2. The History of Workers' Compensation in California

Workers' compensation programs were an outcome of the Progressive Era, when reformers responded to both labor and employer concerns about high rates of work-related injuries, insufficient compensation to injured workers, and continuing employer uncertainty about how to predict the costs related to these injuries. California's workers' compensation system was established in 1913 by the Boynton Act, which required that employers, with some exceptions such as the agricultural sector, provide workers' compensation benefits to their employees. Benefits for permanent disability, including permanent partial disability, were an essential part of the workers' compensation scheme.

In California, injured workers who have suffered some level of permanent disability begin to receive PPD benefits when (a) they have returned to work after an injury or (b) their condition is judged unlikely to improve further, even with additional medical treatment. PPD payments are meant to compensate workers for their disability, specifically for their lost ability to compete in the open labor market.

There are several reasons why California measures disability by this
abstraction--lost ability to compete--rather than by simply looking at how much income a worker has lost. First, income loss frequently continues past the date when benefits are determined so that the total income loss cannot simply be added up. Second, workers' incentives to return to work could be weakened if their benefits were directly determined by the amount of income they lost. Third, determining benefits directly from lost income would poorly reward workers who show the most initiative in returning to work and would over-reward those who make the least effort.

Disability ratings are determined by a disability schedule that assesses the effect of scheduled injuries among workers in different occupations and adjusts for age. The higher the rating, the larger the number of weeks of benefits the worker receives, from 3 weeks for the lowest ratings to 694 weeks followed by lower-value life annuities for the highest. Permanent partial disability payments are based on the disability rating as well as on pre-injury wages; they have a ceiling of $230 per week for the highest disability ratings and $140 per week for the lowest.

The rating schedule includes virtually every form of disability, and ratings based on the schedule are deemed prima facie evidence of disability in any compensation proceeding. In practice, however, and for a variety of reasons, schedule-based computations of disability level can be the source of many disputes.

  • Subjective medical findings such as pain enter into the calculation of disability ratings.
  • Every factor determining disability ratings can be disputed in some circumstance.
  • The primacy of medical reports as the basis for awarding PPD benefits may transform the adjudication process into a contest between competing medical evaluations.
Litigation may be exacerbated by a statutory provision that entitles an employee to reimbursement for medical-legal expenses necessarily
incurred in making a claim, even if the claim is later deemed non-
compensable. Expenses can include costs for x-rays, laboratory fees, diagnostic tests, medical records, medical reports, medical testimony, and legal fees necessary to prove a contested claim.

In 1989 and 1993, California implemented major statutory changes to address a broad range of workers' compensation issues. Highlights of these reforms include restructuring the medical-legal process, limiting compensability of psychiatric and post-termination claims, increasing benefit payments for moderate and serious disabilities, capping vocational rehabilitation payments, increasing fraud deterrence, and deregulating insurance rates.

It is still too early to assess the full effects of these reforms. Cases operating under the pre-1989 rules are still in the system; some that are subject to the 1989 rules, rather than the newer 1993 rules, are still open. But our interviews with system participants, described below, give some sense of how the reforms have affected the functioning and outcomes of the PPD system.

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