Workers Compensation: USA and California

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1 International Social Security Association Conference Seminar III: Respiratory Diseases in Asia - Reporting, Recording, Prevention and Rehabilitation Shenzhen, Peoples Republic of China September 2006 Workers Compensation: USA and California Christine Baker Executive Committee Member International Association of Industrial Accidents Boards and Commissions missions Executive Officer State of California Commission on Health and Safety and Workers Compensation 1

2 Workers Compensation Systems in the USA Workers compensation in the USA was established for certain federal employees in 1908 and enacted by each state beginning in Federal statutes established various workers compensation programs for federal employees, workers in interstate commerce, and workers in specified occupations. Each state and the District of Columbia has its own workers compensation program. Since there are no national standards for workers compensation programs, the size, duration, and types of benefits vary from state to state. Workers' compensation acts as a safety net for workers injured on the job or as a result of their job and is the oldest social insurance program in the United States. 2

3 Workers Compensation: A No-Fault System Workers' compensation laws ensure that employees who are injured or disabled on the job are provided with fixed monetary awards, eliminating the need for litigation. Workers' compensation 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 the-job injury. Workers' compensation is an injured worker's "exclusive remedy" with respect to a work-related related injury, unless he or she can point to a third party who contributed to his or her injuries. The injured worker may file a separate tort suit against the third party. 3

4 Before Workers Compensation Before workers compensation, workers w who were injured on the job were required to Bring a tort suit against their employers. Prove that the injury was caused by employer negligence. Such litigation caused problems between the worker and the employer and put both at a disadvantage The worker often could not prove negligence and thus suffered the economic consequences of the injury. The employer was potentially liable for an unpredictable and unlimited amount. 4

5 California s s Workers Compensation System 1913 Bargain between Labor and Employers Both Labor and Employers agreed to a program to ensure that Worker who were injured or contracted an illness on the job would d receive predictable benefits without delay, and Employers would be liable only for those specified amounts, no matter m who was at fault. The program: California Workers Compensation Employers provide no-fault insurance against workplace injuries. Injured workers receive five benefits Temporary disability payments Medical expenses (both evaluation & treatment) Vocational Rehabilitation or Supplemental Job Displacement Benefits Permanent disability Death benefits 5

6 Workers Compensation in the USA and California Employment Covered by Workers Compensation In 2004, according to the National Academy of Social Insurance (NASI),( workers covered by workers compensation totaled million in United States, including 14.7 million in California. Workers compensation coverage is mandated for nearly all workers in private firms in every state except Texas. Texas has a voluntary workers compensation program but employers not offering coverage are not protected from tort suits. Various states exempt certain employees from coverage, including workers in very small firms, some agricultural workers, charitable and religious organization employees, and some employees in state or local government. California requires employers to provide workers compensation coverage for all employees. 6

7 Workers Compensation in the USA and California Workers Compensation Coverage Sources The individual states in the USA offer workers compensation coverage from various sources: Some through private insurance agencies Others only offer a state fund Others give companies a choice between private and government policies. Some states allow certain large and stable companies to be self- insured for workers compensation coverage. California offers all three sources of workers compensation coverage: Private insurers The State Compensation Insurance Fund (SCIF) Employers certified to be self-insured by the California Department of Industrial Relations (DIR). 7

8 Workers Compensation in the USA and California Costs of Medical and Indemnity Benefits 2004 USA WC Costs by Type of Benefit 2004 California WC Costs by Type of Benefit USA Indemnity Benefits $26.1 billion 53.4% USA Medical Benefits $26.9 billion 46.6% California Indemnity Benefits $6.4 billion 51.3% California Medical Benefits $6.1 billion 48.7% Source: National Academy of Social Insurance (NASI) 8

9 Workers Compensation in the USA and California WC Benefits by Type of Insurer 2004 USA WC Benefits $52.7 billion total (Excluding Federal WC Programs) 2004 California WC Benefits $12.5 billion total USA Self-Insured $13.3 billion 25.2% USA State Funds $11.1 billion 21.1% USA Private Carriers $28.3 billion 53.7% California Self-Insured $3.7 billion 29.6% California State Fund $3.2 billion 25.6% California Private Carriers $5.6 billion 44.8% Source: National Academy of Social Insurance (NASI) 9

