The Legislative Analyst’s Office (LAO) has provided fiscal and policy advice to the Legislature for 75 years. It is known for its fiscal and programmatic expertise and nonpartisan analyses of the state budget. The office serves as the “eyes and ears” for the Legislature to ensure that the executive branch is implementing legislative policy in a cost efficient and effective manner.
The LAO just published a new analysis of the Subsequent Injury Benefit Trust Fund (SIBTF), which was created as a narrow supplement to California’s workers’ compensation system. The state first enacted SIBTF to offset employers’ workers’ compensation costs for veterans and other workers whose serious pre-existing disabilities made a new work injury more disabling and, therefore, more expensive. The program had the effect of providing additional lifetime benefits to a small number of workers facing steep barriers to employment.
Over time, however, SIBTF has grown dramatically in both size and scope. Today, it operates alongside the standard workers’ compensation system but with broader eligibility, less rigorous standards, and more generous benefits.
SIBTF claims are paid out of the state fund, but the fund itself is supported by a tax that employers pay on their workers’ compensation insurance premiums. (This tax is sometimes referred to as an assessment.) All employers pay the same tax rate, levied as a flat percentage of the employers’ insurance premium total. Insurers collect the tax as part of the premium payments and remit the collections to the state. Employers that self-insure for workers’ compensation remit a commensurate payment to the state. The statewide SIBTF employer tax totaled $848 million in 2024-25.
In recent years, the SIBTF program has evolved from a narrowly focused benefit to support a small number of severely injured workers into a much larger and broader disability benefits program. Many more workers file claims with SIBTF today than a decade ago. These claims typically pay more generous benefits than standard workers’ compensation and many include compensation for common chronic illnesses, as opposed to severe pre-existing disabilities. The result is a benefit program that now rivals standard workers’ compensation in size and that may no longer align with the program’s original legislative intent.
Between 2005 and 2015, the state received about 1,000 SIBTF claims annually and was able to process roughly half of those claims each year. The number of injured worker submitting SIBTF claims has increased in recent years. The state now receives around 3,000 SIBTF claims per year, of which it has been able to process 500 to 1,000 claims annually. Submitted claims are held as “case inventory” until state staff can process and initiate benefit payments. The state’s case inventory of unprocessed SIBTF claims now sits at roughly 25,000 claims.
Insured employers pay roughly $1.4 billion in permanent disability payments. Self-insured employers – private and public – likely add another $500 million to $1 billion. Together, total annual permanent disability payouts under the standard workers’ compensation system likely total about $2 billion. SIBTF, once a relatively small program, now pays more permanent disability payments ($2 billion to $3 billion) than the state’s core workers’ compensation program.
SIBTF claim payments and associated medical and legal payments have increased rapidly in recent years, resulting in annual increases in the employer paid taxes that replenish the SIBTF. The 2024-25 tax is expected to generate $850 million, nearly double the amount necessary to replenish the fund in the prior year. However, the current employer tax does not fully capture employers’ financial exposure to SIBTF claims because most claims each year go unprocessed. In recent years, the state has processed between 500 and 800 claims annually, or roughly one fifth of all incoming claims.
This means current employer tax rates only reflect a small portion of claims submitted, masking the full fiscal effect to come. Should the state progress through the backlog of SIBTF claims at a faster rate, employers’ annual taxes will grow commensurately.
Looking broadly at incoming claims each year, employers likely face lifetime SIBTF costs totaling $2 billion to $3 billion for each cohort of claims that injured workers submit each year. If the number of claims remains steady at around 3,000 per year and the state processes all incoming claims, the annual employer tax would climb to $2 billion to $3 billion before stabilizing near that level.
At the conclusion of the report, the LAO suggests “the Legislature look to refocus SIBTF to more closely align with its original purpose. To do so, the Legislature would need to reassess several dimensions of the program. Key options include: (1) establishing stricter criteria for pre-existing conditions, (2) returning the eligibility threshold to only cover moderate and severe work injuries, (3) requiring that pre-existing conditions were previously documented, (4) requiring claims to be reviewed by an agreed-upon physician, (5) limiting SIBTF to pre-existing disabilities that actually worsen the work injury, and (6) revisiting how multiple conditions are added together. We also recommend the Legislature consider fast-tracking backlogged claims from workers with the most severe pre-existing conditions.”