A state workers’ compensation fund created after World War II primarily to help injured veterans get jobs has morphed into a program that pays up to $1,700 weekly to workers claiming disability for such conditions as diabetes, asthma and allergies.
Some receiving payments also have claimed erectile dysfunction, toenail fungus, urinary tract infections and acid reflux in their medical evaluations.
The program, called the Subsequent Injuries Benefits Trust Fund, was meant to encourage employers to hire veterans whose prior injuries could be made worse by new, work-related injuries. The SIBTF — not the employers — would be liable for the old injuries. It is funded by an annual tax on all employers.
Gov. Gavin Newsom’s office says the SIBTF is operating unfettered and without the same safeguards as the traditional workers’ compensation system. Unsustainable, the fund’s liabilities are expected to hit $30 billion by 2029 amid skyrocketing applications.
“It’s 100% a cottage industry. Word got out and it’s almost a gimme,” said Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, a coalition of employers, insurers and brokers calling for change.
How the program works
Here’s how the program operates: Workers file claims for their employment-related injuries with workers’ compensation and then file a second claim with the SIBTF for preexisting health conditions that affect their ability to work. Some applicants who are receiving benefits have listed their sleep apnea, obesity and arthritis. Others have listed their infertility and hemorrhoids.
In one case, a California prison guard with spinal problems also claimed other ailments, including toenail fungus and eczema, as work-disabling conditions. He received $291,053 in back benefits and a weekly benefit of $1,284 — with yearly cost-of-living increases — from the SIBTF, according to the website for Santa Ana law firm Silberman & Lam.
The guard’s lifetime benefits from the special fund are estimated at $1.9 million. That’s on top of what he received from his workers’ compensation claim, which ended in a 79% permanent disability for hypertensive heart disease and trauma to his psyche.
Attorney Scott Silberman said the SIBTF benefit was primarily for the spinal condition. The toenail fungus probably was listed as part of the complete medical history and likely didn’t factor much in the disability rating, he said.
In another case study from the Silberman & Lam website, a California Highway Patrol lieutenant received a 55% disability rating from workers’ compensation for his hypertension. He then went to the SIBTF and claimed preexisting health conditions, including lumbar injury, rhinitis, asthma, sleep apnea, erectile dysfunction and seborrheic dermatitis, or red, flaky skin. He received back benefits from the SIBTF of $208,680 and $1,269 weekly, worth an estimated $2 million over his lifetime.
Silberman agreed the fund program needs to be reformed, but said workers are not gaming the system.
“Eighty percent of the people, we tell ‘no’ to,” Silberman said, adding that the average worker represented by his office with a 100% SIBTF rating are low-wage earners and get about $700 a week.
He said asthma can be quite debilitating in the construction industry or professional sports and sleep apnea can be disabling for those dozing off at work, especially truck drivers.
He added that much of the fund money goes to copy services and doctors evaluating the claims for submission.
That’s where former Orange County Superior Court Judge Israel Claustro comes in. Claustro tried to profit from the SIBTF program by forming a company to write and submit medical reports for applicants. However, Claustro, a county prosecutor at the time, was not a medical professional, as required by law to operate such a company.
Another problem was that Claustro hired a doctor who had been previously convicted of federal fraud to do the evaluations and falsely submit them under the names of other physicians. The state fund sent more than $3 million to Claustro’s medical company.
Claustro pleaded guilty in January to a federal charge of fraud and resigned from the bench. He is scheduled to be sentenced in June.
System ripe for abuse
Claustro’s case highlights a system that critics say is ripe for abuse.
Observers cite multiple reasons for the increase in SIBTF applications. First, there were changes in 2004 and 2014 that made it more difficult to get a 100% disability rating in regular workers’ compensation, so injured workers began turning to the SIBTF program to augment their claims.
But the most recent rush on SIBTF applications began with a 2020 workers’ compensation court judgment that made it easier to get a high disability rating in the fund.
A look at the numbers shows a program in need of control.
