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.