NEW WA Compensation Rules

UNDERSTANDING AND IMPLEMENTING

THE NEW WORKERS’ COMPENSATION LEGISLATION

Washington Governor Chris Gregoire signed House Bill 2123 into law on June 15, 2011. This Bill, which passed through the House (69-26) and the Senate (35-12) in May, makes several changes to the State’s Industrial Insurance Act. Legislators viewed its passage as a compromise between protecting injured workers and preventing increasing employer rates. The law is effective immediately, although some sections will not become active until July 1, 2011 and January 1, 2012.

The new legislation affects both self-insured employers and state fund employers. However, there are two programs/funds that only apply to state fund employers. A detailed description of all the newly created programs and funds is provided below. (You can read the full Bill here: http://apps.leg.wa.gov/documents/billdocs/2011-12/Pdf/Bills/House%20Bill…).

CHANGES AFFECTING STATE FUND ONLY:

Return to Work Program

The law creates a “stay-at-work program” to reimburse State Fund employers for wages, training material (up to $1,000), clothing (up to $400), and tools/equipment (up to $2,500) necessary to allow an injured worker to return to work in a light duty or transitional capacity. The clothing and tools/equipment does not apply to those materials which the employer normally provides, and must remain the employer’s property following the light duty position. The worker must return to work in an approved (by the health care provider), light duty or transitional position in order to qualify.

The law also allows State Fund employers to receive a 50% wage subsidy (maximum 66 work days in a 24-month period, up to $10,000) for the wages/salary of an injured worker restricted to light duty. The worker must have worked in the approved light duty or transitional position for the employer to receive the subsidy.

The employer must submit a request for reimbursement/subsidy within one year of the date the work was performed. Wage subsidies does not affect an employer’s experience rating. The Program is funded by employer assessments, which can be collected up to ½ from workers.

Safety and Health Investment Grants

The Department will provide safety and health investment grants to help fund projects implemented by State Fund employers. This can include collaborative efforts with labor unions, business associations, employee organizations, and education institutions. These grants will focus on preventing workplace injuries/illnesses, innovative return-to-work programs, and projects specific to small business needs.

CHANGES AFFECTING SELF-INSURED AND STATE FUND EMPLOYERS:

Cost of Living Adjustments

All COLA adjustments are suspended for one year, beginning on July 1, 2011. There will be no “catch up.”

Effective July 1, 2011, all initial COLA adjustments are delayed until two years (the second July 1st) following a worker’s injury or occupational disease. Previously, COLA adjustments were made each July 1st following the industrial injury/occupational disease. There is now a one-year delay in adjustments. For example, if claimant is injured in January 2012, his/her time loss rate remains the same through July 2012, and the first COLA adjustment is made on July 1, 2013.

Permanent Partial Disability Awards

Effective July 1, 2011, pension benefits which are awarded after a PPD award, the pension must be offset by that prior PPD award. The PPD award can either be deducted from the pension reserves or the worker’s monthly pension benefits. There is no cap to the deductions from monthly pension benefits. You may not deduct any interest paid.

There will no longer be interest due on unpaid, monthly PPD awards.

Occupational Disease Study

An independent entity will perform an occupational disease study to review the current occupational disease definition, statute of limitations, and impact of occupational disease claims on long-term disability and pension trends. Study findings are due to the legislature by December 1, 2012.

Performance Audits

The Joint Legislative Audit and Review Committee will conduct performance audits of the claims management system, including self-insured claims. The audit will review the timeliness of decisions, and determine whether the Department resolves complaints and communicates in a timely, fair, and effective manner.

Fraud Prevention

The Department will continue to increase its fraud prevention efforts to monitor employer, worker, and provider fraud. This mainly involves reviewing other State’s fraud prevention methods to determine the best practices and increasing public awareness. This also involves establishing criteria in order to conduct periodic reviews of pension recipients to evaluate whether they are or can be gainfully employed. The Department must provide the Governor with a status report by December 1, 2012.

Rainy Day Fund

The Department will create a “Rainy Day Fund” to help reduce premium rate increases. Prior to proposing rates, the Director must determine whether the Accident and Medical Aid Fund assets are at least 10% (no more than 30%) in excess of liabilities. If so, the Director must transfer any excess into the Rainy Day Fund. When adopting rates, the Director may transfer money from the Rainy Day Fund into the Accident and Medical Aid Fund if necessary to reduce a rate increase or aid businesses in recovering from economic recessions.

