Sunday, September 14, 2008, 09:26 AM - Understanding the CA WC systemYou're late on your mortgage payment. You owe a penalty.
You're late on your credit card payment. You owe a penalty.
You're late on your cell phone bill. Your service probably gets cut off.
But if you're a California workers' comp insurer and you are late on payments, what happens to you?
The answer? It depends.
The California Workers' Comp Appeals Board issued a ruling last week clarifying penalty rules, Ramirez vs. Drive Financial Services and One Beacon Insurance. We'll look at that. But first, some background.
For years, California law under Labor Code 5814 allowed penalties for unreasonably delayed payments of up to 10% of the "species" of benefits delayed.
Later, an automatic penalty for late payments was enacted, Labor Code 4650(d). Conceived as a "self-imposed penalty", 4650(d) required the insurer to automatically add 10% to any late payment of temporary disability, permanent disability, or vocational rehab maintenance allowance. 4650(d) did not require a judicial finding of fault or "unreasonable delay". Rather, 4650(d) was like the added payment you might make if you fail to pay your mortgage on time, sort of like an automatic late fee. This does provide some incentive for carriers to pay
benefits in a timely fashion.
The real kicker was the 5814 penalty. Insurers could be tagged with large penalties if there was "unreasonable delay".
But the problem? Since the penalty amount was based on the "specie of benefits", penalty amounts were tied to what amounts of a particular benefit had been paid out. In mature cases with large medical treatment and large indemnity costs, 10% of the specie of benefit might be a five-figure sum, or even more.
Some applicant attorneys went prospecting for penalty claims.
The unreasonable delays of medical treatment or temporary disability undoubtedly caused medical or financial suffering in many instances. The possibility of significant monetary penalties acted as an incentive for carriers to pay benefits and for attorneys to press aggressively on delay issues.
But in many other instances the imposition of a 10% penalty for a single delay created a windfall when the penalty was assessed against an entire specie of benefits. Moreover, there were penalties on penalties.
The remedy was at times excessive.
Frankly, the applicants bar was in denial over problems with the application of former 5814.
And thus The Golden Goose does sometimes get killed.
As part of the SB 899 reforms, Labor Code 5814 was amended. Penalties are now allowed at the discretion of the WCAB for unreasonable delay or denial of compensation up to 25% of the amount delayed or denied, or up to $10,000, whichever is less.
An employer can avoid the potential 25% penalty by paying a self-imposed 10% penalty along with the delayed payment if made within 90 days of discovery, if delay is discovered by the employer before the employee makes a claim for penalty.
Labor Code 5814 now provides that any 4650(d) automatic penalty is credited against the 5814 "unreasonable delay" 25% penalty.
Penalty litigation has slowed considerably, partly due to the automatic penalty offset and partly due to the imposition of ACOEM medical treatment guidelines, second surgical opinion procedures, medical provider networks and utilization review.
Moreover, collecting a 25% penalty on delay of a $1,000 MRI is simply not cost effective in the majority of cases from a litigation expense-standpoint.
Thus, penalty issues lack the urgency that they had several years ago.
But under what circumstances will the WCAB exercise its discretion to award 25% penalties?
What factors are relevant to the imposition of a penalty?
Is the impact of the delay on the disabled worker a relevant factor?
Does the worker's attorney has a right to do discovery on defendant's claims handling practices?
Ramirez vs. Drive Financial Services and One Beacon Insurance Co. answers some of these questions.
Here is a pdf copy of the WCAB en banc decision in Ramirez vs. Drive Financial Services and One Beacon Insurance Co.:
http://www.dir.ca.gov/wcab/EnBancdecisi ... 8-EB-3.pdf
In my next post I'll provide more commentary on Ramirez.
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Monday, August 11, 2008, 10:46 PM - Understanding the CA WC systemThink back a few years.
Many in the press and public believed that California workers' comp was rife with worker fraud. The vision was fed by the occasional arrest shown on the 10 o'clock news. Or the story that doctor and attorney mills were feeding on each other, treating workers up the yin yang, ordering every expensive test possible. Billboards plastered over some major metropolitan areas didn't help the perception.
But the perception has changed.
Now there's still focus on employee fraud, but increasing concern about employer fraud.
Marc Lifsher's recent piece in the Los Angeles Times is a good summary of recent efforts to focus on employer fraud. Lifsher's piece is viewable here:
http://www.latimes.com/business/la-fi-c ... 3850.story
My earlier blog piece on the issue was "Its the Employer Fraud, Stupid".
That post is viewable here:
http://workerscompzone.com/index.php?en ... 818-110358
Employer comp fraud is costing honest California employers and insurers huge amounts of money.
There's a good chance your local car wash, dry cleaner and your favorite ethnic restaurant aren't covering their employees. It's that bad.
