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Financial benefits of return-to-work programs

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According to a recent study completed by the California Workers Compensation Institute, 97 percent of injured employees who receive temporary disability (TD) benefits receive two-thirds of their pre-injury earnings.

This is due in large part to the passing of AB 749 in 2002. This legislation allowed for generous increases in the temporary disability and permanent disability benefits through 2005 and, as of Jan. 1, 2006, the temporary disability benefit rates are tied to the California average weekly wage.

This means that temporary disability benefits will continue to increase along with increases in the average weekly wage. The current maximum temporary disability benefit is $840 per week, based on an average weekly wage of $1,260.

For those employers that question the need for a modified return-to-work program, this bit of news is important. Given 97 percent of all injured workers fall within the new maximum benefit range, it means these employees are receiving up to 67 percent of their gross pre-injury wages. Since temporary disability benefits are not taxable and these same employees also fall within the 15 percent to 25 percent tax bracket, the net result is they are receiving up to 89 percent of their pre-injury wages.

This provides very little incentive for an injured employee to return to work anytime soon. For some of the lower income employees (mostly part time), the new minimum TD benefit is $126 per week. This new minimum level now results in several employees earning more income while out on disability than if they returned to work. The end result is employers will be paying much more in TD benefits if they do not implement some form of a return-to-work program.

Permanent disability adversely impacted

In addition to increases in temporary disability, permanent disability benefits are also adversely impacted without a return-to-work program. With the passage of SB 899 in April 2004, employers who are unable to accommodate an employee's permanent restrictions will be subject to a 15 percent increase in the employee's permanent disability benefit payments. This applies to employers with 50 or more employees.

To illustrate this financially, assume an employee has received a permanent disability award of 10 percent, or $6,655. If a permanent modified position cannot be made available, this figure is increased by 15 percent for a new permanent disability benefit of $7,653.25. Conversely, the same legislative change allows for a 15 percent decrease in the benefit payments if a permanent modified position is made available. This results in a new permanent disability benefit of $5,656.75, which is a $1,996.50 savings from the award without a permanent modified position.

Given the changes in vocational rehabilitation after Jan. 1, 2004, the total savings on a 10 percent award can be as high as $5,996.50.

Job displacement voucher

The traditional vocational rehabilitation program was eliminated based on the legislative changes of 2003 that were implemented as of Jan. 1, 2004. The Job Displacement Voucher took its place.

This voucher is available for all employees that have a permanent disability award of 1 percent or more where the employee was physically unable to return to his or her pre-injury occupation. The amount of the voucher is based on the level of permanent disability and ranges from $4,000 to $10,000. In the example above, the voucher for a 10 percent disability award is $4,000.

Return-to-work program reduces employer's costs

With the rapidly increasing indemnity benefits being paid in California, a good return-to-work program can have a dramatic impact on reducing an employer's cost of insurance. The total incurred on lost time files can be significantly reduced which, in turn, reduces the experience modification utilized to calculate insurance premiums.

Cruz is the assistant director of Barney & Barney's Risk & Loss Advisors. For more information, call (858) 587-7577 or e-mail jeffc@barneyandbarney.com.>

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