California Permanent Disability

admin — Mon, 18 Feb 2008 16:43:20 +0000

Workers’ compensation systems were created in the United States in the early 20th century to provide a system of compensation for work place injury. These systems were social engineering arrangements which were meant to serve the broader purpose of providing prompt medical treatment and cash payments to prevent the worker and their family from becoming homeless and thus a charge on the public as a whole. The idea was to spread the costs of work related injuries through the greater society as part of the costs of production. In exchange, employers were given protection from civil law suit and the employee was limited to workers’ compensation benefits. This arrangement is called the exclusive remedy. Today, employers and insurance companies only care about the exclusive remedy and are in the process of gutting what remains of the workers’ compensation system.

The most contentious element of the system has always been the method upon which permanent disability was determined. There is no easy way to determine what a blow knee, a bad back or carpal tunnel is worth. In a civil tort (personal injury) action, the damages are medical expenses, past, present, and future lost earnings, pain and suffering and in some cases punitive damages. The goal of a tort case is to fully compensate the injured person for all of his or her losses.

Since workers’ compensation is an alternative to tort law, the method of determining how to compensate an injured worker for permanent damage is also different. Workers’ compensation systems were never designed to fully compensate the injured worker for all losses. The reason given for giving less than full compensation is that the injured worker would “linger” (stay on benefits) and have no incentive to return to work.

Still, there was no set method on how to determine the value of permanent injuries when workers’ compensation systems were formed in the early part of the 20th century. In the early part of the 20th century until the 1970’s, most state systems utilized very different methods of calculating permanent disability. California chose a system that was used in Tsarist Russia. The stated goal was to compensate the injured worker for the injured worker’s diminished ability to compete in the labor market.

The permanent disability percentage was based on the greater of the objective and subjective factors of permanent disability or the work restriction caused by the injury. Through the years the disability evaluation raters at the Industrial Accident Commission, and its successor, the Workers’ Compensation Appeals Board, formulated the percentages through custom and practice. There was no science to this system. In the early years of the worker’s compensation system, most permanent disability was based on a combination of objective and subjective factors with objective factors being the most important. In later years, work restrictions became the dominant factor in permanent disability ratings. The insurers and employers grew to despise the rating system because they viewed the subjective nature of the work restriction system and the wide variation in ratings between doctors as being too expensive and causing too much litigation and gaming of the system. Their real intent was to eliminate this system in favor of a system that would dramatically cut compensation for permanent disability across the board and have the added benefit of depriving many injured workers of representation as many lawyers left the workers compensation practice or found most cases not worth taking due to the low amount of permanent partial disability involved.

On April 19, 2004, the California Legislature approved SB 899, a law that overhauled the entire workers’ compensation system. The centerpiece of this bill was the radical change in the permanent partial disability system. The original California permanent disability system was completely abolished. The legislature changed the definition of permanent disability from diminished ability to compete in the labor market to an employee’s long term diminished future earnings capacity. An employee’s diminished future earnings capacity is defined as a numeric formula based on empherical data and findings that aggregate the average percentage of long-term loss of income resulting from each type of injury for similarly situated employees.

The law says that in determining the percentage of permanent disability, account shall be taken of the nature of the physical injury or disfigurement, the occupation of the injured employee, and his or her age at the time of the injury, consideration being given to an employees diminished future earnings capacity.

The law further states that the nature of the physical injury or disfigurement shall incorporate the descriptions and measurements of physical impairments and the corresponding percentages of impairments published in the American Medical Association (AMA) Guides to the Evaluation of Permanent Impairment (5th edition). The purpose of the new permanent disability rating system is to promote uniformity, consistency, and objectivity.

I realize that the previous three paragraphs are complex and difficult to understand. In fact the new rating system makes even less sense and is less logical than the old system. The system, as it now works is very confusing, not based on any empherical data, and is now even more convoluted given recent rulings by the Workers’ Compensation Appeals Board.

The AMA Guides to the Evaluation of Permanent Impairment is published by the American Medical Association. The Guides give percentages for impairment. The AMA defines impairment as the loss of function of a body organ or system. The percentages are the loss of ability to engage in activities of daily living such as bathing, eating, elimination, sex and exclude the diminished ability to engage in work activities. The percentages in the Guides are not based on any science or studies. One Guides editor testified at a deposition, when asked why the impairment percentages for upper extremity injures were decreased in the 5th edition from what they were in the 4th edition, admitted that there was no science involved in the decrease, that the AMA had many constituencies to answer to, and that the percentages were arrived through consensus. There are no studies that show that a single level back injury with leg pain has a lower impairment percentage than a multi level back injury with the same pain. At a lecture I attended, one of the consultants for Chapter 18, the pain chapter, told us that the consultants responsible for that chapter wanted up to 80 points as an add on. The insurance industry was not going to like this, so the limit to add on for pain is a measly 3%.

