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Key provisions of the state workers’ compensation reform package due to take effect this month are under attack by prominent lawmakers and applicant attorneys and could face a court challenge. At issue is a new formula designed to standardize benefits for permanently injured workers. Critics say regulations proposed by Andrea Hoch, the new administrative director of the Division of Workers’ Compensation, could reduce workers’ comp benefits to permanently disabled workers by as much as 70 percent. Presently, the benefits vary widely, depending on the level of disability. In a recent letter to Gov. Arnold Schwarzenegger, state Sen. Richard Alarcon, chairman of the Senate Committee on Labor and Industrial Relations, charged that the proposed changes formed no part of the bill that the governor signed into law in April, but rather were due to Hoch’s “interpretation.” “I submit that the kinds of reductions in benefits that would go into effect Jan. 1, 2005, if the administration’s proposed permanent disability rating schedule is adopted, were never contemplated in SB 899,” wrote the Sun Valley Democrat. His concerns were echoed by Senate President Don Perata, D-Oakland, and Assembly Speaker Fabian Nun, D-Los Angeles. Hoch and her staff failed to reply to numerous requests for comment. However, a spokeswoman for the American Insurance Association, which represents about half the private insurance companies offering workers’ comp in California, said dire predictions about payment losses were erroneous and that workers’ comp attorneys were simply trying to “throw a flag on the play” of workers’ comp reform. “The applicant attorneys do not want to see these regulations implemented because it’s going to stop them from making money,” said Nicole Mahrt, AIA public affairs director. The current system is “subjective and litigious,” she said. Hoch was chief assistant for the state attorney general’s Civil Law Division for two years before Schwarzenegger appointed her to the workers’ compensation division just days after the passage of the voluminous workers’ comp package, SB 899. Hoch unveiled her formula for setting strict standards for permanent disability payouts at a hearing held earlier this month by Alarcon’s committee. Applicant attorneys say SB 899 specified that the formula should be derived from American Medical Association guidelines and RAND Corp. data. They contend that Hoch instead came up with her own formula. In his letter to Schwarzenegger, Sen. Alarcon stated that a Rand spokesperson made clear at the hearing that Hoch’s proposed schedule was not one Rand would have used. State Sen. Joe Dunn, D-Santa Ana, who was one of only six legislators to oppose SB 899 in April, said he was particularly frustrated because his direct questioning of Hoch during the committee hearing yielded no basis for the formula she presented. “She basically conceded under testimony that her proposal is not in compliance with the law, as required by SB 899,” said the labor committee member. “It was a policy decision. She claims it was her own.” AIA’s Mahrt disagreed with that assessment, saying that the formula was properly derived and that applicant attorneys were simply “trying to do whatever they can” to block the reform process. Dunn theorizes that Hoch’s formula gives Schwarzenegger a way to provide what SB 899 never guaranteed — an immediate reduction in workers’ comp rates for California businesses. Insurance companies “can’t make today’s premiums based on what might happen in five years,” said Dunn. “The administration has two choices: to either embrace rate regulation that gives the insurance commission the power to order rates down — which they don’t have now — or to go in via the regulation and actually slash benefits a quantifiable amount right now, to allow the carriers to rewrite their premiums.” But a steep cut in benefits “is in direct contravention of the law,” Dunn said. Mahrt disagreed with that assessment. “SB 899 was intended to generate cost savings, and the permanent disability ratings were a big part of the general cost savings,” she said. Mahrt noted that workers’ comp rates have already gone down 13.6 percent and are expected to drop another 5 percent in coming months. Dunn and Alarcon predict that implanting what they say is an illegal formula could well pave the way for a court challenge of the entire workers’ comp reform deal — something applicant attorneys say they’re already contemplating. Dunn said attorneys for injured workers have already told him that they don’t think Hoch’s proposal could survive a court challenge. “We’re keeping all of our options open,” said David Rockwell, president-elect of the California Applicants’ Attorneys Association. In November, the 3rd District Court of Appeal dismissed a writ filed by the association to block portions of the workers’ comp reform requiring injured workers already in the system to switch doctors. The court threw out the writ, saying that no harm had yet been done, since SB 899 doesn’t take effect until Jan 1. Mahrt said she isn’t sure whether applicant attorneys will succeed in using the courts to block workers’ comp reform. “They’re attorneys, so I’m sure they’re being very creative,” she said. “The courts will just have to work it out.”

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