The state business chamber is studying legislative remedies after a court ruling took away a longstanding tool used by employers to rein in workers’ compensation costs.
The potential remedies are still taking shape, said Alex Halper, director of government affairs for the Pennsylvania Chamber of Business and Industry.
But Halper said he hoped one could be applied as early as this fall, depending on how long it takes to pass a tax package to pay for the current state budget.
The remedy would address a June 20 ruling by the Pennsylvania Supreme Court that voided a portion of the state’s workers’ compensation law adopted in 1996 as part of cost-saving reforms known as Act 57.
The ruling barred the use of so-called impairment rating evaluations, or IREs. The evaluations allowed companies to cap costs for paying out wages lost due to injury, typically in cases where workers could not return to work.
“The concern is that costs could increase substantially,” Halper said. “If you look at the history, costs were really increasing significantly back in the late ’80s, early ’90s. So the legislature undertook a number of reforms to get a handle on these exploding costs, and this IRE process was a critically important component and helped bring about what has been a fairly steady workers’ comp system.”
The financial impact of the court ruling is unclear. Nonetheless, Halper and other observers expected it would raise insurance premiums and other costs for businesses.
Hard numbers are not available but the Pennsylvania Compensation Rating Bureau, which helps set workers’ comp costs, said in a memo that it has been studying the ruling’s impact.
By mid-August, the bureau expects to issue an interim filing that is likely to result in higher premiums starting Nov. 1, said William Taylor, president of the Philadelphia-based bureau.
“These are extremely rare,” Taylor said of the interim filing, which must be approved by the Pennsylvania Insurance Department. He said one has not been made in at least 20 years.
The bureau, which is an independent nonprofit, typically makes annual filings for rates taking effect April 1. The most recent filing led to lower rates for many businesses.
The Supreme Court ruling injects an element of uncertainty into the process.
“It totally creates a big vacuum and turmoil as far as serious claims are adjudicated and settled,” Taylor said.
The request for an interim filing came after a unanimous vote by the bureau’s governing committee, which includes representatives from insurance carriers, employers and other stakeholders, Taylor said.
Process deemed unconstitutional
The ruling itself resulted from a case brought by a school employee in western Pennsylvania who challenged the use of guidebooks published regularly by the American Medical Association.
Doctors undertaking IREs relied on the guidebooks to determine the extent of a worker’s injury, or impairment, at least 104 weeks after the initial injury. If the doctor judged the worker’s impairment to be less than 50 percent, the worker’s lost-wage benefits were capped at 500 weeks, instead of continuing for life.
The former school employee, Mary Ann Protz, was evaluated and judged to be 10 percent impaired. In her lawsuit, she argued that reliance on the AMA guidebooks represented an unconstitutional delegation of legislative authority. The case wound through lower courts before the Supreme Court ultimately agreed.
“This is one that sort of sent shock waves through the workers’ comp world,” said Denise E. Elliott, an attorney in the labor and employment group at Harrisburg law firm McNees Wallace & Nurick. “It took a huge tool out of the employer’s toolbox for reducing exposure and capping indemnity benefits,” i.e. lost-wage benefits.
Many injured workers eventually return to their original jobs or to new light-duty positions, a change that ends or curtails their benefits, depending on the pay for the new job.
IREs were used typically in more serious cases. The chief alternative is a vocational assessment, in which a professional consultant reviews a worker’s skills, studies the job market and determines whether the worker is able to work and what kind of job he or she could find, Elliott and another attorney said.
If a match is possible, the worker’s lost-wage benefits are capped at 500 weeks and reduced according to a formula based on the difference between his or her previous wage and the new job’s wage. The new job typically pays less, attorneys said.
The downside, attorneys said, is that the assessment process is more expensive and more likely to result in litigation.
“There are often disputes as to whether the employee can actually do those jobs or qualify for them,” said Joshua Schwartz, an attorney at Lancaster-based law firm Barley Snyder and chair of the firm’s workers’ compensation practice.
Employers can limit costs by negotiating lump-sum settlements with injured workers, but those settlements may be higher in the absence of the IRE process, Schwartz said. That’s because the loss of the IRE removes a potential cap on benefits in the absence of a settlement.
The exact impact, however, is unclear, he said. “So far it’s just been a lot of hand-wringing, I think, but well-founded because I do think it’s going to have a significant impact if there’s no change in the law.”
Further complicating matters is uncertainty over whether the Supreme Court ruling applies to IREs that already have been conducted and accepted by employers and employees, Schwartz and Elliott said.
Elliott, who is based in McNees’ Lancaster office, said she hasn’t seen any challenges to existing decisions based on the IRE process. But, she added, “It doesn’t mean it won’t happen.”