Refocusing the Workers’ Compensation Subsequent Injury Program

AN LAO REPORT Refocusing the Workers’ Compensation Subsequent Injury Program GABRIEL PETEK | LEGISLATIVE ANALYST | JULY 2025 SUMMARY Subsequent Injury Benefit Trust Fund (SIBTF) Started as a Narrowly Focused Benefit. The state’s SIBTF pays generous lifetime workers’ compensation benefits to injured workers who also have pre-existing health issues. The state first enacted SIBTF to offset employers’ workers’ compensation costs for veterans and other workers whose serious pre-existing disabilities made a new work injury more disabling and therefore more costly to the employer. The program has evolved since then and now rivals the size of the standard workers’ compensation system but with looser standards, broader eligibility, and more generous benefits. Nearly all claimants receive the state’s most generous disability benefit, $1,700 per week for life, a rarity in standard workers’ compensation. Most SIBTF claims cite common health issues as pre-existing disabilities (rather than severe conditions as originally intended). These include hypertension, sleep apnea, arthritis, diabetes, headaches, acid reflux, asthma, allergies, and sexual dysfunction. Employer SIBTF Tax Has Increased, but Nevertheless Understates Program Costs. Increased use of SIBTF has led to an increase in employer taxes that are used to fund benefits—from $35 million in 2014-15 to $850 million in 2024-25. This increase nevertheless understates employer costs. This is because, at present, the state processes about one-fifth of incoming claims each year, leading to a backlog of about 25,000 claims for which employer taxes are not yet due. Employers likely face lifetime benefit costs of $2 billion to $3 billion for each annual cohort of claims. SIBTF Not Aligned With Legislature’s Workers’ Compensation Structure. The broadened SIBTF benefit program is no longer aligned with the Legislature’s intended benefit structure for workers’ compensation. This is because many injured workers with less severe injuries eventually receive the most generous benefit under SIBTF when they otherwise would have received much smaller awards under the standard workers’ compensation benefit system as designed by the Legislature. Influx of SIBTF Claims to Cause Further Delays. State processing staff have not been able to keep up with the rising number of SIBTF claims in recent years. As a result, claims processing that is already delay-prone is set to drag on longer: workers submitting SIBTF claims today might expect to wait five to ten years. Refocusing SIBTF. We suggest the Legislature look to refocus SIBTF to more closely align with its original purpose. To do so, the Legislature would need to reassess several dimensions of the program. Key options include: (1) establishing stricter criteria for pre-existing conditions, (2) returning the eligibility threshold to only cover moderate and severe work injuries, (3) requiring that pre-existing conditions were previously documented, (4) requiring claims to be reviewed by an agreed-upon physician, (5) limiting SIBTF to pre-existing disabilities that actually worsen the work injury, and (6) revisiting how multiple conditions are added together. We also recommend the Legislature consider fast-tracking backlogged claims from workers with the most severe pre-existing conditions. www.lao.ca.gov 1 AN LAO REPORT INTRODUCTION The Subsequent Injury Benefit Trust Fund (SIBTF) pays out lifetime benefits at the state’s highest was created as a narrow supplement to California’s allowable level to workers with relatively common workers’ compensation system. The state first health conditions and less severe work injuries. enacted SIBTF to offset employers’ workers’ The SIBTF tax on employers has grown rapidly, compensation costs for veterans and other workers but nevertheless understates the true future whose serious pre-existing disabilities made a new cost of claims already filed. Current employer work injury more disabling and, therefore, more tax amounts understate the program’s full cost expensive. The program had the effect of providing because taxes are owed on processed claims and additional lifetime benefits to a small number of the state’s processing capacity has not kept pace workers facing steep barriers to employment. with incoming claims, leading to a backlog of more Over time, however, SIBTF has grown dramatically than 25,000 claims. in both size and scope. Today, it operates alongside This report examines how SIBTF has evolved; the standard workers’ compensation system but how it no longer aligns with the Legislature’s intent with broader eligibility, less rigorous standards, and for disability compensation; and what policy options more generous benefits. could restore the program to its earlier, more This growth has created both fiscal and targeted role. administrative challenges. The program often WORKERS’ COMPENSATION BASICS Workers’ Compensation System. California’s Permanent Disability in Workers’ workers’ compensation