10 Workers Compensation in the USA and California Benefits per $100 of Covered Wages $1.93 $2.01 $1.91 $1.58 $1.66 $1.06 $1.10 $1.16 $1.16 $ USA California Source: National Academy of Social Insurance (NASI) 10

11 Workers Compensation Asbestos Cases in California Asbestos Related Diseases Asbestosis/interstitial fibrosis Mesothelioma, an invariably fatal cancer which is rare in the general population but common among asbestos workers Gastrointestinal cancers, which may be caused by exposure to asbestos fibers Pleural disease, which is a frequently seen x-ray x marker of asbestos exposure but which also sometimes leads to significant disability Lung cancer, which may caused by asbestos exposure and/or exposure to tobacco or other industrial chemicals Lung abscesses, which may sometimes be caused by asbestos exposure 11

12 Workers Compensation Asbestos Cases in California Filing Claims and Lawsuits / Case Characteristics Filing Asbestos Claims and Lawsuits Workers compensation asbestos claims may be filed at any one of the 24 statewide offices of the California Workers Compensation Appeals Board (WCAB). Most California workers compensation claimants also file third party civil actions against asbestos manufacturers. Many claimants file federal workers compensation claims, since there is often concurrent jurisdiction between the U.S. Department of Labor and the WCAB. Asbestos Case Characteristics Two characteristics of asbestos cases engender certain problems and require procedures not generally seen in other litigation. The events causing injury occurred long, long ago, usually many decades and often half a century ago. These claims almost always involve multiple parties - often 10 to 20 parties defendant. 12

13 Workers Compensation Asbestos Cases in California Asbestos Investigations The long time between exposure to asbestos and development of disease requires an investigation differing from those usually required in a workers ers compensation case. To investigate these issues properly and identify and join new parties p during the course of the investigation, the e usual timelines for handling these cases simply do not work. Special factors in asbestos investigations include the following: Events occurred decades ago at employers that are often no longer r in business. Many of the insurer defendants have been liquidated. Witnesses to events many years ago are difficult to find, or are a deceased. Obtaining corporate history and insurance coverage is difficult where Companies names have changed or they have gone out of business Insurance coverage records are no longer readily available. 13

14 Workers Compensation Asbestos Cases in California Special Procedures for Asbestos Cases WCAB Cases The California Workers Compensation Appeals Board has a separate e calendar for asbestos-related cases and specialized judges assigned to these cases. The California Labor Code specifically exempts asbestos injuries from the 5 year limits for reopening or filing death claims. Case law also addresses the special requirements of asbestos cases by, for example, keeping the record open for the injured worker's life for f receipt of evidence regarding later developing asbestos related permanent disability d after an initial finding of disability. Tort Cases Over time, many jurisdictions have adopted special doctrines and rules to adjust the application of the traditional tort doctrines to asbestos disease claims because of the long time between exposure and illness. Most jurisdictions now follow the rule that the statute of limitations begins to run when workers discover that they have been injured, rather than at the time of the first exposure. 14

15 Workers Compensation Asbestos Cases in California Resolution of Asbestos Cases WCAB Cases Most WCAB asbestos cases aren't effectively closed until there is a truly final decision, such as A decision addressing the death of the injured employee, or A Compromise and Release fully addressing all issues for all parties. Third-Party Cases Tort claims are handled in civil court. However, many WCAB asbestos stos cases do involve the issues of third party credit and employer negligence. Usually, the third party credit issues are settled in the WCAB case without need for trial. 15

16 Asbestos Tort Cases in the USA Asbestos Tort Cases About 200,000 asbestos claims are pending in state and Federal courts c across the country. The total number of claims filed from the onset of asbestos litigation exceeds 730,000, according to the RAND Corporation. Asbestos filings have increased dramatically: In the early 1980s, about 5,000 claims were filed per year. During the late 1980s and early 1990s, approximately 25,000 new claims were filed each year. By the mid-to late 1990s, roughly 50,000 claims per year were filed. In 2003, an estimated 100,000 claims were filed. Asbestos Tort Case Costs According to the RAND Corporation, U.S. businesses have paid $70 billion for asbestos claims over the t past 30 years. 70 corporations have filed for bankruptcy protection because of the liability. 16

