CHAPTER 5

1
CHAPTER 5 WORKERS COMPENSATION
2
Overview of Workers Compensation

• The concept of workers compensation developed as
  a way to allow injured employees to be
  compensated without having to take their employer
  to court.
• Two aspects
• Fairness to injured employees, especially those
  without the resources to undertake lengthy and
  expensive legal actions.
• Reduction of costs associated with workplace
  injuries.

3
Overview of Workers Compensation

• Since its inception as a concept, workers
  compensation has evolved into a system that pays
  out approximately 27 billion in benefits and
  medical costs annually.
• Some of the highest workers compensation
  insurance rates are in construction fields (e.g.,
  roofers)
• Compromise between the needs of employees and the
  needs of employers.

4
Overview of Workers Compensation

• Workers compensation laws vary from state to
  state. In fact there are extreme variations.
• Workers Compensation has several widely accepted
  objectives
• Replacement of income for injured employees
• Current and future income at a level of
  two-thirds (in most states)
• Rehabilitation of the injured employee
• Medical care at no cost, vocational training or
  retraining
• Prevention of accidents
• Employers invest in accident prevention programs,
  lower premiums
• Cost allocation
• Spread cost of workers compensation
  appropriately and proportionately

5
Who is Covered?

• Workers compensation laws written at state level
• Much variation in laws by state
• Workers compensation laws are constantly being
  amended, revised and rewritten.
• Contractors/subcontractors are not covered.
• They perform a job or service for an agreed
  amount of money in a nondirected, nonsupervised
  format
• Therefore are viewed as being self employed
• Approximately 80 employees in US are covered

6
Historical Perspective

• Before workers compensation laws were enacted,
  injured employees had no way to obtain
  compensation for their injuries except to take
  their employer to the court.
• Proving that an injury was the result of employer
  negligence in the form of unsafe conditions was
  too costly, too difficult, and too time consuming
• Injured employees who hoped to return to work
  after recovering were often afraid to file suit
  because they feared retribution by their
  employer.

7
Historical Perspective

• Laws at that time made it easy for employers to
  defend themselves.
• It was sufficient for the employer to show that
  at least one of the following conditions was
  existed
• Contributory negligence
• Negligence on the part of a fellow worker
• Assumption of risk on the part of the injured
  employee.

8
Workers Compensation Legislation

• Today, all 50 states, the District of Columbia
  and Puerto Rico have workers compensation laws.
  However, these laws did not exist before 1948.
• The first workers compensation law did not pass
  until 1908 and it applied only to federal
  employees working in especially hazardous jobs.
• Montana was the first state to pass a compulsory
  workers compensation law. However, it was
  short-lived. Ruling that the law was
  unconstitutional, the Montana courts overturned
  it.

9
Workers Compensation Legislation

• The New York State legislature had passed a
  compulsory workers compensation law in 1910.
• The New York Court of Appeals declared the law
  unconstitutional.
• Pressure for adequate workers compensation grew,
  as unsafe working conditions continued to result
  in injuries, diseases and deaths.
• Shortly after the New York Court of Appeals
  released its due process ruling, tragedy struck
  in a New York textile factory.

10
Workers Compensation Legislation

• On March 25, 1911, the building that housed the
  Triangle Shirtwaist Factory on its eighth floor
  caught fire and burned.
• As a result of the fire, 149 of the companys 600
  workers were dead and another 70 were injured.
• Unsafe conditions created by the management of
  the company prevented those who died or were
  injured from escaping from the fire.
• The tragedy did focus nationwide attention on the
  need for a safe work place and adequate workers
  compensation.

11
Workers Compensation Legislation

• The next several years saw a flurry of
  legislation in other states relating to workers
  compensation.
• In response to demands from workers and the
  general public, several states passed limited or
  noncompulsory workers compensation laws.
• Many such states held back out of fear of being
  overturned by the courts.
• Others disagreed with the New York Court of
  Appeals and passed compulsory laws.
• In 1917 the U.S. Supreme Court ruled that
  workers compensation laws were acceptable.

