Chapter 1: The California Workers' Compensation System PDF

Chapter 1 The California Workers’ Compensation System Key concepts: x The Historic Compromise and “No Fault” Rule x The Evolution of Workers’ Compensation in California History of Workers’ Compensation Workers’ compensation systems in the United States were established in the...

Chapter 1 The California Workers’ Compensation System Key concepts: x The Historic Compromise and “No Fault” Rule x The Evolution of Workers’ Compensation in California History of Workers’ Compensation Workers’ compensation systems in the United States were established in the early twentieth centu- ry. Prior to that, employees injured on the job might pursue a civil tort action against their employ- er to recover losses due to their injury. But because few injured workers could afford to hire a lawyer and many were deterred by the fear of losing their job, this was not an option for most. Em- ployees who went to court had the difficult task of proving that their injury was caused by the em- ployer’s negligence. Even if the employees could prove negligence, employers commonly avoided liability by claiming that the workers’ own negligence had contributed to their injury, that another employee’s action had caused the injury, or that the employees were aware of the danger but had chosen to continue to work and had therefore assumed the risk. Seventeen days after a devastating fire at the Triangle Shirtwaist Company factory in New York City claimed the lives of 146 young workers in 1911, California passed its first workers’ compensa- tion act. However, the provision of workers’ compensation coverage remained voluntary for em- ployers. The passage of the Boynton Act in 1913 finally required most employers to have workers’ compensation coverage and established the State Compensation Insurance Fund, which opened its doors the following year. In 1917, the Workers’ Compensation Insurance and Safety Act replaced the Boynton Act. The new act substantially copied the provisions of the Boynton Act, but added the provision that, when rating permanent disability, “consideration be given to the diminished ability of such an injured employee to compete in the open labor market.” In 1951, the California State Senate decided that the new language “imposed the obligation to make due allowance for obvious physical impairments and due allowance for such disabling subjective factors as, for example, pain, discomfort, and psychiatric or mental disturbances, provided, of course, the subjective factor or fac- tors be considered to be of a permanent nature.” Over the years, required coverage has been ex- panded to include all employees, including farm workers, most domestic and household employees, and state prison inmates in some instances. Federal, maritime, and railroad employees are covered under separate workers’ compensation systems that are not part of California’s system. In short, the workers’ compensation system was created to pay for the medical treatment of work-related injuries or illnesses and provide temporary payment for lost wages and permanent disability payments that compensate for an injured employee decreased ability to compete in the open labor market. The Historic Compromise: A Trade-Off between Employers and Employees A workers’ compensation system makes compromises by trading rights and benefits between em- ployers and employees: the employee gives up the right to pursue what might otherwise have been a very large monetary award in exchange for a system that guarantees prompt delivery of 1  Chapter 1 benefits and provides legal protection against discrimination. The employer provides workers’ compensation benefits regardless of fault, in exchange for protection against civil action by the em- ployee. This exchange, often called the “historic compromise,” has three components: x No Fault: The employer is required to pay benefits no matter who caused the injury, as long as the injury arose out of or occurred in the course of employment. x Exclusive Remedy: Unless the employer is uninsured, the worker cannot pursue other forms of recovery from the employer, even if the employer was grossly negligent. (If a third party contributed to an injury or death, as might occur with a work-related car accident, the third party may be sued.) x Assured and Fixed Benefit: The workers’ compensation system establishes defined benefits, which must be paid for by the employer. Workers’ compensation awards are typically far less than comparable negligence awards in a civil suit. For example, although the maximum workers’ compensation death benefit may be far less than the possible award in a civil wrongful death suit, a civil action may take years to resolve while a death claim can be re- solved in as little as a few months. Additional recoveries are available to employees for an employer’s serious and willful misconduct and unlawful discrimination (Labor Code § 132a and § 4553). Although group health coverage may include arbitrary limits on the extent of treatment covered, workers’ compensation is a statutory benefit with no arbitrary limits on the frequency, duration, or extent of services. Exceptions to the “No Fault” Rule The “no fault” rule has exceptions. For example, deliberately self-inflicted injuries are excluded from coverage (Labor Code § 3600). For injuries that result from the serious and willful misconduct of the injured employee, benefits are reduced by half, unless the injury resulted in death or a per- manent disability of 70% or more; the injury resulted from failure of the employer to comply with the law or safety and health regulations; or the employee was under 16 years old at the time of in- jury (Labor Code § 4551). For injuries that result from the serious and willful misconduct of the employer, the employee’s compensation is increased by half (Labor Code § 4553). Serious and will- ful misconduct is generally difficult to prove, so these penalties are rarely imposed. The Workers’ Compensation Appeals Board must make the finding of serious and willful misconduct before any awards can be reduced or increased. Evolution of Workers’ Compensation in California 1 Over the past 20 years, rising prices have led to frequent attempts to control costs, primarily to em- ployers, who expend significant amounts on insurance, claims payments, legal and medical costs, and other aspects of workers’ compensation. Thus the workers’ compensation system continues to evolve in ways that affect physicians and other participants. In 1989 and 1993, measures were enacted to address the Qualified Medical Evaluator (QME) process, a fee schedule for medical legal examinations, physician referral, advertising, the compen- sability of psychiatric and post-termination claims, fraud deterrence, and benefit payments for in- jured workers. 1The evolution of legislation and the resulting financial impact can be traced in more detail in the annual re- ports of the Commission on Health and Safety and Workers’ Compensation. 2  Chapter 1 In 2003 and 2004, measures were enacted that allowed employers (1) to establish medical pro- vider networks—from which injured workers are required to select treating doctors, (2) to conduct utilization review to ensure that medical care was consistent with evidence-based guidelines, and (3) to limit the amount of physical therapy and chiropractic treatment. These measures also affect- ed permanent disability ratings and benefit payments to injured workers. An evidence-based medi- cal treatment utilization schedule (MTUS), or set of guidelines, was also adopted. In 2013, measures were enacted that made wide-ranging changes, which included (1) increasing permanent disability paid to injured workers and simplifying the permanent disability rating meth- od, (2) resolving medical treatment disagreements through independent medical review and bill payment disputes through independent bill review, (3) improving medical provider networks, and (4) updating the Official Medical Fee Schedule and establishing fee schedules for copy services, in- terpreters, vocational experts, and in-home health care. 3