Reforms Cut Permanent Disability Benefits By 58%

The reforms of 2003 and 2004 brought significant changes to the California workers’ comp system and one of the biggest changes for injured workers was the impact on permanent disability awards. Now new research being presented to the Commission on Health and Safety and Workers’ Compensation (CHSWC) quantifies the scope of that impact, and it’s significant.

Overall since the move to the AMA-based Permanent Disability Rating Schedule (PDRS) in 2005 the average rating in a PD case is down 31.5% for both represented and unrepresented cases, while the change in compensation is down 40.4% overall, says UC Berkeley researcher Frank Neuhauser in a report for the commission. Neuhauser presented his findings to the CHSWC commissioners at a meeting in Oakland this morning.

The decline in both areas was most significant for the unrepresented cases where ratings are down 40.1% and compensation is off 51.7%. In represented cases the respective estimates are 28.4% and 37.2%. In terms of actual dollars, average compensation in an unrepresented case was $25,363 under the 1997 schedule but only $12,246 under the 2005 PDRS. When an attorney was involved the average declined from $49,080 to $30,804.

But these findings don’t tell the whole story. One key element that is missing are the cases that would have received a rating under the 1997 Permanent Disability Rating Schedule, but generate a zero under the 2005 schedule. Neuhauser estimates that about 25% of the permanent disability claims were eliminated as a result of the move to the AMA Guides-based rating schedule.

“While this represents an estimate of the fraction of claims converted from positive ratings to “zeroes” due to the switch in schedules, it does not tell us the impact on compensation. Compensation could be less affected (smaller decline) if the PD claims eliminated were, on average, less severe, lower rated claims,” he writes. “On the other hand, if claims most affected were back claims, which on average rated higher than other impairments before the schedule change, the impact on compensation could have been larger than the decline in the number of compensated claims.”

Those notes aside, Neuhauser estimates that compensation for PD claims is actually down by 58%, not 40.4%, when the zeros are added back in to the equation. This latter estimate also considers the impact on the changes in apportionment rules and the evolving impact stemming from the Workers’ Compensation Appeals Board’s decisions in the Almaraz/Guzman and Ogilvie decisions. Apportionment, he says, reduced ratings in unrepresented cases by 5.3%, while compensation was down 6.2% in these cases.

Neuhauser says his analysis is based on a review of permanent disability claims evaluated by the Division of Workers’ Compensation’s Disability Evaluation Unit (DEU) in the two years prior to the adoption of the 2005 PDRS and claims evaluated during an 18-month period ending June 30, 2011. “By using claims from the most recent data available we are evaluating the PDRS-05 schedule after the parties have adjusted to the new schedule and include the impact of the Almaraz/Guzman/Ogilvie case law as interpreted during the period,” he notes.

The DWC is still delinquent on fulfilling its obligation to update the PDRS at least every five years as mandated by the Legislature. That first update was due by the end of 2010, but the prior administration opted against an update in light of the economic downturn and the current administration appears set to hold out for a deal that pays for any benefit increase with savings generated elsewhere in the system. This study could prove pivotal in those negotiations.

by Brad Cain in San Francisco

Medical Legal Experts Inc. provides Medical Legal Functional Capacity Evaluations (FCE), Functional Capacity Exams and Functional Capacity Tests in California.