12
Modern Workers Compensation

• Since 1948, all states have had workers
  compensation laws.
• Controversy surrounding the workers compensation
  continues
• As medical and insurance premiums have
  skyrocketed, many small businesses have found it
  difficult to pay the premiums.
• Businesses are closing their doors in those
  states with the highest workers compensation
  rates and moving to states with lower rates.
• Critics are now saying that workers compensation
  has gotten out of hand and is no longer
  fulfilling its intended purpose.

13
Objectives of Workers Comp

1. To provide an appropriate level of income and
   medical benefits to injured workers, or to
   provide income to the workers dependents,
   regardless of fault.
2. To reduce the amount of personal injury
   litigation in the court system.
3. To relieve public and private charities of the
   financial strain created by workplace injuries
   that go uncompensated.
4. To eliminate time-consuming and expensive trials
   and appeals.
5. To promote employer interest and involvement in
   maintaining a safe work environment through the
   application of an experience-rating system.
6. To prevent accidents by encouraging, frank,
   objective, and open investigations of the cause
   of accidents.

14
Unexpected Factors

• Proponents of workers compensation did not
  anticipate the following factors
• Employees who see workers compensation as a way
  to ensure themselves a lifelong income without
  the necessity of working.
• Enormous increases in the costs of medical care
  with corresponding increases in workers
  compensation insurance premiums.
• The radical differences among workers
  compensation laws passed by the various states.

15
Modern Workers Compensation

• Not all employees abide by the spirit of workers
  compensation (e.g., rehabilitation in a
  reasonable amount of time).
• Attempted abuse of the system is perhaps
  inevitable.
• Unfortunately, such attempts result in a return
  to what workers compensation was enacted to
  eliminate time-consuming, drawn-out, expensive
  legal battles and the inevitable appeals.

16
Modern Workers Compensation

• Medical costs have skyrocketed in the U.S. since
  1960s.
• Increases in medical costs can be explained, at
  least partially, as the normal cost of living
  increases experienced in other sectors of the
  economy.
• The costs associated with medical care have
  increased much faster and much more than the
  costs in these areas.

17
Modern Workers Compensation

• The unprecedented increases can be attributed to
  two factors
• Technological developments that have resulted in
  extraordinary but costly advances in medical
  care.
• A proliferation of litigation that has driven the
  cost of malpractice insurance steadily up
• The potential for abuse, steadily increasing
  medical costs that lead to higher insurance
  premiums, and differences among workers
  compensation laws all contribute to controversy
  that still surrounds the issue.

18
Workers Compensation Insurance

• Insurance rates are affected by a number of
  factors
• Number of employees
• Risk involved in types of work performed
• Accident history of the employer
• Potential future loses
• Quality of the employers safety program
• Estimates by actuaries

19
Workers Compensation Insurance

• Insurance companies use one of the following
  methods in determining the insurance rates of
  employers
• Schedule rating
• Comparison of safety conditions and evaluation
  against set baselines.
• Credits are awarded for conditions better than
  the baseline and debits are assessed for
  conditions worse than the baseline
• Manual rating
• A manual of rates is developed that establishes
  rates for various occupations
• Each occupation has a different rate based on its
  perceived level of hazard
• The overall rate for the employer is a pro-rated
  combination of all the individual rates

20
Workers Compensation Insurance

• Experience rating
• Premium rates are assigned based on predictions
  of average losses for a given type of employer
• Rates are then adjusted either up or down
  according to employers actual experience over the
  past 3 years.
• Retrospective rating
• Employees pay an established rate for a set
  period
• At the end of the period, the actual experience
  is assessed and an appropriate monetary
  adjustment is made at the end of a period
• Premium discounting
• Large employers receive discounts on their
  premiums based on their size
• Combination rating
• Combining two or more methods

21
Resolution of Workers Compensation Disputes

• When an injured employee and the employers
  insurance company disagree on some aspect of the
  compensation owed (e.g., weekly pay, length of
  benefits, degree of disability), the disagreement
  must be resolved.
• Most states have an arbitration board for this
  purpose.
• Workers compensation litigation is very common
  and expensive.
• Neither the insurance company nor the injured
  employee is required to hire an attorney. However
  many employees do.
• Some do not feel they can adequately represent
  themselves.
• Others are fearful of the big business running
  over the little guy syndrome.

