions (including on issues such as apportionment, replacement QME panels, ex parte communication rules, etc ), two en banc decisions (Wilson I and II and Colamonico, a case clarifying a medical-legal provider’s burden of proof under LC 4620 and 4621) and a non-binding “Significant Panel Decision” Pa’u v. Department of Forestry, a case clarifying that Saturday is not a “working day” under the statute governing utilization review.
But there were few notable comp decisions from the California Court of Appeal. The meager list would include the following:
• Skelton v. WCAB (6th DCA) (Court of Appeal affirmed WCAB decision that worker was not entitled to receive temporary disability for time lost from work to attend appointments for medical treatment following her return to work)
• Meadowbrook v. WCAB (3rd DCA) (Velasquez) (application of prior fee schedule in interpreter fee dispute)
• Allied Signal v. WCAB (Wiggs) (case involving applicability of a prior agreement for a home-care evaluation)
• Hollingsworth v. Superior Court (2nd DCA) (dealing with issue of whether WCAB or superior court had jurisdiction over wrongful death lawsuit against an allegedly uninsured employer)
• Rodriguez v. WCAB (6th DCA) (addressing the time limits for seeking a WCAB determination of whether an injury is industrial in order to receive CalPERS benefits)
• CIGA v. San Diego County Schools Risk Management JPA (4th DCA) (superior court had jurisdiction in a CIGA coverage dispute)
• Qualcomm v. WCAB (Brown) (4th DCA) (denial of writ where court in a docket opinion declined to second guess WCAB finding of permanent total disability pursuant to the LeBoeuf and Ogilvie cases)
As 2019 came to a close, the 6th DCA issued a writ in the County of Santa Clara v. WCAB (Barbara Justice) case. The WCAB website notes that in Justice the issue is “Whether the Board erred in rejecting non-industrial apportionment to applicant’s pre-existing, degenerative bilateral knee arthritis, where bilateral knee replacement surgery improved her ability to walk and engage in weight-bearing activities but resulted in higher permanent impairment compared with her pre-surgery condition; the Board cited Hikida v. Workers’ Comp. Appeals Bd. (2017) 12 Cal.App.5th 1249 [82 Cal.Comp.Cases 679] in support of its decision.”
10. As always, in 2019 there were piles of studies analyzing various aspects of California’s system
Today’s studies often become the fuel for future reform efforts, so system studies and the metrics noted therein bear close attention. Noteworthy 2019 studies focused on declining opioid use, treatment patterns of doctors indicted for fraud, regional differences in California workers’ comp, the impact of the new prescription drug formulary, injured worker wage losses, gig/platform based work, and self-insurance savings.
My post “Always Under the Microscope” summarizes key findings from those studies, including analyses by CWCI, WCIRB, RAND, and Bickmore:
With those picks, it is time to move on to 2020.
I would be remiss, however, if I failed to note the 2019 passing of Mel Witt, a giant in the California workers’ comp community. Witt served as Chairman of the WCAB from 1975 to 1980, having served as a WCJ before that. After leaving the WCAB, he resumed his role as publisher and managing editor of the Berkeley-based California Workers’ Compensation Reporter, which he had begun in 1973. CWCR, which continues to this day, has always been an important voice in the workers’ compensation press, and Witt was a force for fairness and decency in the workers’ comp community.