Who benefits?

The workers’ compensation system in the United States has been changing for quite some time.

Since the 1990s, competition, globalization and deregulation have increased in several industries. This, combined with the most serious recession in nearly 100 years, has put financial pressure on businesses hoping to stay alive, according to John Burton, professor emeritus at Rutgers and Cornell universities.

In addition, workplace disabilities are different in nature than they were 50 years ago. The workforce is older and more prone to injuries for which work-relatedness is difficult to determine, including musculoskeletal disorders.

No national standards or single system exist for governing workers’ comp. Each state runs its own system and has its own requirements, and states compete with each other to attract businesses through lower workers’ comp costs. Although the decentralization of workers’ comp has potential benefits for employers, it produces a negative side effect for workers, according to Les Boden, professor of environmental health at Boston University.

“There’s a lot of pressures on states to reduce employers’ cost of workers’ compensation, and those pressures have led to the states passing laws that make it harder for workers to get the compensation they were traditionally entitled to,” Boden said.

The idea of workers’ comp is relatively simple. In exchange for providing benefits to workers for occupational injuries, employers are shielded from lawsuits filed by injured workers.

But exactly what benefits are injured workers entitled to? It is a debate that began a century ago and continues today.

Role of workers’ comp

The general role of workers’ comp was a topic of discussion at a July 10 House committee hearing on the Federal Employees’ Compensation Act program, which provides workers’ comp for injured government employees.

During the hearing, Scott Szymendera, an analyst with the Congressional Research Service, asked a key question: Is workers’ comp intended purely as wage loss replacement for injured workers, or is it meant to provide additional benefits? “It ultimately really is a fundamental question of workers’ compensation that goes back, in the case of FECA, to the beginning of the program in 1916, and the beginning of workers’ compensation in the years before that,” Szymendera said.

To a degree, the states have resolved this debate, according to Ishita Sengupta, director of workers’ compensation at the Washington-based National Academy of Social Insurance. For unscheduled conditions – which are injuries without a set compensation – four approaches are used by the states:

• Impairment-based. In most cases this approach – used by 19 states – provides compensation to the injured worker based on the degree of impairment.
• Loss of earning capacity. This approach – used by 12 states – involves forecasting the economic impact the impairment will have on a worker’s future earnings.
• Wage-loss. An approach used by 10 states, it pays injured workers for the actual or ongoing earning losses incurred.
• Bifurcated. Nine states use this approach, which bases benefits for workers returning to the job on their impairment, while other injured workers’ benefits are determined by loss of wage-earning capacity.

Are these systems fair to employers and employees? Emily Spieler, the Edwin W. Hadley professor of law at Boston’s Northeastern University, said determining the fairness of the procedural aspect of workers’ comp involves looking at whether people feel they are treated the same and receive an adequate hearing, and whether the system is transparent.

Because procedures vary among states, a worker in one state who is injured may receive better compensation than a worker in another state with the same injury. Additionally, employers may find the system unfair because it is confusing, especially for employers with workers in multiple states.

Data indicates injured workers may not always be fairly compensated. Weekly compensation for an injured worker is capped, which in most states is at 100 percent of the weekly average wage. So, a worker who would normally earn twice the weekly average wage (common in dangerous industries) would receive fewer benefits.

Retirement is another hotly debated aspect, Szymendera noted during the House committee hearing. If workers’ comp is intended only as wage replacement, it would not continue once a worker reaches retirement age. But because compensation systems may not provide full wage loss and do not take into account career advancement, a worker’s retirement will be substantially reduced as a result of his or her injury and inability to work.

“If you think of it as full wage replacement, it would cover the loss of retirement benefits,” Spieler said. “But none of the workers’ compensation systems do that.”

Tightening up

Many state workers’ comp systems are not providing additional benefits; instead, they are tightening up. As Boden noted, states have rewritten laws to make it more difficult for injured workers to receive compensation.

In addition to the economic pressures employers are facing, fraud may be a concern – specifically, workers falsifying the extent or existence of an injury to claim workers’ comp benefits. But although fraud certainly occurs, not enough evidence exists to suggest it is anything other than a small percentage of all workers’ comp cases, Boden said.

Another argument – that workers obtain benefits too easily – is incorrect as well, Spieler said. The reality, she said, is that many injured workers find they are unable to get the benefits they need.

Ironically, this is partly due to an improving safety culture and a changing nature of the understanding of injuries. A hundred years ago, it was easier to tell what was or was not a work-related injury because most of the workplace injuries that led to disability were traumatic incidents, Burton said.

Now, workplaces are safer and traumatic incidents are less likely to occur. Society also has become more sophisticated in determining the work-relatedness of a variety of other conditions, Burton said, which may make it more difficult to decide whether an injury should be compensable. For example, a back injury could be work-related, but it also could stem from activities that occurred off the job, hereditary factors or a combination of these.

