California Senate Bill 863 Workers’ Compensation Reform

California’s Senate Bill 863 workers’ compensation reform, signed in 2012 with most provisions effective January 1, 2013, raised permanent disability payments, pulled medical treatment disputes out of the courtroom and into an administrative review process, replaced vocational rehabilitation with a fixed voucher, created a new supplemental payment for workers with disproportionate earnings loss, and imposed fees and deadlines that wiped out a massive backlog of medical provider liens. If your injury occurred on or after January 1, 2013, these are the rules that shape your claim.

Higher Permanent Disability Payments

Permanent disability benefits compensate a worker for lasting impairment after reaching maximum medical improvement. For injuries on or after January 1, 2013, SB 863 replaced the old three-tier rate structure with a single table and phased the maximum weekly benefit up to $290 for all disability ratings by January 1, 2014. Before the reform, the maximum was $230 per week for ratings under 70 percent and $270 for ratings between 70 and 99 percent. The weekly amount itself is still calculated as two-thirds of average weekly earnings, subject to the cap.¹

The old 15 percent adjustment is gone. Under the prior system, if an employer offered modified or alternative work within 60 days of a disability becoming permanent, each remaining payment was reduced by 15 percent; if the employer failed to offer work, payments went up by 15 percent. For post-2013 injuries, that mechanism no longer applies. The consequences of not offering return-to-work now sit inside the separate voucher benefit described below.¹

How Impairment Ratings Are Calculated Now

SB 863 directed the permanent disability schedule to use the AMA Guides to the Evaluation of Permanent Impairment (5th Edition) as the starting point, then multiply the whole person impairment percentage by a uniform 1.4 adjustment factor.² This replaced the prior Future Earning Capacity modifier, which had drawn criticism for producing unpredictable results.

The reform also restricted impairment add-ons. For injuries on or after January 1, 2013, the rating cannot be increased for psychiatric conditions, sleep problems, or sexual dysfunction arising from a physical workplace injury. Two exceptions preserve the psychiatric add-on: when the worker was the victim of a violent act or had direct exposure to one, or when the worker suffered a catastrophic injury such as loss of a limb, paralysis, severe burns, or severe head trauma. Treatment for these conditions remains available even when the rating itself cannot increase.²

Apportionment rules stayed strict. Any physician preparing a permanent disability report must determine what approximate percentage of the disability was directly caused by the workplace injury versus other factors, including prior injuries and preexisting conditions. Reports without this analysis are considered incomplete.³

Medical Treatment Disputes Go Through IMR, Not a Judge

Before SB 863, disputes over whether a specific treatment was necessary often ended up in front of a workers’ compensation judge. The reform replaced that path with a two-step administrative process.

When a treating physician submits a request for authorization, the claims administrator runs it through Utilization Review, which approves, modifies, or denies the request based on evidence-based medical treatment guidelines.⁴ If UR denies or modifies the request, the worker’s only avenue to challenge that outcome on medical necessity grounds is Independent Medical Review. IMR is conducted by an independent organization under contract with the state, and it looks only at whether the denied treatment is medically necessary. It does not address the nature of the injury, the level of disability, or which body parts are covered.⁵

The UR decision becomes final unless the worker requests IMR within the prescribed timeframe. Miss the deadline and you can lose the right to challenge a denial. The Workers’ Compensation Appeals Board has very limited authority to overturn an IMR determination, so filing on time matters far more than it did when a judge could weigh the medical evidence directly.⁵

The $6,000 Job Displacement Voucher

SB 863 replaced the old vocational rehabilitation system with the Supplemental Job Displacement Benefit. For injuries on or after January 1, 2013, a worker with a permanent partial disability receives a non-transferable voucher worth up to $6,000 if the employer does not offer suitable return-to-work within the required timeframe.⁶

The employer avoids triggering the voucher by offering regular, modified, or alternative work within 60 days after the claims administrator receives the physician’s report finding the disability permanent and stationary. The offered position must last at least 12 months. If the employer does not make a qualifying offer, the claims administrator has 20 days after the 60-day window closes to provide the voucher.⁶

The $6,000 amount is the same regardless of the disability percentage. The voucher can be used at state-approved or accredited schools for retraining and skill enhancement, including tuition, fees, and books; licensing, certification, and testing costs; up to $1,000 toward a computer needed for training; up to $600 (10 percent of the voucher) for placement or vocational counseling; and up to $500 for tools and other miscellaneous expenses required by the program.⁷

Vouchers issued on or after January 1, 2013, expire two years after the date the voucher is provided to the worker or five years after the date of injury, whichever is later.⁷