22
Injuries and Workers Comp

• Accidents traditionally viewed as sudden and
  unexpected. Now, gradual onset of a disease as
  result of prolonged exposure to harmful
  substances or a harmful environment can also be
  considered as an accident.
• The harmfulness of an environment does not have
  to be limited to its physical components.
  Psychological factors can also be considered.
• The highest rate of growth in workers
  compensation claims over the past two decades has
  been in the area of stress related injuries.

23
Injuries and Workers Compensation

• AOE Injuries arising out of employment
• COE Injuries occurred in the course of
  employment
• Workers compensation benefits are owed only when
  the injury arises out of employment or occurs in
  the course of employment.
• When employees are injured undertaking work
  prescribed in their job description, work
  assigned by a supervisor, or work normally
  expected of employees, they fall into AOE
  category.
• Employee may be defined as a person who is on a
  companys payroll, receives benefits, has a
  supervisor.
• Supervision and direction are the factors that
  set independent contractors apart from employees
  and exclude them from coverage.

24
Disabilities and Workers Comp
25
Temporary Disability

• When it is probable that an injured worker will
  be able to return to work with no or only partial
  disability
• Temporary disability assumes that the employees
  condition will substantially improve.
• The ability to return to work relates only to
  work with the company that employed the worker at
  the time of the accident.

26
Temporary Disability

• Temporary total disability Injured worker is
  incapable of any work for a period of time but is
  expected to fully recover.
• Most workers compensation cases fall into this
  classification.
• Most states prescribe in law the benefits owed to
  the employee. Factors prescribed typically
  include a set percentage of an employees wage
  that must be paid and a maximum period during
  which benefits can be collected.

27
Temporary Disability

• Temporary partial disability Injured worker is
  capable of light or part-time duties.
• Depending on the extent of the injury, temporary
  partial disabilities sometimes go unreported.
• This practice is allowable in some states. It
  helps employers hold down the cost of their
  workers compensation premium.
• This is similar to not reporting a fender-bender
  to your automobile insurance agent.

28
Permanent Partial Disability

• Condition that exists when an injured employee is
  not expected to recover fully.
• In such cases, the employee will be able to work
  again but not at full capacity.
• Often employees who are partially disabled must
  be retrained for another occupation.

29
Permanent Partial Disability

• Permanent partial disabilities can be classified
  as schedule or nonschedule disabilities.
• Schedule disabilities are typically result of
  nonambiguous injuries, such as the loss of a
  critical but duplicated body part (e.g., arm,
  ear, hand, finger, or toe). Because injuries are
  relatively straightforward, the amount of
  compensation that they generate, and the period
  of time that it will be paid, can be set forth in
  a standard schedule.
• Nonschedule injuries are less straightforward and
  must be dealt with on a case-by-case basis.
  Disabilities in this category tend to be the
  result of head injuries, the effects of which can
  be difficult to determine. The amount of
  compensation awarded, and the period over which
  it is awarded, must be determined by studying the
  evidence. Awards are typically made based on a
  determination of percentage of disability.

30
Permanent Partial Disability

• Four approaches to handling permanent partial
  disability cases have evolved.
• Three of these are based on specific theories ,
  and the fourth is based on a combination of two
  or more of these theories. The three theories
  are
• Whole-person theory
• Wage-loss theory
• Loss of wage-earning capacity theory.

31
Whole-Person Theory

• Simplest and most straightforward of the
  theories.
• This theory is applied like a subtraction problem
• What the worker can do after recuperating from
  the injury is determined and subtracted from what
  he or she could do before the accident
• Factors such as age, education, and occupation
  are not considered.

32
Wage-Loss Theory

• Determines the amount of wages the employee could
  have earned if the injury did not occur.
• The wages actually being earned are subtracted
  from what could have been earned, and the
  employee is awarded a percentage of difference.
• No consideration is given to the extent or degree
  of disability. The only consideration is loss of
  actual wages.