system provides medical Compensation. Most workers who are injured care and wage replacement to workers who on the job receive medical care and temporary are injured on the job. Workers with permanent pay for lost wages while they get better. Their injuries also receive a long-term wage supplement. workers’ compensation case ends when they Employers must purchase insurance coverage recover fully and return to work. In some cases, (or self-insure) and their insurance rates reflect though, workers suffer more substantial injuries their claims costs. Insurance coverage is more that leave them permanently disabled. Workers who expensive for employers with higher workers’ suffer a permanent disability receive permanent compensation costs (and vice versa). Workers’ disability benefits. The amount of permanent compensation insurance premiums are paid as disability compensation a worker receives is set a percentage of the employer’s payroll. After an by measuring, or “rating,” the injured worker’s injured worker files a workers’ compensation claim, impairment. The rating percentage estimates the employer’s insurance company approves or how much the worker’s disability limits the kinds denies the claim. If the worker disagrees with of work they can do. The permanent disability the insurer, they may appeal the decision to an ratings range from 0 percent, which signifies no administrative law judge with the state’s Workers’ impairment, to 100 percent, which signifies total Compensation Appeals Board (WCAB). disability. As shown in Figure 1, the vast majority WCAB Reviews Workers’ Compensation of permanent workplace injuries are rated below Appeals. The state WCAB is a seven-member 25 percent (referred to as “minor injuries” in the judicial body that serves as the court of appeal workers’ compensation system). Total disability for all workers’ compensation claims. In addition ratings of 100 percent are very rare in the state’s to reviewing appealed cases, the WCAB issues workers’ compensation system. rulings to clarify the state laws about workers’ compensation eligibility and benefit levels. 2 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Figure 1 Vast Majority of Workplace Permanent Injuries Are Minor Estimated distribution of disability ratings for workplace injuries that occurred in 2021 at employers that carry workers’ compensation insurance (roughly three-quarters of statewide payroll). 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100 Total Disability Minor Injuries 85% Major Injuries 14% Less Than 1% Workers’ Compensation Benefits for What Other Financial Support Is Available Permanent Disability. The amount of workers’ to Injured Workers? In addition to workers’ compensation benefits an injured worker receives compensation insurance and benefit payments, depends on the worker’s permanent disability injured workers also access several alternative rating as shown in Figure 2 on the next page. public resources depending on their work history Workers with a permanent disability rating between and circumstances. The most common include the 70 percent and 99 percent are considered partially state’s temporary disability insurance program, disabled and therefore still able to continue working which provides wage replacement for up to one in some form. To compensate these workers for year when a worker gets hurt, ill, or disabled their work impairment, they receive a lifetime outside of work. These benefits are paid for by benefit of up to $290 per week to account for the a payroll tax on workers. Another alternative is the worker’s lost earnings potential. As shown in the federal Social Security program, which provides first figure below, benefits for 100 percent total early retirement benefit payments to workers who disability claims are much larger—$1,704 per can no longer work due to illness or injury. Known week for life. Figure 3 on the next page includes as Social Security Disability Insurance (SSDI), these several examples of permanent disability ratings, benefits are available to workers with total disability the related underlying injury, and how state law conditions that significantly limit their ability to do structures benefits for each injury. basic work activities. www.lao.ca.gov 3 AN LAO REPORT Figure 2 Lifetime Weekly Benefit Amounts Jump at Total Disability Rating $1,800 1,600 1,400 1,200 1,000 800 600 400 200 70 75 80 85 90 95 100% Permanent Disability Rating Percentage Figure 3 Workers’ Compensation Disabilty Benefit Examples Permanent Disability Rating Example of a 55 year old worker with $2,000 18% 50% 71% 99% per week in average earnings who lives until age 81. Example Injury Hand and shoulder Leg injury resulting Arm, lower back, Severe traumatic brain injury resulitng in lower leg and leg injury injury resulting in in limited motion amputation. resulting in back substantial cognitive and instability. surgery and foot impairment. amputation. Number of weeks of benefit payments 18 241 421 600 Weekly benefit amount $290 $290 $290 $290 Lifetime weekly