Claim Resolution Agreements

Effective January 1, 2012, employers and workers (aged 55 and older) may enter into “structured settlements” at the Department level to resolve allowed claims. See below for a detailed overview.

What Changes Do You Need to Make by July 1st?

1. Do not make any further COLA adjustments until July 1, 2012. We recommend notifying all claimants via form letter that COLA adjustments will not be made on July 1, 2011, or for the following year, pursuant to new State law.

2. Update your current COLA policies regarding the first COLA adjustment following an industrial injury or occupational disease. You may also need to update your form letters to claimants regarding COLA adjustments following the injury/disease.

3. Update your pension policies to allow for offset of prior PPD payments.

4. Update your PPD payment policies to state that interest is not due on monthly PPD awards.

STRUCTURED SETTLEMENTS

Implementation of structured settlements is the most controversial addition to the Act, and is estimated to have a significant impact on the growing costs of pension and total disability claims (saving the Department 1.1 billion over the next four years). We anticipate an immediate impact on claim resolution with many workers choosing structured settlements, especially in this tough economic climate.

Beginning on January 1, 2012, injured workers aged 55 or older will have the option to: 1) continue receiving benefits for which they are eligible; 2) participate in vocational training (if eligible); or 3) agree to resolve their claim through a structured settlement. (In 2015, this option will be extended to workers aged 53 or older. In 2016, workers aged 50 or older will be eligible). The process and allowable terms are detailed below.

THE SETTLEMENT PROCESS:

(See Appendix A)

Initiating Settlements

1. Self-insured employers (SIE), the Department, and workers must wait 180 days after the claim is received by the SIE/Department before initiating a structured settlement. The claim allowance order must be final and binding before settlement is initiated.

2. For state fund claims, the worker and the Department may initiate structured settlement. The employer may also be involved, unless:

a) the claim costs are no longer included in the calculation of the employer’s

experience factor;

b) the employer cannot be located or is no longer in business; or

c) the employer fails to respond after receiving notice.

For self-insured claims, the worker and the employer initiate settlement. If the worker is unrepresented, s/he can seek assistance from the Ombudsman’s Office. The Department will not participate in any agreements beyond providing the required history information.

For a joint order, or if there are claims involving both the SIE and the state fund,

the worker, Department (state fund program), and SIE are parties to the settlement.

Industrial Appeals Judge / Board Oversight

3. If the worker is unrepresented by an attorney when the agreement is signed, the parties must forward a copy to the Board. An Industrial Appeals Judge will schedule a conference within 14 days to review the agreement and ensure the worker understands his/her rights. The Judge can only approve the agreement if it is within the best interests of the worker. The Judge must consider the following factors:

a) The nature/extent of the worker’s injuries and disabilities;

b) The worker’s age and life expectancy;

c) Effect of claim resolution on the worker’s entitlement to benefits; and

d) The worker’s marital/domestic partnership status.

4. The Judge must then issue an order allowing or rejecting the settlement within seven days following the conference. The parties can not appeal.

5. If the Judge allows the settlement, the order must then be reviewed by the Board. (If the worker is represented by an attorney, the settlement agreement bypasses the Judge and goes straight to the Board). The Board must approve the order within 30 days, unless it finds:

a) The parties did not knowingly or willingly agree to settlement;

b) The settlement does not otherwise meet the requirements under the Act;

c) Presence of harassment or coercion; or

d) The settlement is unreasonable as a matter of law.

6. If the Board approves settlement, it will issue notice to all parties, and a copy of the agreement will be placed in the Department claim file. Each party has 30 days after Board approval to revoke consent by giving written notice to the other parties and the Board.

Once the Agreement is Final

7. After 30 days, the settlement then becomes final and binding to all its terms, and to the industrial injury or occupational disease to which the agreement applies. A final agreement is not subject to appeal.

8. The worker’s attorney fees are limited to 15% of the total amount paid to the worker once the agreement becomes final. The Board will decide all fee disputes.

9. Claims closed pursuant to the structured settlement agreement can only be reopened for medical treatment. Further time loss, PTD, or PPD benefits are not payable under that claim.

10. If a party fails to comply with the agreement, the aggrieved party has one year (from the date of non-compliance) to file a petition with the Board. The Board can order compliance and issue a penalty up to 25% of the unpaid amount at the time the petition was filed.

11. The Department must maintain copies of all claim resolution agreements. Upon request, the Department must provide a copy of all prior agreements to any party which is actively negotiating a subsequent claim resolution agreement with that worker.

