Carve-Outs in Workers' Compensation: An Analysis of the Experience in the California Construction Industry

Fed up with soaring medical and indemnity costs, inadequate benefits, and pervasive fraud, employers and unions in several states during the 1990s were allowed to "carve out" their own workers' compensation systems. These innovative reforms gave the parties the right to collectively bargain their own systems outside the statutory systems. In addition, alternative dispute resolution (ADR) systems were implemented in order speed the legal process and reduce litigation costs. This book offers an evaluation of the first few years' experience with these organizational reforms in California. The authors offer lessons important for any groups considering carve-outs as well as for operators of state statutory workers' compensation systems. They also provide insights into how any employer might want to alter their handling of workers' compensation claims and, more generally, into ADR programs and the decentralization of employment regulation. Levine, et al., begin with an overview of the rationale behind carve-outs and how the carve-outs structure fits within the framework of current institutions. Besides describing important facets of the workers' compensation system, they also identify the pertinent characteristics of the construction industry and how they relate to the development of carve-outs. A number of methods are then utilized to evaluate carve-outs including a survey of the ombudsmen for all California carve-outs, intensive case studies of two carve-outs based on two very different models, and an examination of quantitative data from the first few years of experience of one of the carve-outs. The authors conclude with a summary that addresses the structure of carve-outs; an overview of the results based on their quantitative efforts; carve-outs' impact on injury rates; medical treatment and evaluation; indemnity benefits; ADR issues including the role of ombudsmen, lawyers, arbitrators, and unions; and the boundaries where carve-outs meet the statutory system. They also provide a list of recommendations aimed at facilitating the implementation of carve-outs by the parties involved, and point the direction for future research in this important and promising field.