Workers’ Compensation: An Introduction

1. Workers’ Compensation: An Introduction Tee L. Guidotti George Washington University Medical Center

2. is nation’s first social insurance scheme a state responsibility, organized by state a compromise mostly for industrial workers funded by employers through premiums is not a welfare scheme or entitlement program a federal government responsibility a single plan required for very small employers tax supported Workers’ Compensation

3. What existed before WC? • Crisis during the Industrial Revolution • Injured workers had to sue employer • Courts deliberately tried to protect employers in interest of increasing employment, wages • Legal defenses for employers insurmountable: • “assumption of risk” = worker voluntarily accepts risk of a dangerous job • “fellow servant doctrine” = employer is not responsible if injury due to action of another employee • “contributory negligence” = if any action by injured worker can be construed to have contributed to risk

4. What forced the change? • Skyrocketing injury rates created social, political problems • Labor unions started using this as an organizing issue • As economy settled down, courts became more open to worker-initiated lawsuits • Muckraking (e.g. The Jungle) • Political climate changed: Progressive movement • Model available: Germany, UK

5. The WC “Compromise” • Workers would reliably receive care and benefits • Medical care • Lost wages • Employers would be shielded from litigation • No fault • No additional liability, even for negligence • Administration would be fair and efficient • Insurance model (actuarial rating, costs passed to consumers/employers) • Intended to allow employers to anticipate costs • Rapid, no-fault processing of claims • Exclusive remedy: no appeal outside system, no alternative system

6. Early days of EC • Huge wave of state legislation from 1911 to 1915 • States set up Industrial Accident Commissions • Coverage mandatory (except TX) • Early attention to injury prevention • Few permitted enhanced benefits • However, every state different

7. Services provided by WC Universal: • Medical services for injured workers • Income replacement • Temporary disability • Permanent disability • Survivor benefits (if fatality) Variable: • Rehabilitation • Retraining

8. Usual coverage Employees of firms with more than a few employees Covered under special systems: Maritime workers Railroad workers Federal employees Usually not covered Agricultural workers Self-employed Business owners Domestic workers Volunteers Who is covered?

9. Permanent disability benefits • Two-thirds of WC disability benefits • Wide variation in adjudication, criteria • Ratings are based on: • Impairment assessment (medically discernable injury) • Actual wage loss • Permanent loss of earnings potential (considering job market) • Scheduled awards for specific impairments are trend (since NJ 1911) • Covers future wage loss • Unjust for injured workers to forgo benefits even if little wage loss at the time

10. How permanent disability is rated Three basic approaches • Impairment model • Based on schedules • Based on guidelines (e.g. AMA Guides) • Wage-loss formula Calculates actual loss of wages due to injury • Loss of earnings capacity Loss of future wages based on actuarial model

11. The AMA Guides to the Evaluation of Permanent Impairment • Like any tool, needs to be used properly • Not a cookbook: often gives a range • Achieves some consistency • Face validity in terms of relative impairment within functional systems • Expert consensus

12. Downside to the AMA Guides • No objective validation • Often used indiscriminately as a formula for disability • Avoids many important types of disability: • Chronic pain • Mental changes, depression • Reversible conditions, such as airways reactivity • Dermatitis • Stress-related disorders (e.g. irritable colon) • Has become a self-perpetuating industry involving complicated revisions, guides to the Guides, training programs and even a certification scheme

13. Financial realities of WC • Carriers go into but mostly out of business • Six states have exclusive funds • Employers pay insurance premiums • Premiums are based on: • Industry group • Size of enterprise • Historical claims experience (“rating”) • Administrative expenses are very high (up to 30 to 40% of premiums) • Industry concentrated in a few big carriers • Liberty Mutual, CAN, Fireman’s Fund, The Hartford, Travelers are the biggest

14. Financial realities: Special cases • Single payer: ND, OH, WA, WV, WY and Canadian provinces • State insurance pools (24 states) • intended for “residual market” at high risk • expensive for employers • Self insurance ( • allowed in 47 states, not ND, WY • company pays out, usually sets up fund • only an option for big companies

15. Financial realities of WC: benefits • Benefits from WC tend to be low • Some states cap as a % of average wage in state, typically 2/3 • Some states index to wages • Only considers wages, not additional direct costs or social costs • Costs are shifted from WC to supplemental Social Security and other programs • Limbo between denied WC claims and rejected LTD claims – injured worker caught in middle • Market forces reductions in benefits to reduce costs: • Reduced dollar benefits • Reduced acceptance rate for claims • Reduced impairment ratings • Choice of rating system • Choice of medical examiner

16. Occupational disease • Underreported • Underrepresented in claims • Latency period • Often arises during retirement • Difficult to attribute to responsible employer • May be multi-factoral • Requirement for “objective finding” • Bad or lacking information • Missing data • Incomplete differential diagnosis • Inadequate exposure history • Irrelevant data

17. Sociology of WC • Deeply rooted distrust • Of workers • Of employers • Of carriers • Abuse of system • By injured workers • By malingering workers • By employers • By carriers • Fear of consequences of filing a claim • Emphasis on “moral hazard”

18. Sociology of injured workers • Filing claim may bring stimatizaiton • Esp. if injury is not obvious • Esp. if embarrassing to employer • Esp. if highly visible to other workers • PD or prolonged rehabilitation • Wearing on family • Coworkers often turn unsympathetic, even hostile • Neighbors, friends get tired, even suspicious of abuse • Injured worker gets depressed • Depressed people are difficult to be around • Intimations of fraud, exaggeration, abuse • Involutional cycle

19. Role of physician • Who picks: the right of choice of physician: • Worker (half of states and DC) • Usually family physician • Employer or insurer (half of states, inc. VA) • Often on list of approved providers • Has given rise to PPO, other managed care models • Control over medical records is lost by worker

20. Federal and Special Programs • Federal workers • Federal Employees Compensation Act • DoE Office of Compensation Programs • nuclear workers (radiation exposed) • nuclear workers (chemical exposure) • Federally administered • Longshore and Harbor Workers’ Compensation Act • Federal Black Lung Program

21. Occupations not covered by workers’ compensation These workers have programs that cover disability whether work-related or not; worker retains access to tort litigation • US Merchant Marine • Railroad workers in interstate commerce