benefit for serious injuries No lifetime benefit. No lifetime benefit. $85 $301 Total Workers’ Compensation $5,200 $70,000 $115,000 $410,000 Benefits 4 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT SUBSEQUENT INJURY BENEFIT TRUST FUND SIBTF Established as a Narrowly Focused 3. The worker’s overall disability rating (when Benefits Program. The state created SIBTF shortly combining the pre-existing conditions and after World War II to encourage employers to hire the subsequent injury) is greater than the returning veterans with pre-existing disabilities. subsequent injury rating alone. At the time, employers were reluctant to hire 4. The worker’s combined disability rating is at these workers due to potentially higher workers’ least 70 percent. compensation costs. If a worker with a prior injury Who Pays for SIBTF Claims? SIBTF claims suffered a new workplace injury, the employer could are paid out of the state fund, but the fund be liable for costs related to both the old and new itself is supported by a tax that employers pay injuries. The SIBTF addressed this reluctance by on their workers’ compensation insurance instead covering the costs related to the prior injury, premiums. (This tax is sometimes referred to as thereby spreading these costs across all employers. an assessment.) All employers pay the same tax This had the effect of ensuring the current employer rate, levied as a flat percentage of the employers’ would not be solely liable for prior injuries. insurance premium total. Insurers collect the tax How Do Workers Qualify for SIBTF Benefits? as part of the premium payments and remit the State law sets forth the requirements to be eligible collections to the state. Employers that self-insure for SIBTF benefits. They are: for workers’ compensation remit a commensurate 1. The worker has one or more pre-existing payment to the state. The statewide SIBTF health conditions or disabilities. employer tax totaled $848 million in 2024-25. 2. The worker has suffered a second (“subsequent”) work injury rated at least at 35 percent disability. THE SIBTF EXPANSION In recent years, the SIBTF program has evolved submitting SIBTF claims has increased in recent from a narrowly focused benefit to support a small years. The state now receives around 3,000 SIBTF number of severely injured workers into a much claims per year, of which it has been able to larger and broader disability benefits program. process 500 to 1,000 claims annually. Submitted Many more workers file claims with SIBTF today claims are held as “case inventory” until state staff than a decade ago. These claims typically pay can process and initiate benefit payments. The more generous benefits than standard workers’ state’s case inventory of unprocessed SIBTF claims compensation and many include compensation now sits at roughly 25,000 claims. for common chronic illnesses, as opposed to SIBTF Program Much More Generous severe pre-existing disabilities. The result is a Than Standard Workers’ Compensation. Total benefit program that now rivals standard workers’ disability ratings of 100 percent are very rare in the compensation in size and that may no longer align standard workers’ compensation system but now with the program’s original legislative intent. account for more than 80 percent of SIBTF claims. Number of SIBTF Claims Has Grown To receive a 100 percent rating in the standard Substantially. Between 2005 and 2015, the workers’ compensation system, an independent state received about 1,000 SIBTF claims annually physician must deem the injured worker incapable and was able to process roughly half of those of working in any capacity for the remainder of claims each year. The number of injured workers the worker’s life. www.lao.ca.gov 5 AN LAO REPORT This standard does not apply in SIBTF. Figure 4 headaches, acid reflux, asthma, allergies, and compares the lifetime benefit award amounts of an sexual dysfunction. SIBTF claims also often include SIBTF claim to the workers’ compensation figures psychiatric conditions such as anxiety, depression, listed earlier. and substance abuse. These conditions are much SIBTF Now Surpasses Standard Workers’ less common in the broader workers’ compensation Compensation in Permanent Disability system because they are not normally work-related Payments. Insured employers pay roughly and work-limiting. The Department of Industrial $1.4 billion in permanent disability payments. Relations (DIR) recently hired the RAND Corporation Self-insured employers—private and public—likely to study claim-level data from the state’s SIBTF add another $500 million to $1 billion. Together, (California’s Subsequent Injuries Benefits Trust total annual permanent disability payouts under Fund: Recent Trends and Policy Considerations). the standard workers’ compensation system likely Below, we highlight a few findings from data total about $2 billion. SIBTF, once a relatively collected as part of the RAND study on SIBTF. small program, now pays more permanent • Nearly 70 Percent of SIBTF Claims Allege