“I can understand why employers are concerned about the fact that they are facing claims where the source of the disability is not obvious,” Burton said.

This uncertainty has resulted in injured workers either not receiving benefits or not receiving benefits adequate to cover their legitimate losses, Boden said. The rates for workers’ comp indemnity claims have declined from 2.71 per 100 workers in 1994 to 1.21 in 2004, according to a paper from Boden and Spieler published by the Workers Compensation Research Institute in 2010.

However, these declining claim figures correlate with decreasing injury and illness rates from the Bureau of Labor Statistics. On the surface, the decline suggests workplaces are becoming safer, but the paper highlighted studies that indicate the reported workers’ comp claims underestimate the number of actual workplace injuries.

Both types of data are collected from employers, and some stakeholders have long suspected an underreporting problem with workplace injuries and illnesses. If that is the case, one underreporting problem feeds into another.

“If a worker never reports an injury, they’re not going to get any workers’ compensation benefits,” Boden said.

Opting out and releasing

Another growing trend in workers’ comp is the idea of “compromise and release.” Also referred to as compromise settlements, this typically entails an agreement in which the injured worker receives a lump sum based on projected medical costs and loss of income. The payments do not continue beyond what was agreed on, Burton said, so a variety of entities like the idea. For example, in addition to lowering costs for many parties, employers no longer have to worry about liability, and workers’ comp agencies are able to close cases.

However, because compromise settlements effectively end the case, workers whose medical costs eventually exceed the original agreed-on amount are on their own. Many workers who rely on these agreements go through their payments and wind up needing public assistance, Burton said, citing study results.

A 2010 report from the W.E. Upjohn Institute for Employment Research, a Kalamazoo, MI-based nonprofit organization, stated that the increasing incidence of compromise and release settlements were part of the overall decline in worker benefits. Although compromise and release can be a desirable option in some situations, the report warned workers’ comp systems to be “more careful” about using the practice.

Two states provide employers with a choice on whether to be included in the state’s workers’ comp system.

For the past 50 years, Texas has had an opt-in workers’ comp system – employers choose whether they want to join. If they join, they are protected from tort claims from injured workers. However, employers that do not opt in are not protected from these lawsuits.

Oklahoma recently instituted a slightly different version – an opt-out system. Employers are automatically part of the workers’ comp system, but have the option to leave. Except unlike Texas, Oklahoma employers can opt out of the state workers’ comp system and still maintain their protection from tort suits, Spieler said.

Oklahoma employers that opt out of the state system must set up an alternative method of compensation for injured workers, which protects the employers from the tort claims. This system has not yet gone into effect, leaving stakeholders to wonder how it will work. “The opt-out is making many worried how it would affect workers’ compensation and safety,” Sengupta said.

Although Burton does not view two states adopting an optional system in the past 50 years as a “runaway trend,” he said Oklahoma’s plan could inspire other states.

“Oklahoma has got a lot of attention, and people are going to be looking at that and see what happens,” Burton said.

Future

While stakeholders wait to see how Oklahoma’s system pans out, efforts have been made to reduce employers’ costs while ensuring workers maintain their wages.

Return-to-work programs have received increased attention in recent years, for a logical reason: “If there are constantly workers injured on the job never coming back to work, then the premiums go up,” Sengupta said.

Nearly everyone believes appropriate return-to-work programs are a good thing for all involved, according to Spieler. Workers get back on the job and earn a salary, and employers save money on workers’ comp payouts. The problem, Spieler said, has been anecdotal evidence of employers pressuring people to come back to work in order to cut off the benefits.

Another issue is that return to work only pertains to a small number of injured workers. More than three-quarters of workers’ comp cases are medical-only, meaning the worker does not lose a day of work, according to Sengupta. The worker might have reduced hours or need a job transfer, but would not necessarily need a return-to-work program.

The costliest portion of the workers’ comp system is for workers with long-term, serious disabilities. Unfortunately, it is the area most frequently targeted for cuts, Boden said, but it also is the area with the greatest need for funding.

To ensure workers receive appropriate compensation, federal standards are necessary, Burton said. Considering that this was a suggestion he made 40 years ago in a congressionally requested report on the nation’s workers’ comp systems, Burton is not very optimistic it will occur. A federal system is even less likely, he said.

As injured workers struggle with obtaining adequate compensation, more people may apply for Social Security Disability Insurance. SSDI is a federal program that provides supplemental income to people with a disability that affects their ability to be employed.

The system has seen a sharp increase in benefits paying out – to the point where by 2016 tax revenues will be able to cover only about 80 percent of scheduled benefits, according to the National Academy of Social Insurance. Burton believes part of this problem may be that workers are finding it harder to get adequate compensation due to the changes states have made to their systems in the past couple of decades.