As the old adage goes, be careful what you wish for; you might get it. This saying is currently playing itself out in the world of Pennsylvania workers’ compensation law. In June, the Pennsylvania Supreme Court in Protz v. Workers’ Compensation Appeal Board (Derry Area School District) invalidated Section 306(a.2) of the Workers’ Compensation Act as unconstitutional, fulfilling every claimant practitioner’s wish. Since then, “experts” have been predicting a significant rise in the cost of workers’ compensation insurance in Pennsylvania, resulting in a potentially worse situation than prior to the Supreme Court’s action. In August, the Pennsylvania Compensation Rating Bureau (PCRB) proposed a 6.06 percent increase in the loss cost which the Pennsylvania Insurance Department is still reviewing past the proposed effective date. For its part, the Pennsylvania Legislature is attempting to cobble together a bill which would ostensibly bring balance once again to the force. The rating bureau has indicated that it would withdraw the exorbitant loss cost increase if the Legislature passed a bill negating the Protz decision.
For over 20 years, the claimant’s bar has been attempting to neutralize the effects of Act 57 of 1996, and in particular Section 306(a.2) of the Workers’ Compensation Act, which was an attempt by the Pennsylvania Legislature to impose on a wage-loss state the permanency ratings stemming from Impairment Rating Evaluations (IREs) that are germane to schedule states. While the difference between the two workers’ compensation benefit schemes is beyond the scope of this article, suffice it to say the effort was akin to putting a square peg in a round hole. There have been a myriad of Commonwealth and Supreme Court decisions over the years addressing all aspects of the IRE. In the end it was all sound and fury, signifying nothing.
In 1996, when the amendments to the act introducing the concept of the IRE were made, many states were also seeking to incorporate the concept of permanency ratings from “The American Medial Association Guides to the Evaluation of Permanent Impairments (The AMA Guides)” into their workers’ compensation laws. Consequently, it was believed that the IRE was going to have a much greater impact on the practice of Pennsylvania workers’ compensation law than ultimately proved to be the case. While it is true that almost every case where an IRE was performed was permanently altered, in that the injured worker’s benefits shifted from total to partial in nature, thereby limiting the claim to an additional 500 weeks, the impact on the insurance cost was minimal.
While it may be true that reserves could be lowered in most cases where an IRE was performed, it could also be argued that the IRE actually increased the ultimate value of most of those cases. Certainly, having a 500-week cap on a case with a catastrophic injury might save an insurance company money. However, those cases were few and far between. As a practical matter, an IRE did nothing other than practically guarantee that the injured worker was going to receive an additional ten years of total disability benefits absent a settlement. While it was still technically possible to achieve a full recovery from an “independent” medical exam and consequently a termination of benefits, not many judges were willing to terminate the benefits of an individual who was found to be permanently disabled by a truly independent doctor. Given that the average workers’ compensation settlement without an IRE might range from two to four years of total disability benefits, artificially imposing a 500-week “permanency award” gave immediate legitimacy to a much higher settlement demand than would otherwise be warranted. One can only assume that the cost-saving element to the IRE has only been realized in the rare case of an injured worker whose total body impairment rating fell just short of the 50 percent threshold for continued total disability. The IRE afforded carriers a 9.6-year, post-IRE maximum payout.
From afar, it is easy to say costs for employers are likely to increase and immediate legislative action is needed in light of Protz. However, to anyone who practices workers’ compensation law, these clarion calls ring hallow. Even before Protz was decided, the legislature was attempting to enact “reforms” to the system which did nothing other than to unnecessarily reduce insurance costs. For six years in a row there has been significant rate cuts in workers’ compensation insurance, with no reduction in benefits. As recently as April of this year workers’ compensation insurance rates dropped over six percent, saving Pennsylvania businesses an estimated $150 million. Over the course of the entire six years, the reductions have resulted in nearly $800 million in savings to the business community. It is unfathomable to assume the elimination of a rarely realized cost-saving aspect of the 1996 amendments to the act could result in a complete reversal of these trends.
The fact that the 1996 Pennsylvania Legislature unconstitutionally delegated legislative authority to the American Medical Association in a misguided quest to reduce costs to the insurance industry should not be the injured worker’s problem. Rather than reflexively increasing insurance costs or passing draconian legislation in an effort to “remedy” the “problem,” patience and thoughtfulness is needed. Even the Actuarial Memorandum of the PCRB justifying the rate increase admits that it is only a response to the Protz decision in the near term and that it will continue to “research and evaluate” the impact of the Protz decision for future filings. What would be the harm in simply allowing the impact to play itself out?
In the Protz decision, the Supreme Court acknowledged that it was invalidating Section 306(a.2) of the act “without consideration of the exigencies that arise or ‘how trying our economic or social conditions become.’ ” In fact, our social conditions are being tried based on a rush to act reminiscent of Chicken Little. Imposing the impairment rating regime on Pennsylvania workers’ compensation law was misguided in the first place. It would be unwise to compound that error by passing a law simply to avoid “letting a good crisis go to waste.”
Christian Petrucci, of the Law Offices of Christian Petrucci, concentrates his practice in the areas of workers’ compensation and Social Security disability. He also counsels injured workers in matters involving employment discrimination and unemployment compensation benefits.