disability payments ($2 billion to $3 billion) than Common Chronic Conditions. The RAND the state’s core workers’ compensation program. assessment of recent SIBTF claims found Figure 5 compares insured employers’ workers’ that nearly 70 percent of SIBTF claims compensation permanent disability payments alleged at least one condition that had been to payments made under the state’s expanding flagged by the DIR as a common, chronic SIBTF program. health condition. The study also noted that Many Claims Built on Common Chronic 35 percent of claims listed two or more Conditions. In recent years, the scope of SIBTF common, chronic conditions. These results claims appears to have expanded beyond providing may understate the occurrence of common supplemental benefits to injured workers with conditions on SIBTF claims because allergies severe disabilities. A majority of SIBTF claims and hay fever were categorized as “Other now include one or more common, chronic health conditions” and therefore not included in DIR’s conditions as pre-existing disabilities. These include grouping of common, chronic conditions. hypertension, sleep apnea, arthritis, diabetes, Figure 4 Workers’ Compensation Disabilty Benefit Examples Permanent Disability Rating Example of a 55 year old worker 18% 50% 71% 99% with $2,000 per week in average 100% earnings who lives until age 81. Example Injury Hand and Leg injury Arm, lower back, Severe traumatic Multiple pre-existing shoulder injury resulting in and leg injury brain injury chronic conditions resulitng in lower leg resulting in resulting in plus new limited motion amputation. back surgery substantial work-related injury and instability. and foot cognitive that need not be amputation. impairment. severe (via SIBTF) Number of weeks of benefit 18 241 421 600 Lifetime payments Weekly benefit amount $290 $290 $290 $290 — Lifetime weekly benefit for serious No lifetime No lifetime $85 $301 $1,704 injuries benefit. benefit. Total Workers’ $5,200 $70,000 $115,000 $410,000 $2,300,000 Compensation Benefit SIBTF = Subsequent Injury Benefit Trust Fund. 6 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT include several guardrails that Figure 5 are part of the standard workers’ compensation system. SIBTF Now Surpasses Standard Workers’ Compensation in Permanent Disability Payments • Pre-Existing Conditions Do Not Have to Be Work Related. Standard Worker’s Compensation Subsequent Injury Benefits Unlike workers’ compensation, SIBTF claims may include pre-existing disabilities that were not caused by work and did not occur at work. While Full Disability Payments this difference is one of the Partial Disability key ways that SIBTF claims are Payments less stringent than workers’ compensation claims, it also is a key feature of the original Full Disability Payments intent of SIBTF—to encourage Partial Disability Payments employers to hire workers with pre-existing disabilities, Payments from regular workers’ compensation includes insured employers but excludes public and private self-insured entities. These entities represent about 25 percent of all state payroll. regardless of whether the SIBTF = Subsequent Injury Benefit Trust Fund. disability was work related or not. • Acid Reflux and High Blood Pressure Two • Pre-Existing Conditions Do Not Have to Be Most Common Pre-Existing Conditions. Work Limiting. In practice, The most common pre-existing conditions pre-existing disabilities may be included in listed on SIBTF claims are acid reflux and high an SIBTF claim even if they did not limit the blood pressure, which each appear on about worker’s ability to do their job. As a result, one-quarter of SIBTF claims. Other common SIBTF covers asymptomatic pre-existing conditions listed on SIBTF claims include: conditions or pre-existing conditions that did hearing issues (9 percent of SIBTF claims), not affect the worker’s job. blurry vision (8 percent), asthma (8 percent), sleep apnea (8 percent), diabetes (5 percent), • Pre-Existing Conditions Can Be and sexual dysfunction (2 percent). Documented After the Fact. Most pre-existing disabilities included in SIBTF What Led to the Expansion of SIBTF? claims are documented when the SIBTF claims are submitted, in retrospect, based on The current scope of SIBTF was not the result of historical medical records or the claimant’s deliberative steps by the Legislature to broaden the recollection. Under state law, SIBTF program. Instead, the expansion has occurred due pre-existing disabilities do not need to be to a confluence of factors, including court decisions documented when they first arose. that interpreted SIBTF law broadly, rule changes • Pre-Existing Conditions Not Subject to made by the state appeals board, and legislative Independent Medical Review. In workers’ reforms to the standard workers’ compensation compensation, all parties operate under system that indirectly affected the SIBTF program. independent medical review, agreeing to use Taken together, these factors make it substantially a neutral, state-approved physician