The $5,000 Return-to-Work Supplement Most Workers Miss

SB 863 created a program that many injured workers never hear about. The Return-to-Work Supplement Program pays an additional one-time $5,000 to workers whose permanent disability benefits are disproportionately low compared to their actual earnings loss. It sits on top of the SJDB voucher and is funded by $120 million annually from the Workers’ Compensation Administration Revolving Fund.⁸

To qualify, you must have been injured on or after January 1, 2013, and must have already received a supplemental job displacement voucher. The application has to be filed within one year of the date the SJDB voucher was served. The Division of Workers’ Compensation reviews completed applications within 60 days and issues the payment within 25 days of approval.⁹

The one-year deadline is easy to miss. Workers who receive a voucher but don’t realize this separate payment exists can lose $5,000 by simply not applying in time. DWC district offices have computer kiosks for anyone who needs help filing the online application.

Lien Reform Cleared the Backlog

By 2012, hundreds of thousands of unresolved liens from medical providers had piled up in the system. SB 863 attacked the problem three ways.

Any lien filed on or after January 1, 2013, for medical expenses now requires a $150 filing fee paid to the DWC before the lien can be filed, with proof of payment attached.¹⁰ For liens already on file before that date, the law required a $100 activation fee paid by January 1, 2014. Any pre-2013 lien without proof of the activation fee by that deadline was dismissed by operation of law, and claimants who appeared at a lien conference without proof had their liens dismissed with prejudice.¹¹

SB 863 also imposed a shorter statute of limitations. For medical services provided on or after July 1, 2013, the lien must be filed within 18 months of the date the services were provided. The prior deadline had been three years.¹²

How the Higher Payments Interact With Social Security Disability

If you receive both permanent disability and Social Security Disability Insurance, the increased PD amounts under SB 863 can affect your SSDI. Federal law caps the combined total of SSDI and workers’ compensation at 80 percent of the worker’s average current earnings before disability. When the combined benefits exceed that threshold, one of the two gets reduced.¹³

California is a reverse offset state, which means the workers’ compensation benefit is reduced rather than the SSDI payment.¹⁴ In most other states, Social Security reduces the SSDI check when the combined benefits exceed 80 percent. The total is the same either way, but in California the cut shows up on the workers’ comp side. If you settle for a lump sum, the structure of that settlement can change how the offset is calculated, because lump sums are prorated across months.¹⁵

Medicare Set-Asides at Settlement

If you are a Medicare beneficiary or expect to enroll in Medicare within 30 months of settling your workers’ compensation claim, you need to account for future injury-related medical costs Medicare would otherwise cover. CMS reviews proposed Medicare Set-Aside arrangements when the total settlement exceeds $25,000 for current Medicare beneficiaries, or exceeds $250,000 for claimants expected to enroll within 30 months.¹⁶

An MSA sets aside part of the settlement in a separate, interest-bearing account that can only be used for Medicare-covered treatment related to the workplace injury. Federal law does not require professional administration, but CMS strongly recommends it. Mismanaging the funds can lead Medicare to refuse coverage for injury-related treatment until you demonstrate the money was spent correctly. Because SB 863 changed both the benefit amounts and the settlement landscape, factor MSA obligations into the overall value of any deal before you sign.

1
California Legislative Information. California Code LAB 4658 – Permanent Disability Payments
2
California Legislative Information. California Code LAB 4660.1 – Schedule for Rating Permanent Disabilities
3
California Legislative Information. California Code LAB 4663 – Apportionment of Permanent Disability
4
California Department of Industrial Relations. DWC Utilization Review
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California Legislative Information. California Code LAB 4610.5 – Independent Medical Review
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California Legislative Information. California Labor Code 4658.7 – Supplemental Job Displacement Benefit
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California Department of Industrial Relations. Supplemental Job Displacement Benefits
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California Legislative Information. California Labor Code 139.48 – Return-to-Work Program
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California Department of Industrial Relations. Return-to-Work Supplement Program
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California Legislative Information. California Code LAB 4903.05 – Filing of Liens
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California Legislative Information. California Code LAB 4903.06 – Lien Activation Fee
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California Legislative Information. California Code LAB 4903.5 – Lien Claims Time Limit
13
Office of the Law Revision Counsel. 42 USC 424a – Reduction of Disability Benefits
14
Social Security Administration. POMS DI 52105.001 – Reverse Offset Plans
15
Social Security Administration. How Workers’ Compensation and Other Disability Payments May Affect Your Benefits
16
Centers for Medicare and Medicaid Services. Workers’ Compensation Medicare Set Aside Arrangements