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Industry Insights

Young: Top 10 Workers' Comp Developments of 2021 First Half

  • State: California

At midyear, it’s time to assess the top developments in California workers’ comp during the first half of 2021.

Julius Young

Julius Young

Separating the signal from the noise is not always easy, but here is my assessment of the important developments and trends in the California system, in no particular order:

1. WCAB Commissioner Juan Pedro Gaffney has departed, opening up a slot for Gov. Gavin Newsom to fill.

Gaffney was never a major presence on the Workers' Compensation Appeals Board. Lacking any comp or legal experience, his selection by Gov. Jerry Brown was widely seen as covering for an old friend. Gaffney’s departure does present Newsom with the opportunity to select a replacement. Workers’ comp has not been an issue that required much attention from Newsom during his campaign and his administration, so it will be interesting to see who has the governor’s ear as he makes this replacement appointment.

2. By midyear, the scope of 2021 California legislative activity became more clear.

An effort to create a statewide physician network to treat injured workers (a California medical provider network) stalled. That bill, AB 1465, is currently advancing as a study bill, requiring that a Commission on Health and Safety and Workers' Compensation study of a statewide MPN be done by Jan. 1, 2023.

A bill to prohibit discrimination in apportionment, SB 788, continues to advance. Discrimination in apportionment based on race, religious creed, color, national origin, gender, marital status, sex, sexual identity or sexual orientation would be banned by an amendment to Labor Code 4663. However, language banning apportionment based on age or genetics was removed from the bill.

The fate of another contentious bill, SB 335, was not clear at midyear. That bill would shorten the time to investigate and accept or deny a claim, from 90 days to 45 days. Facing strong employer and insurer opposition, the bill was scheduled for a hearing in July.

Other bills that appeared to be advancing included AB 872 (salary continuation for California Division of Forestry employees), AB 404 (requiring review of the Medical-Legal Fee Schedule every two years), AB 334 (skin cancer presumption for some public employees who work outdoors) and SB 284 (to prospectively expand the previously enacted presumption of post-traumatic stress disorder for certain first responders to cover various other public employee groups specified in the bill).

3. The comp community continued to adapt to changes caused wrought by COVID.

The California Workers' Compensation Institute has tallied 29,398 workers’ comp COVID claims filed between January 2021 and May 2021. The numbers dropped precipitously, from 21,797 in January 2021 to 585 in May 2021.

In 2021, conferences and trials continued on the LifeSize platform, although district offices were reopened.

Most depositions continued to be held on Zoom, to the delight of many attorneys and court reporters who found that the video deposition process generally worked quite well.

Some qualified medical evaluations continued on video, while others resumed in person.

As the governor and local areas issued orders “opening up,” some comp community stakeholders began to bring workers back to the office, while others allowed workers to work remotely altogether, and some proposed a hybrid approach for their staff.

As with many employers across the country,  workers’ comp stakeholders were studying their operations. This included assessing the efficiency of their employees who worked remotely, examining the cost of their real estate footprint and considering how their organizational culture could best be sustained while meeting the changed preferences of some workers. Some believe that things will be “back to the pre-pandemic usual” within a year and others believe that things have changed forever, with much work done remotely.

Meanwhile, there is growing concern about the Delta variant and the unvaccinated.

4. The workers’ comp industry awaited a determination from Insurance Commissioner Ricardo Lara as to whether advisory comp rates would increase or decrease. 

A California Department of Insurance hearing was held on proposed non-binding advisory workers’ comp rates that would go into effect as of Sept. 1, 2021. Lara and CDI staff heard dueling recommendations. On the one hand was the  Workers' Compensation Insurance Rating Bureau, recommending a 2.7% increase in advisory rates, to $1.50 per $100 of payroll (from the Jan. 1, 2021, approved rate of $1.46). In opposition, actuary Mark Priven suggested that advisory rates decrease by 8.2%, to $1.34 per $100 of payroll.

After six years of decreasing advisory workers’ comp rates, Lara will determine whether advisory rates should finally increase or whether there is room for further declines. Among the factors explaining the difference in projections are different assumptions regarding claim frequency, medical cost inflation and loss adjustment expenses. Of course, insurers are free to make their own pricing decisions, so the CDI recommendations carry only limited weight.