to assess easier to receive benefits under SIBTF than the worker’s injuries. This requirement does standard workers’ compensation. We summarize not apply to SIBTF claims. In SIBTF claims, a these factors below. worker’s physician evaluates and attests to the Program Established With Limited pre-existing disability. Guardrails. State laws governing SIBTF do not www.lao.ca.gov 7 AN LAO REPORT 2012 Reform Indirectly Lowered SIBTF ruled in Todd v. SIBTF (2020) that multiple injuries Eligibility Threshold. One key objective of the 2012 in SIBTF claims are to be added together with workers’ compensation reform was to increase no downward adjustment for overlap. The Todd benefits for injured workers. Rather than increasing decision had the effect of dramatically lowering the the benefit schedule, however, the reform package medical threshold for workers with SIBTF claims to achieved this objective by automatically increasing receive 100 percent permanent disability. all impairment ratings by 40 percent. For example, Parties May Act Strategically to Minimize under the reforms, an injury that previously would Direct Costs and Facilitate SIBTF Claims. be rated as 25 percent disabling is now rated Standard workers’ compensation cases are at 35 percent. One unintended consequence of negotiated between the worker’s attorney and this change was to indirectly lower the eligibility the insurance company’s attorney. Employers threshold for SIBTF claims—that the subsequent and their workers’ compensation insurance work injury be rated at least 35 percent disabling— companies have a clear incentive to scrutinize to 25 percent in practice. This likely had the effect workers’ compensation claims. This is because of allowing more work injuries to meet the initial workers’ compensation settlement costs directly SIBTF eligibility threshold. raise employers’ insurance premiums. On the Todd v. SIBTF Interpretation Further Lowered other hand, SIBTF benefit payments are spread Threshold to Obtain Maximum Benefit. In the across all employers so do not lead to direct cost standard workers’ compensation system, the increases for the employer. The existence of the state adjusts disability ratings downward when state’s generous SIBTF program may influence a worker has multiple injuries. This approach these negotiations. Specifically, injured workers accounts for overlap between injuries—for instance, may agree to settle for a smaller amount of money if injuries from a fall that caused foot, knee, hip, the settlement agreement helps set up the worker’s and shoulder trauma. The ratings are added up SIBTF claim—for instance, by steering the injury but each additional injury rating adds a smaller assessment to highlight pre-existing disabilities amount. Under this system, two injuries that are or magnify the portion of the injury attributable to each rated 50 percent would result in a 75 percent non-work factors. Both of these adjustments would disability rating (rather than 100 percent if the two lead to a more generous SIBTF claim. were added together). However, the WCAB recently CONSEQUENCES OF AN EXPANDED SIBTF Today, SIBTF operates alongside the standard severity. Coincidentally, roughly the same number workers’ compensation system but with looser of workers have filed SIBTF claims annually in standards, broader eligibility, and substantially recent years. Each SIBTF claim is connected to a more generous benefits. This dynamic raises some severe workplace injury that occurred at some point issues that warrant the Legislature’s attention. in the past. This suggests that a significant share of all major workplace injuries in recent years have Benefits No Longer Aligned With or eventually will become SIBTF claims. Consistent Schedule Established by Legislature with the claims trends seen recently, most of Significant Share of All Major Workplace these claims will receive 100 percent disability Injuries File an SIBTF Claim. Relatively few benefits, despite the median major injury receiving workplace injuries occur each year that are a permanent disability rating of 47 percent in the severe enough to be rated at or above 35 percent standard workers’ compensation system. permanent disability. In 2021, the most recent year Permanent Injury Compensation No for which we have injury data, we estimate that Longer Aligned With Schedule Established 3,500 workers suffered workplace injuries of this by Legislature. In practical terms, a significant 8 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT share of major injuries becoming SIBTF claims has As such, the current employer tax does not the effect of altering the workers’ compensation fully capture employers’ financial exposure to benefits schedule set forth by the Legislature. SIBTF claims because most claims each year As described above, the benefits schedule for go unprocessed. In recent years, the state has standard workers’ compensation intends to provide processed between 500 and 800 claims annually, gradually increasing compensation as the severity or roughly