Employers Overlooking Workers’ Comp Refunds

Workers’ compensation insurers owe California employers a small treasure in premium refunds under an obscure section of state law enacted in 1993 and mostly ignored since then.

The refunds could be worth hundreds, maybe thousands of dollars to small and mid-size companies that get injured workers back on the job in modified or alternative work arrangements--good news for businesses facing increases in premiums for workers’ comp insurance.

Workers’ comp insurers could save even bigger sums--hundreds of thousands of dollars, if not more--on the costs of vocational rehabilitation under another provision of the same law.

Despite the potential payoff, however, few employers and workers’ comp insurers know about the law, much less make use of it, said Willie Washington, a Sacramento lobbyist for the California Manufacturers and Technology Assn., who had a part in shaping the law eight years ago.

Adopted as part of a legislative package reforming the state workers’ comp system, Section 4638 of the California Labor Code requires insurers to give employers a refund of one year’s worth of workers’ comp premiums paid on behalf of any injured employee who returns to the job in modified or alternative work for 12 months.

Essentially, that amounts to a year’s free ride on the cost of workers’ comp insurance for that employee.

For employees in low-risk jobs such as clerical work, the savings to employers might come to no more than a few hundred dollars. But for workers in more hazardous occupations, such as construction, the savings could run into thousands of dollars.

In essence, the law seeks to entice employers into getting injured workers back on the job, Washington said. He believes that insurers don’t inform employers of their rights under the law, even though the measure requires them to do so if:

* The injury is permanent, rendering the employee unable to return to his or her job and therefore eligible for vocational rehabilitation.

* The employee remains in modified or alternative work for a year.

“The law is there, and it’s largely ignored,” Washington said. “Every time somebody raises the subject of workers’ comp costs, I say the potential for saving money already exists.”

Tuttle-Click Automotive Group of Irvine, which employs about 1,400 people in 19 car dealerships in California and Arizona, is giving it a try. The company hopes to get more than $4,000 in premium refunds from its workers’ comp insurer, CNA Financial Corp., on claims involving two mechanics and three clerical workers injured over the last five years. The injuries ranged from slip-and-fall cases to repetitive-motion conditions, said Tuttle-Click Chief Financial Officer Chris Cotter. All of the injured workers returned to the job in alternative or modified positions.

Sam Andreano, a La Habra-based risk management consultant who counts the city of Irvine among his clients, alerted Cotter and Karl Hudson, Tuttle-Click’s director of safety and environment, to the company’s possible eligibility for premium refunds from CNA while auditing its workers’ comp program 10 months ago.

CNA didn’t know about the refunds, Andreano said. CNA did not respond to a request for comment.

With 1,400 workers, Tuttle-Click qualifies as a big business, and the $4,000 it seeks from CNA is only a fraction of the $700,000 the company spends every year on workers’ comp insurance. But that $4,000 reflects claims involving five workers, for an average of $800 per worker, and there are plenty of small businesses in California that would find welcome relief in any such savings on workers’ comp costs. Indeed, many such employers have seen their workers’ comp insurance costs rise by double digits in the last year, and if things get worse for them, some may not survive.

“The legislation was designed to reduce the cost structure of workers’ comp,” said state Sen. Jim Brulte (R-Rancho Cucamonga), one of the authors of the law. “And the totality of the law was very successful. Whether or not this specific provision is underutilized is a different question.”

Richard Stephens, a spokesman for the state Division of Workers’ Compensation, agreed that most California employers appear not to know about the refunds.

“We do get inquiries about it,” he said, “mainly from employers who want to verify that it’s true--not a lot but noticeable. It’s on their radar screens at least.”

Employers who get an injured worker back on the job in alternative or modified work get another benefit. They satisfy the legal requirement that they provide vocational rehabilitation for the injured employee--and it is at this point that insurers get a stake in the law.

Insurers foot the bill for vocational rehabilitation, and if employers avoid the requirement that they provide it, insurers don’t have to pay for it, with huge savings: The same law that gives employers the right to a refund of workers’ comp insurance premiums puts insurers on the hook for as much as $16,000 in vocational rehabilitation costs for the worker.

For insurers, this makes for big stakes. By some estimates, workers’ comp insurers spend more than $400 million annually on vocational rehabilitation on tens of thousands of workers suffering permanent injury in California.

“Insurers have an incentive under the law too,” said lobbyist Washington. “It was designed to hold down the costs of workers’ comp, especially in the areas of vocational rehabilitation.”

So why don’t employers or insurers take advantage of it?

“Early on, I recall putting the news out and writing about it in newsletters to our members,” Washington said. “But some seven or eight years later, the subject comes up occasionally when people get to discussing workers’ comp, and then it goes right back into some deep, dark dungeon.”

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Juan Hovey may be reached at (818) 709-6420 or via e-mail at jhovey@gte.net.