5. After years of study, the Division of Workers' Compensation finally amended the MLFS.

Amendment of the fee schedule for QMEs had been an elusive DWC target for several years, despite repeated drafts, comment forums and stakeholder meetings. This year was different. A new MLFS was adopted, effective April 1, and online Zoom sessions were held in early April by Medical Unit staff, explaining the regs.

The new schedule jettisons QME compensation based on complexity factors. Instead, it creates flat fees and a per-page document review compensation scheme.

Some period of adjustment and friction was to be expected, and by midyear there were reports that some stakeholders were having disputes over what records should be forwarded to QMEs. Getting a reliable estimate of the systemic cost of the MLFS increase was difficult.

6. Reports make it clear the California workers’ comp system shrank in 2020.

It isn’t surprising that the comp system shrank in 2020. After all, consider the economic turmoil caused by COVID-19, with high unemployment and shrinking payrolls. And comp rates have been falling for a number of years.

Although it covers only insured employers, not self-insureds, a June 25 WCIRB report shows that the system shrank considerably in 2020. Calendar year 2020 insurer earned premium shrank to $14.1 billion from $16.1 billion in 2019 and $17.4 billion in 2018.

Insurer total 2020 paid losses declined ($7.8 billion vs. $8.3 billion in 2019), but losses as a percentage of earned premium rose from 43% in 2018 and 48% in 2019 to 51% in 2020, given the smaller total premium paid.

Attorneys were affected as well. Defense attorney fees were $828 million in 2020 versus $903 million in 2019. Applicants' attorney fees were $402 million in 2020 versus $446 million in 2019. 

Loss adjustment expenses declined in 2020 to $1.7 billion from $2.1 billion in 2019.

At midyear 2021, with the California economy starting to rebound from COVID lockdowns, it is difficult to have confidence that 2020 stats on the system reveal longer-term trends.

7. Concerns about California MPNs continued to surface.

For years, applicants' attorneys and worker advocates have complained that injured workers have trouble finding doctors on MPNs who are available and willing to provide treatment in a reasonable time frame and geographically appropriate manner. Countering this, insurer advocates claim that most injured workers receive timely treatment, and they question the need for reform.

In opposition to the proposal for a statewide MPN network, CWCI produced a position paper questioning the need.

Assuming it is passed and signed by Newsom, AB 1465 will require a study of some of these issues.

Meanwhile, there has been increasing concern among many physicians that MPN contracts and lack of transparency in discount agreements are discouraging physicians from participating in the system, leading many to refuse workers’ comp cases and others to complain about contracted rates. This is an issue that pits doctors against insurers, billing companies and MPN network assemblers.

Readers who want to learn more about “the murky world of contract discounts” should take a look at the Daisy Bill blog.

On July 1, the DWC unveiled a new form that requires entities providing physician network services to disclose a contracted discount rate that is less than 80% of the Official Medical Fee Schedule (OFMS). That form can be found here.

8. 2021 is not a big year in the courts for workers’ comp.

There were interesting WCAB panel decisions on issues involving permanent total disability, the definition of a violent act, the QME process, application of the Kite doctrine, cancer presumptions, substantial evidence and more.

But there were very few significant cases coming out of the appellate courts. Exceptions include:

9. Regulatory action was limited.

Aside from the adoption of a new QME fee schedule, regulatory activity was very limited.

In March, the DWC extended the emergency regs for evaluation and reporting in response to COVID, allowing those to remain in place till Oct. 21.

As noted above, a new QME fee schedule was finally adopted.

Online forums were held in the first half of 2021 regarding possible QME regulations (dealing with education requirements and discipline, among other things) and Disability Evaluation Unit regulations. There was no public activity in the first half of 2021 on the topic of Copy Service Fee Schedule Regulations despite an October 2020 forum on that topic.

10. As usual, there was a flood of studies on the California system.

Studies often influence policymakers, so the following recent studies are worth noting.

From the DWC:

  • Report on 2020 independent medical review data.
  • Report on independent bill review.

From the CWCI:

From the WCIRB:

  • Report on prescription drug trends.
  • Report on the cost impact of California’s prescription drug formulary.
  • Report on California claims and costs as of the fourth quarter of 2020.

Julius Young is an applicants' attorney and a partner for the Boxer & Gerson law firm in Oakland. This column was reprinted with his permission from his Workers Comp Zone blog on the firm's website.

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