one-fifth of all incoming claims. This of a workplace injury increases. Instead, with the means current employer tax rates only reflect a expanded role of SIBTF, many major workplace small portion of claims submitted, masking the full injuries will ultimately become 100 percent disability fiscal effect to come. Should the state progress claims regardless of the severity of the underlying through the backlog of SIBTF claims at a faster rate, workplace injury. employers’ annual taxes will grow commensurately. Full Employer Costs Likely $2 Billion to Escalating Employer Costs $3 Billion Annually. Looking broadly at incoming Employer Tax for SIBTF Has Increased claims each year, employers likely face lifetime Dramatically… SIBTF claim payments and SIBTF costs totaling $2 billion to $3 billion for each associated medical and legal payments have cohort of claims that injured workers submit each increased rapidly in recent years, resulting in annual year. If the number of claims remains steady at increases in the employer-paid taxes that replenish around 3,000 per year and the state processes all the SIBTF. As shown in Figure 6, the incoming claims, the annual employer tax would 2024-25 tax is expected to generate $850 million, climb to $2 billion to $3 billion before stabilizing nearly double the amount necessary to replenish near that level. the fund in the prior year. Recent Study Estimates $8 Billion in Total …But Increase Only Reflects Processed SIBTF Liabilities. As part of the recent RAND Claims, Understating Full Costs. The recent study, the authors estimated that the present employer tax increases account for SIBTF claims discounted cost of all SIBTF claims totals that the state has processed and begun paying. $7.9 billion. (Discounted value is a measure of the Figure 6 Subsequent Injury Benefit Employer Taxes (In Billions) $1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22 2023-24 2025-26 2027-28 2029-30 (Projection) 2029-30 projection based on Department of Industrial Relations assessment of recent program trends. www.lao.ca.gov 9 AN LAO REPORT value today of costs that will occur in the future, per year, with about 7,000 pending cases as of adjusted for the fact that a dollar now is worth more 2015. Beginning in 2015, however, the number than a dollar years from now.) of incoming claims began to vastly outnumber Total SIBTF Liabilities Now Exceed RAND the state’s processing capacity, with the state Estimates and Set to Rise Over the Coming processing only one-fifth of incoming claims Years. Employers’ liability for outstanding SIBTF each year. The case inventory grew from 7,000 in claims now exceeds the figures published by RAND 2015-16 to 22,000 in 2023-24, while more recent because those figures only included SIBTF claims trends suggests the case inventory now sits around submitted through May 2023. The current liabilities 25,000 claims. figure likely sits closer to $11 billion or $12 billion. With Influx of Claims Driving Backlog, Over the next few years, this figure will rise as Today’s SIBTF Claimants Might Expect to additional lifetime benefit claims make their way Wait Ten Years. Injured workers must finalize through the SIBTF claims process. Looking ahead, their subsequent injury workers’ compensation it is entirely possible that outstanding employer case before proceeding with their SIBTF claim SIBTF claims could exceed $20 billion within the for additional benefits. A recent analysis of SIBTF next few years. As one point of reference, this is cases found that, on average, an injured worker’s: roughly equivalent in size to the state’s outstanding (1) standard workers’ compensation claim for the federal Unemployment Insurance loan taken out subsequent injury took five years to finalize, (2) the during the pandemic that employers are set to worker filed for SIBTF benefits about one year repay over the coming years. after that, and (3) state staff took an additional five years to process their SIBTF claim. Moreover, one Influx of SIBTF Claims Based on in four SIBTF claims remained in processing for Chronic Conditions Straining State more than eight years. These figures reflect claims Capacity for Review that were submitted many years ago, when the case inventory was smaller, and have already been Incoming Claims Have Increased Much Faster processed. Since then, incoming claims has grown Than State’s Processing Capacity. As discussed substantially while processing capacity has stayed earlier, the state routinely received 700 to about the same. As a result, claims submitted 1,000 cases annually until 2015. During this time, in recent years, and to an even greater extent state staff were processing (and beginning benefit claims submitted in the future, are likely to face payments for) about half of these claims. As such, longer delays. the case inventory was growing by about 500 cases OPTIONS TO REFOCUS SIBTF ON ITS ORIGINAL PURPOSE In light of the program’s recent expansion and • Establish Stricter Criteria for Pre-Existing rising costs, we suggest the