The state Department of Industrial Relations reported that total payments from the SIBTF climbed from $28 million in 2014 to $326 million in 2025. And the number of yearly applications has soared from 1,011 in 2014 to 5,378 in 2024, said a report for the state Commission on Health and Safety and Workers’ Compensation.
A March report for an Assembly budget subcommittee said 25,000 cases are now pending, a number that is expected to hit 30,000 in July, creating a five- to 10-year backlog. However, attorneys say that number is inflated because many of the pending cases have been abandoned by the applicants, but were not formally withdrawn.
Employers’ costs soar
Yearly taxes paid by employers to the SIBTF have spiraled over the last decade, from $17.9 million in 2014 to $859 million in 2025, according to the state Department of Industrial Relations.
Los Angeles County’s assessment jumped 433%, from $2.2 million in 2020 to $11.8 million in 2025. Riverside County experienced a 168% increase in its yearly assessment since 2020, to $808,162 in 2025.
The Orange County Fire Authority’s assessment spiraled by a whopping 335% to $399,623 in 2025, up from $91,778 in 2020. And San Bernardino County went from paying $199,904 in 2020 to $677,962 in 2025, an increase of 239%.
“It’s a well-intentioned program that’s lost its way and run amok with real consequences for taxpayer-funded agencies,” Azevedo said.
However, employee unions and attorneys say the SIBTF costs — spread among all employers — is much lower than if the employers had to cover the injuries individually through workers’ compensation.
Governor pushing reforms
Newsom’s office is trying to push through his reforms as a trailer in the governor’s budget package. The reforms would tighten up eligible health conditions, making them in line with the workers’ compensation system. They also would prevent “doctor shopping” by adding restrictions to requirements in medical reports.
As it now stands, applicants to the SIBTF can hire any state-certified medical evaluator they want without employer input and charge the fund for all medical reporting.
According to the Assembly report, doctors chosen by applicants give an average of 6% to 8% higher disability ratings than through the standard workers’ compensation selection process, which uses physicians considered more neutral. The report noted that 24% of all payments from the SIBTF go to doctors and copy services, double what is paid in the workers’ compensation system. In fact, SIBTF medical evaluations cost two to three times more than in the workers’ compensation system.
Too much of the money goes to outside costs, such as doctors, than to the injured workers, attorney Silberman said.
“In some cases, the cost of medical reporting can be excessively high; some may see it as a big racket,” he said, noting that even doctor groups favor limiting reimbursement for medical-legal reports. “We do our best in our office to control the costs. … I think having curbs on doctors would be a big savings.”
But Newsom is going about it the wrong way, said Silberman and other opponents of the governor’s proposed reforms.
Critics of the trailer bill, including the Peace Officers Research Association of California, say Newsom’s reforms would throw out existing medical reports on thousands of pending cases and force applicants to start again under new medical evaluation guidelines. That would be expensive and unfair, opponents say.
“I agree with putting it on the same playing field and the fact they need changes,” Silberman said. “It shouldn’t be easier to get (SIBTF) than workers’ compensation. But they shouldn’t make it next to impossible.”
Added PORAC, in a letter to the Assembly budget subcommittee: “We agree that the fund warrants thoughtful scrutiny and that reforms may be appropriate to address rising costs and ensure long-term viability. … (However) the current proposal appears to swing the pendulum too far in the opposite direction.”
The association warned that by narrowing access to the fund, the proposal could unintentionally discourage employers from hiring people with preexisting health conditions.
Transparency encouraged
Opponents also argue that the reforms should not be handled in a budget trailer, but through a regular legislative bill, which would get more public scrutiny.
Jason Marcus of the California Applicants Attorneys Association said reforms should be negotiated openly, not in a “back room.”
“This is just the governor saying what it is and what it will be,” Marcus said.
Silberman cautioned that the governor’s trailer bill could cause more problems than it solves.
“I think everyone agrees the waste should be eliminated and a conversation and a regular bill can negotiate those types of changes,” he said. “Unfortunately, the proposed budget trailer bill will likely be very costly for both employers and the most severely injured workers.”