The AMA Guides are inconsistent between chapters. A worker who has to take medications and has to visit a doctor for hypertension but can still perform his or her job gets a higher rating than a worker with a post surgical back with leg pain who is no longer able to do physical work and looses his or her career as a result of the injury. An assembly worker with carpal tunnel who has an operation but can’t return to repetitive work might get 5% to 10%, but a worker with very minimal psychiatric issues can get a rating of 25%. In short, the orthopedic injuries that lower income workers suffer from and are by far the most dominant type of injury are rated very low and the few internal and psyche problems that upper class workers get rate higher. The Guides have subjectivity and there are still disagreements between doctors regarding the ratings. Also, the rating depends on how well the doctor understands the AMA Guides and how willing the doctor is to give the injured worker the full impairment rating that accurately reflects the injured workers impairment as defined by the AMA Guides.

To add insult to injury, the Administrative Director of the Department of Industrial Relations did not use any empherical data in determining the adjustment factors for the new permanent disability system as required by law. At this point, the defense attorney hacks and insurance company lackeys will say that I am wrong and that the Director used the 2004 Rand Report. This argument has no merit. First, the Rand Report proposed adjustments to the old system permanent disability rating schedule to adjust between parts of the body. Rand felt that knee injuries were being paid too much and psychiatric injuries were being paid too little. Rand proposed adjustments to make the schedule more equitable between body parts. The modifications that Rand used had nothing to do with the AMA Guides percentages. The AMA Guides do not even address diminished future earnings capacity. The Rand 2004 Rand study has nothing to do with coming up with modifying factors to make the AMA percentages reflect diminished future earnings capacity. There is no data to support the current modifying factors other than the “policy judgment” by the Administrative Director.

In effect, the new California permanent disability rating system is almost a strait AMA system with minor modifying factors. The result has been cuts in permanent disability benefits by 50% to 70%. This is not even taking into consideration the very draconian apportionment rules that now allow employers and insurance companies to subtract from the already dramatically lowered compensation for such factors as age, race, sex, national origin, as well as asymptomatic pre-existing conditions which are aggravated and are now symptomatic due to the work injury.The goal of these changes is to chase applicant attorneys out of the system. Most of the defense attorneys will also be gone. Once the attorney’s are removed form the system, the way is clear for even more draconian laws to further dismantle the workers’ compensation system. Eventually, if there is no change, workers’ compensation will really only serve as a liability shield (Exclusive Remedy) for employers and will exclude many, mostly older, employees from coverage and offer scant benefits. Insurers are already reaping enormous profits. Meanwhile, the bill is being passed to the taxpayers in the form of increased Social Security Disability payments, higher Medicare and MediCal roles, and more emergency room use.Permanent disability, while only responsible for about 20% or less of total workers’ compensation system costs, is the key to the entire system. Applicant lawyers charge a state mandated percentage which is based mostly on the permanent disability of the injured worker. The attorney fee comes out of the injured worker’s recovery and is not paid by the insurance company. The goal of the employers and insurers is to gut the permanent disability benefit so that lawyers find representing injured workers unattractive. The result is that there will be no one to police the workers’ compensation system to ensure that the injured worker is treated properly and fairly by the system. The reason why lawyers started to get involved in the system was because of the abuse by the insurance industry and employers. The lawyers who started representing injured workers in the 1930’s and 1940’s in California came out of the labor movement and were not motivated by high fees. The fees were low and most lawyers shunned the work that these pioneers pursued. These were not “greedy trial lawyers” but good people who genuinely wanted to help the injured worker. I am fortunate to have known some of these pioneer applicant lawyers.I suspect that at some point in the future, the insurance industry and employers will continue to abuse the new found power they have and that either the system will be changed again to give a level playing field for the injured worker or eliminated altogether if there is national health insurance in place.

Kenton Koszdin is a Workers’ Compensation Attorney located in Los Angeles, California. Visit his site at: http://www.workerscomp-losangeles.com/

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California Permanent Disability