Legislature look to Conditions. The first option for the Legislature refocus SIBTF to more closely align with its original to consider is setting a minimum severity purpose: providing a supplemental workers’ threshold for pre-existing conditions to be compensation benefit to workers with severe eligible for SIBTF. Workers with more serious work-limiting disabilities. The following options conditions would meet this higher standard— represent key policy levers the Legislature could for instance, a previous workplace back consider to reset the program. No single option injury that led to surgery, a severe congenital would be enough, but in combination they could condition, or a partial limb amputation. In most help refocus SIBTF benefits to injured workers with cases, common, chronic conditions such severe work-limiting disabilities. as high blood pressure, early diabetes, or 10 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT age-related degenerative changes would not pre-existing condition does not interact with meet this threshold. A higher threshold would (or worsen the impact of) the work injury. have the effect of resetting SIBTF claims to The Legislature could instead require that cover serious disabilities that substantially pre-existing conditions make the new injury impact employability. worse or render the worker substantially • Reset Initial SIBTF Eligibility Threshold to less employable than they would have been 35 Percent Disability Rating. The Legislature without the pre-existing condition. could consider undoing the indirect effect of • Revisit How Pre-Existing Conditions Are the 2012 reforms that increased all impairment Stacked Under Todd Decision. The final ratings by 40 percent. As discussed above, option to consider is reversing or narrowing this had the indirect effect of lowering the Todd case ruling that allows multiple the severity threshold for SIBTF claims pre-existing conditions to be stacked, thereby from 35 percent permanent disability to making it easier to obtain 100 percent 25 percent. Restoring the original eligibility permanent disability benefits. One approach threshold would limit SIBTF claims to workers here would be to align SIBTF with the who have experienced a relatively serious longstanding workers’ compensation policy workplace injury. of adjusting multiple combined impairments • Require Prior Documentation of downward to account for functional overlap Pre-Existing Conditions. The Legislature as is the practice in the standard workers’ could consider limiting SIBTF cases to compensation system. pre-existing conditions that were documented • Additionally, Consider Options to with the employer or a medical practitioner Fast-Track Urgent Claims in the Backlog. prior to the subsequent injury. Documentation SIBTF claims processing delays may soon could include a medical examination clarifying stretch to ten years. Mindful of the state’s work limitations, a workplace accommodation, limited capacity to immediately work through or a change in work roles due to the disability. all backlogged claims, the Legislature could This approach would help distinguish between consider creating a fast-track process for longstanding disabilities and conditions first especially urgent or severe cases. (Over identified during the process to build an the longer term, additional state staffing SIBTF claim. could be contemplated to work through the • Align Medical Evaluation Rules With remaining claims.) A similar approach is used Standard Workers’ Compensation. The by federal administrators of the SSDI program, Legislature could consider requiring that which uses “compassionate allowances” to disability ratings and evaluations in SIBTF expedite benefits for workers with serious cases be determined by an agreed-upon illnesses. A similar approach could identify physician, consistent with long-standing SIBTF claimants with profound disabilities practice in the standard workers’ or extreme hardship and move their cases compensation program. Historical evidence forward quickly. suggests that permanent disability ratings Taken together, these options would better align made by worker-selected physicians were the state’s SIBTF program with its original purpose. higher than those made by neutral physicians. In our view, no single option would be enough to This change would improve consistency refocus SIBTF due to how far the program has and limit existing incentives to inflate drifted from that original purpose. Furthermore, any disability ratings. legislative changes will require close monitoring • Limit SIBTF Claims to Pre-Existing to ensure they have the desired effect and to Disabilities That Interact With the Work correct any unintended consequences that emerge Injury. Under current program rules, workers in practice. can qualify for SIBTF benefits even if the www.lao.ca.gov 11 AN LAO REPORT LAO PUBLICATIONS This report was prepared by Chas Alamo, and reviewed by Brian Uhler and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 12 LEGISLATIVE ANALYST’S OFFICE