17 WC Insurance Costs: The California Experience The cost of workers compensation insurance in California has undergone dramatic changes in the last ten years due to a combination of factors. f When the workers compensation insurance industry was deregulated beginning in 1995, Insurers competed by lowering premium rates, in many instances lower than their actual costs. Many insurers drew on their reserves to make up the difference and several insurers went bankrupt. Subsequently, the surviving insurers charged higher premium rates to meet costs and begin to replenish reserves. The California workers compensation legislative reforms in the early 2000s, which were developed to control medical costs, update indemnity benefits and improve the assessment of permanent disability, also had significant impact on insurance costs. 17

18 WC Insurance Costs: The California Experience California Workers' Compensation Written Premium (in billions) $21.4 $23.6 $21.0 $15.6 $12.0 $14.8 $16.3 $14.5 $8.9 $7.6 $5.7 $5.9 $6.4 $6.6 $7.1 $5.1 $5.0 $5.3 $5.5 $5.7 $9.1 $6.5 $8.6 $ California WC Written Premium (in billions) - Gross of Deductible Credits California WC Written Premium (in billions) - Net of Deductible Credits Source: Workers' Compensation Insurance Rating Bueau of California (WCIRB) 18

19 WC Insurance Costs: The California Experience Average California Workers' Compensation Insurer Rate per $100 of Payroll $4.40 $6.46 $5.76 * $6.01 $5.75 $5.37 $4.94* $4.39 $4.53 $3.52 $3.58 $2.59 $2.56 $2.47 $2.33 $2.30 $ Jan-Jun 2002 *Excludes the impact of adopted changes to outstanding policy year 2002 pure premium rates effective January 1, 2003 Jul-Dec 2002 Jan-Jun 2003 Jul-Dec 2003 Jan-Jun 2004 Jul-Dec 2004 Jan-Jun 2005 Jul-Dec 2005 Source: Workers' Compensation Insurance Rating Bureau of California (WCIRB) 19

20 Workers Compensation Reforms: Recent Changes to the California System California has undergone significant legislative reforms in the workers compensation system, starting in 1989, continuing in 1993, and again a in 2002, 2003, and The recent reforms in AB 227, SB 228, SB 899 and AB 749 are intended to Control Medical Costs Utilization of Medical Treatment Medical Fee Schedules Medical Treatment Guidelines Agreed Medical Evaluator (AME), Qualified Medical Evaluator (QME) and Medical Dispute Resolution Update Indemnity Benefits Indemnity Benefit Increases in 2002 Reforms Indemnity Benefit Reductions in 2004 Reforms Improve the Assessment of Permanent Disability Permanent Disability Rating Schedule (PDRS) Revision Apportionment 20

21 Workers Compensation Reforms: Recent Changes to the California System Impact of the Reform Legislation As intended by the reforms, workers compensation costs in California have begun to decline: Average medical and indemnity costs per claim have shown a decrease. Premium per $100 of payroll has decreased. Written premium declined 11% from $23.6 billion in 2004 to $ 21.0 billion in Loss ratios are at their lowest levels since

22 Workers Compensation: USA and California Information Sources Commission on Health and Safety and Workers Compensation California Department of Industrial Relations Division of Workers Compensation Division of Labor Statistics and Research National Academy of Social Insurance RAND Corporation Workers Compensation Insurance Rating Bureau of California US Department of Labor, Bureau of Labor Statistics 22

23 California Commission on Health and Safety and Workers Compensation Labor-Employer Commission CHSWC Works with and advised by all stakeholders and public. Acts as forum for discussion of issues. Utilizes findings from independent research such as the University of California and the RAND Corporation to develop policy recommendations. Makes recommendations to the Governor and the Legislature to improve the operations of the critical health, safety and workers compensation systems in California. Many CHSWC recommendations became law in the workers compensation reform legislation of 2003 and AB 749, SB 228, AB 227 and SB 899. CHSWC website: 23