ALLOWED TERMS:

(See Appendix B)

1. The structured settlement can resolve all benefits and “bind the parties to all aspects of the claim, except medical benefits.” However, the settlement cannot cancel or reverse the allowance order.

2. The parties may agree to leave the claim open for future necessary medical treatment, or may agree that specific future treatment will be provided without a reopening application.

3. The settlement must provide a periodic payment schedule equal to at least 25%, but no more than 150%, of the average monthly wage in the state, except for the initial payment, which can be up to six times the average monthly wage in the state.

4. The settlement cannot subject another employer to any responsibility under the claim, unless that employer is a signatory to the agreement.

5. Parties may not use coercion or harassment to reach an agreement. The Department will investigate reports of coercion/harassment, and may take corrective action, including imposing penalties, removal from the retrospective rating program, or decertification from self-insurance.

6. The SIE/Department must continue to pay all benefits for which the worker is entitled until the agreement becomes final (30 days after Board approval).

7. All payments made pursuant to the settlement agreement must be reported to the Department as claim costs.

Questions?

What about sidebar agreements?

Employers typically offer sidebar payments to prevent reporting that money as a claim cost, which would then affect premium rates. Under this legislation, all money paid under the settlement agreement must be reported as claim costs. This does not prevent an employer from offering money in exchange for claim action (i.e. closure, segregation, PPD, etc.), but it does eliminate the benefit of not reporting those costs to the Department. However, sidebar payments outside of a structured settlement agreement (i.e. at the Board on appeal, Memorandum of Parties at the Department) are still available options.

Can we still segregate conditions?

Most likely, yes. Keep in mind that, if the claimant is unrepresented, the Judge has a duty to protect the best interests of the worker. This includes taking into consideration the nature and extent of the worker’s injury/condition, which likely includes looking at the medical evidence to determine whether there is some support for segregation. Although there is no “burden of proof” standard, the parties should be prepared to demonstrate to the Judge that the agreement is within the worker’s interests.

Does this affect Medicare set-asides?

Possibly. Any settlement agreement which segregates conditions or otherwise eliminates the employer from potential future medical exposure must take into account whether Medicare is implicated. The employer should review the Medicare set-aside criteria to determine whether the claimant qualifies prior to finalizing a settlement agreement.

Is Social Security affected?

The receipt of social security benefits should not be directly affected by the agreement. However, employers should always be aware of potential social security offsets and take that into consideration when considering TTD and PTD exposure. Social security offsets can be useful bargaining tools, such as by agreeing to not seek an offset in exchange for closure.

Can the agreements include civil releases or voluntary employment resignations?

Possibly. Again, the wording is broad and appears to encompass everything except medical benefits. However, the Department or the Board could take the view that civil releases and voluntary employment resignations are not an “aspect of the claim” itself. Keep in mind that every term of the agreement must be documented for the Judge/Board’s review.

Does this law apply to settlements at the Board?

No. You can still engage in settlement discussions and enter into Agreement of Parties when a Department order is on appeal at the Board.

What role will the Ombudsman have?

According to the legislation, the Ombudsman can “provide assistance or be present during negotiations.” This likely involves explaining to the worker his/her rights and any potential risks or benefits involved in agreeing to settlement. This should not involve giving legal advice or encouraging the worker to deny a settlement negotiation. The Ombudsman’s presence should be a supporting role, not a lead.

What if there is a pending third party claim?

Claim resolution agreements should not affect an employer’s right to reimbursement for “compensation and benefits paid” if a third party is involved. However, an employer can always agree to forfeit those rights or to compromise its lien amount. You will need to be aware of how you are classifying the money paid pursuant to the settlement agreement. For instance, you may want to consider paying specific benefits under the claim (i.e. offering money specifically for a PPD award versus offering a lump sum) in order to recoup that money under your lien. Agreeing to forfeit or compromise your lien may also help encourage settlement negotiations.

Will there be additional rules implemented under this law?

Both the Department and the Board are allowed to adopt rules to further implement the structured settlement process. We will do our best to keep you updated on new administrative rules and Board case law which impose additional restrictions or provide further guidelines for structured settlements.

The Department must give a status report on the implementation of structured settlement agreements to the legislature each year (through 2014). Following 2014, an independent study will be performed to evaluate the effectiveness and impact on the Department and self-insured employers.

Appendix-A_ChartAppendix-B_Table