California employers owe a shocking $7.9 billion for claims from the Subsequent Injuries Benefits Trust Fund (SIBTF) program, and the total liabilities are expected to grow rapidly unless reforms are adopted. The estimate of liabilities is based on a review of 12 years of claims and could range as high as $10.5 billion or as low as $6.4 billion.
The estimates of liability do not include any of the current or future costs for the thousands of claims filed since May 2023. The SIBTF system has recently received 2,000 to 2,500 claims a year. The findings are in a new report prepared for the Department of Industrial Relations by researchers at Rand Corporation.
DIR officials have been reviewing the report – which California employers paid for – since late June but did not release it until Workers’ Comp Executive forced the release through the Public Records Act process.
In a statement to Workers’ Comp Executive, provided by DIR officials, they note that “The report highlights a significant increase in annual total payments from the SIBTF fund, rising from $13.6 million in 2010 to $232 million in 2022 and an estimated $7.9 billion in total potential liabilities based on cases pending as of May 2023. The Department is studying the report closely and continues to strive to maintain the SIBTF program in a way that is sustainable, fair, and that recognizes the impact to workers’ compensation premiums – which employers pay to fund this program.”
The Secrets
The unspoken secret about the SIBTF is that it is used as a settlement tool by both applicant’s and defense counsel. And it is those settlements, in part, that are driving the increases. Employers and other interests contend that many workers’ comp reforms from past years have not been applied to the SIBTF: copy services, med-legal physicians working with applicant’s attorneys, and others feed off the process. No regulation is in place controlling the med-legal process under the SIBTF as it is for other parts of the system, employers say.
The Department’s statement captures the humongous scope of the problems identified by the Rand researchers but not the tenor of their concerns. “The SIBTF has reached a point where any policy action will have significant consequences for workers, employers, and other stakeholders in the state,” the researchers wrote.
Rand concludes, “Leaving the system in its current form will require substantial increases in employer assessments to pay the billions of dollars in current and future SIBTF benefit liabilities, as well as increased investments in the administrative costs to evaluate cases and manage the program going forward.”
The researchers note that the program’s growing costs are paid through assessments of California employers. In the latest round of assessments, DIR said it needed $488 million from all payers – insured and self-insured employers – to fund the program and establish a reserve. Approximately $168 million of the assessment was set aside as a reserve for the program. Overall, the SIBTF assessment was up 13.3% from the prior year.
“Reforms that would limit eligibility for SIBTF benefits or increase program stringency would require additional investments in administration and management costs but would reduce future liabilities of the program. Such reforms would also impose costs on potential applicants who would no longer be granted benefits as a result of these new changes,” the researchers are quick to add.
Overall, RAND’s final warning was grim: “Policymakers and stakeholders face these hard choices and trade-offs knowing that any inaction is, in effect, a choice to maintain a status quo, one with growing financial implications for employers in the state.”
Workers’ Comp Executive is continuing to review the report and interview stakeholders and will provide additional coverage to premium subscribers.
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