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CWCI Analyzes Bill to Cut Work Comp Claim Investigation Times & Increase Employer Medical Liability

Oakland, CA – The California Workers’ Compensation Institute has issued a report on SB 335, a bill that would cut the amount of time claims administrators have to investigate most job injury claims from 90 days to 45 days and increase employers’ liability for medical benefits during the investigation period by 70%, from $10,000 to $17,000.

Investigating compensability of a claim depends on a timely and coordinated effort, not just by the claims adjuster, but by the employer, the claimant, physicians, attorneys, witnesses, and others.  The length of an investigation also can vary depending on the types of injuries reported, the circumstances causing the injurious event, whether witnesses were present when the injury occurred, the cooperation and availability of the parties involved, the number of issues and medical conditions asserted, and the availability of documentation.  To determine how long it takes to investigate claims and to estimate the potential impact of reducing the investigation period and increasing the employers’ medical liability as proposed by SB 335, CWCI researchers compiled a large dataset of claims with 2015 through 2019 injury dates and transactional detail through June 2020.  Because claims adjusters cannot begin an investigation until they are notified of a claimed injury by the worker, the employer, or the worker’s attorney, notification is key to triggering the investigation and the provision of benefits, so the authors used the study sample to determine: 1) the average number of days from the date of injury to employer notification, and the percentage of reported claims with an acceptance or denial decision within 30, 45, and 90 days of the employer’s notification; and 2) medical payments made during the first 45 and 90 days from the employer notice, and the percent of claims that meet or exceed the current $10,000 and the proposed $17,000 treatment limits.

More than half of all claims in the sample were reported to the employer on the day of the injury, but the distribution of claims by days to employer notification was skewed by a relatively small percentage of claims with protracted delays in employer notification.  These included cumulative trauma claims, which on average are not reported to the employer until 215 days after the alleged injury date.  As a result, the overall average reporting time for the claim sample was 12.4 days from the injury date.  However, the data show that at 90 days following the report to the employer, more than 97% of all reported claims had a compensability decision, while at 45 days, only 85.2% of all claims did – a relative difference of 13%.  A closer look shows that 6 out of 7 reported claims were ultimately accepted, with 92% of the accepted claims resolved within 45 days, but these are not the source of friction and significant expense in California workers’ compensation.  In contrast, 1 in 7 claims was ultimately denied, and took longer to investigate, as only 37% were decided within 45 days, while 63% remained under investigation, though almost 94% were decided within 90 days.  The data also show that 54% of all claims under investigation received treatment during the 90-day investigation period, while 28% received treatment during the 45-day time frame proposed by SB 335.  Medical payments averaged $1,372 during the 90-day period, and $735 at 45 days, well below both the current $10,000 limit and the proposed $17,000 limit.  Only 1.4% of reported claims met or exceeded the $10,000 limit, and 0.8 percent met or exceeded the proposed $17,000 limit.  

SB 335 also calls for revamping penalties for unreasonable delays in the payment of compensation.  Current law limits such penalties to 25% of the amount of the payment delayed with a cap at $10,000.  For a subset of eligible penalties, SB 335 would revert to prior law by imposing a penalty of 10% of the full amount of the order applicable to the entire specie of benefit for which payment was unreasonably delayed (e.g., all temporary disability, all permanent disability, or all medical treatment) with no limit.  Under those rules, which were in effect prior to the 2004 workers’ compensation reforms (SB 899), the value of compounded and uncapped penalties resulted in windfalls to employees that were out of proportion to the employer’s conduct.  The 2004 reform was designed to rein in the abuses of penalty claims that plagued the system, and the Institute report notes that the alteration of penalties under SB 355, even for a subset of claims as proposed, would compromise the legislative intent underlying the current penalty structure and return the workers’ compensation system to a situation that was once deemed to be so out of control as to warrant urgency legislation to correct. 

The CWCI analysis concludes that despite the intent of SB 335, it is unlikely that claims adjusters would be able to unilaterally expedite much of the investigation process, which requires a coordinated, cooperative effort on the part of all parties.  Reducing the investigation period by half and increasing employers’ liability for medical treatment benefits during the investigation period by 70% is likely to generate unintended consequences.  Decreasing the investigation period to 45 days would actually reduce access to medical treatment and would likely increase the number of provisional denials.  Provisional denials due to lack of cooperation or available documentation, the inability to schedule a panel qualified medical evaluator, and other issues will likely trigger more litigation as well as increases in allocated and unallocated loss adjustment expenses related to the investigation process.  As a result, recent improvements in the overall health of the California workers’ compensation system in reducing litigation, flattening medical inflation, and reducing expenses could be jeopardized.

The Institute has released its review of SB 335 in an Impact Analysis Report “The Impact of SB 335,” which is available to the public under the Research tab on its website, www.cwci.org. 

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