Last year, the California Legislature passed a bill (AB 2883) that changed the definition of “employee” for the purposes of workers’ compensation coverage, setting an arbitrary 15 percent ownership threshold to be able to exempt owner/employees from such coverage. Unfortunately, the bill required many owners of medical corporations to pay drastically increased workers’ compensation insurance premiums for coverage they neither needed nor wanted.

This year, the California Medical Association (CMA) sponsored a bill (SB 189) to fix these unintended consequences. Under SB 189, which was signed by Governor Brown and will take effect July 1, 2018, all owners of medical corporations will be able to exempt themselves from workers’ compensation coverage, regardless of percentage ownership, as long as they submit a waiver and have health insurance coverage. This will result in premium savings ranging from hundreds to hundreds of thousands of dollars for practices impacted by the previous law change.

The previous law was intended to prevent employers from inappropriately skirting workers’ compensation requirements, such as giving their employees fictional titles (i.e. “Vice President of Dishwashing”), or giving employees a small fraction of the business just to avoid coverage requirements. When the new law was implemented, several classes of corporations with complex ownership structures were unnecessarily required to purchase workers’ compensation coverage for their owners. In some cases, these corporations saw their workers’ compensation premiums double.

Based upon a survey of impacted members and numbers provided by specialized insurance brokers working with medical groups, CMA estimates that AB 2883 resulted in millions of dollars in increased insurance premium costs across the state, increasing cost pressures on the already strained health care delivery system. 

Factoring in the workers’ compensation laws in California and estimated payroll rates, AB 2883 likely increased costs for impacted groups between $1,100 and $1,833 per previously exempted owner. If you use an example of 10 owners per group, that would be an additional premium of between $11,000 and $18,330 per practice, although CMA received reported increases of around $50,000 and $60,000 per group as well.

Upon hearing from these impacted physician owners of medical corporations, CMA partnered with the Chair of the Senate Labor and Industrial Relations Committee, Senator Steve Bradford, and his staff, to author legislation that would allow an exemption for legitimate physician owners of professional corporations, provided they have proof of health insurance coverage. After working with all stakeholders throughout the process, SB 189 passed the Legislature without any “no” votes and was signed by the Governor on October 13, 2017.

Beginning July 1, 2018, medical groups and corporations affected by the previous law change, will again be eligible for appropriate coverage exemptions for owners, which should result in significant savings for practices.