Until the legislature increases penalties for failing to maintain insurance,
enforcement raids seem to be key. But given the how endemic this problem appears to be (along with widespread other labor law violations), the state has a monumental task in educating employers, many of whom are ethnic minorities.
Sunday, June 22, 2008, 11:03 AM - Understanding the CA WC systemIt's a lazy summer day. In much of the state Californians are starting their
Today, I'll be looking at the latest comp numbers.
Many industries are having to rethink their business plans as energy, ocean and rail freight, airfares and commodity prices rocket skyward.
Could the concept of travel return to the way it was in the 1920's and 1930's, where only the well-heeled did the grand tour? The far-flung sprawling suburb with its big-box retailers is not looking like a good model for the future. A further climb in the price per barrel of oil-toward $200 or $225 per barrel could put whole sectors of the economy "under water", including the cheap-import driven Costcos and Wal-Marts.
But for comp insurers in the California market, it's still "laizzez le bon
That's the gist of the WCIRB report released on Friday summarizing 2007 results for California workers comp carriers (I've included a link to the WCIRB report at the bottom of this post; for a basic summary, I'd suggest you focus on Exhibit 18.1 to the WCIRB report).
The following are my observations on figures in the report:
Carriers continue to enjoy historically low loss ratios. Total losses (which include the costs of medical treatment for injured workers as well as indemnity payments to injured workers) were at $6.995 billion, 52.8% of
The costs of administering/adjusting those claims (known as allocated and unallocated loss expense) was $1.811 billion, or 13.7% of premiums collected. Thus, the cost of administering the claims was about 26% of the benefits (medical and worker payments) distributed through the system.
But when you add in other expenses, the ratio of benefits to payments looks much worse.
Commissions and broker fees were 7.1% of premiums at $942 million (higher than the $607 million paid to defense attorneys and $306 million paid to applicant attorneys). The categories "other acquisition expenses" and "general expenses" and "premium and other taxes" came in for 2007 at $445 million, $695 million, and $352 million respectively.
Keep in mind that these carrier overhead expenses were IN ADDITION
to the allocated and unallocated loss adjustment expenses which amounted to $1.811 billion.
So lets's do the math.
All of this insurer overhead and broker commissions totaled $4.245
billion. If you divide total losses of $6.995 billion (medical treatment costs and payments to workers) by $4.245 billion (the insurer overhead and broker commissions) you find that the cost of middlemen/overhead was 60% of the benefits paid to or on behalf of injured workers.
Yes, premiums have come down (that's good for employers). Premium
(before "premium credits") was down in 2006 to $13.2 billion from $17.1 billion in 2006.
What's going on here? As the system has shrunk, the ratio of system costs to benefits paid out is increasing. And so a mandated social welfare program ends up having unacceptably high administration costs relative to benefits paid out.
Solutions? Raising worker permanent disability payouts? Capping broker fees for placing comp coverage? Very aggressively pursuing the huge amount of uninsured employers who don't pay premium (many of who hire illegals and/or fail to comply with other labor standards requirements)? A unitary comp system, with one payor (like Nevada)?
Memo to the folks at CHSWC: what's your position on these numbers?
Is it acceptable to have system costs so high relative to benefits paid out? Let's have a public debate about the numbers.
Here is the link to the WCIRB report. To get to Exhibit 18.1, scroll down a bit):
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Wednesday, June 18, 2008, 10:52 PM - Understanding the CA WC system1,000.
That's the number of QMES who have dropped out of the California workers' comp system over the past five years. Wow. My source?
Remarks by DWC Administrative Director Carrie Nevans, speaking to the CSIMS summer conference at Oakland's Claremont Hotel this past weekend.
CSIMS is the professional organization for many of California's physicians who practice industrial medicine. Some do only QME and AME evaluations. Others treat patients and do evaluations.
I was speaking to the group along with defense attorney Richard Jacobsmeyer and WCAB chairperson Joe Miller. The topic: "How to become an AME".
Looking from the podium, here's what I noticed: a graying crowd.
My assessment was confirmed in discussions with a long-term CSIMS member attending the conference. I'm glad to be proven wrong, but I'd say the average age of the CSIMs attendees was around 60.
The QME pool in California is graying.
Put that together with stats that 1,000 have dropped out. Something's gotta give.
Wednesday, April 9, 2008, 10:51 PM - Understanding the CA WC systemIt's a brief-fest!
The stakes couldn't be higher. Did the 2004 reform wipe out Wilkinson?
If each little injury a worker has suffered is rated separately rather than lumped together to determine overall effect, the savings for insurers will be huge. That's the issue in the Benson case.
Here's the latest salvo. A brief filed by attorney Carl Taber of Petaluma on behalf of the defendant Permanente Medical Group can be found here:
http://www.workcompcentral.com/pdf/2008 ... lgroup.pdf
To my knowledge, the Court of Appeal hasn't yet decided whether to hear the case.