33
Loss of Wage-Earning Capacity Theory

• The most complex of the theories for handling
  partial disability cases.
• It is based on not just what the employee was
  earning at the time of accident, but also on what
  the employee might have earned in the future.
  Making such a determination is a subjective
  undertaking.
• Factors considered include past job performance,
  education, age, gender, and advancement potential
  at the time of the accident, among others.
• Once future earning capacity has been determined,
  the extent to which it has been impaired is
  estimated, and the employee is awarded a
  percentage of the difference.

34
Use of Schedules

• The use of schedules has reduced the amount of
  litigation and controversy surrounding partial
  disability cases.
• However, they may be inherently unfair
• A surgeon who loses his hand would receive the
  same compensation as a laborer with the same
  injury, if the loss of a hand is scheduled.

35
Permanent Total Disability

• When an injured employees disability means they
  cannot compete in the job market.
• This does not mean that the employee is helpless.
  Rather, it means an inability to compete
  reasonably.
• Handling permanent total disability cases is
  similar to handling permanent partial disability
  cases except that certain injuries simplify the
  process.
• In most states, permanent total disability can be
  assumed if certain specified injuries have been
  sustained. (e.g., loss of both eyes or both
  arms).
• In some states, compensation is awarded for life.
  In others, a time period is specified.

36
Monetary Benefits of Workers Compensation

• The monetary benefits vary markedly from state to
  state.
• The actual amounts are of less importance than
  the differences among them.
• The amounts set forth in schedules change
  frequently.

37
Monetary Benefits of Workers Compensation

• Death and burial benefits
• Benefits accrue to the families and dependents of
  workers who are fatally injured.
• The remaining spouse receives benefits for life
  or until remarriage. However, in some cases, a
  time period is specified.
• Dependents typically receive benefits until they
  reach the legal age of maturity unless they have
  a condition or circumstance that makes them
  unable to support themselves even after attaining
  that age.
• Further expenses are provided in addition to
  death benefits in all states except Oklahoma.

38
Medical Treatment and Rehab

• All workers compensation laws provide for
  payment of the medical costs associated with
  injuries.
• Most states provide full coverage, but some limit
  the amount and duration of coverage.
• State laws specify the following options
• Employee selects physician of choice (Applicable
  in Ohio)
• Employee selects physician from a list provided
  by the state agency
• Employee selects physician from a list provided
  by the employer
• Employer selects the physician
• Employer selects the physician, but the selection
  may be changed by the state agency
• Employer selects the physician, but after a
  specified period of time, the employee may chose
  another

39
Rehabilitation and Workers Compensation

• Occasionally an injured worker needs
  rehabilitation before he or she can return to
  work.
• Goal of rehabilitation is to restore the injured
  workers capabilities to the level that exited
  before the accident
• There are two types of rehabilitation
• Medical rehabilitation Consists of providing
  whatever treatment is required to restore, to the
  extent possible, any lost ability to function
  normally. This may include such services as
  physical therapy or the provision of prosthethic
  devices.
• Vocational rehabilitation Involves providing the
  education and training needed to prepare the
  worker for a new occupation.

40
Medical Management of Workplace Injuries

• Out-of-control workers compensation cases led to
  the concept of medical management of workplace
  injuries.
• The goals of these state-level efforts are
• Speed up the processing of workers compensation
  claims
• Reduce costs
• Reduce fraud and abuse
• Improve medical management of workplace injuries

41
Medical Management of Workplace Injuries

• Workers compensation and managed care have been
  merged through the creation of Health Partnership
  Programs (HPP).
• HPPs are partnerships between employers and their
  states Bureau of Workers Compensation.
• Employers who choose to participate are required
  to have a managed care organization that provides
  medical management of workplace injuries and
  illnesses.

42
HPP Example - Ohio

• According to Clairmonte Cappelle,
• When a workplace injury occurs or an illness
  manifests itself, the employee reports it to the
  employer and seeks initial medical treatment. At
  this early stage, the employer or health care
  provider informs the MCO, which files a first
  report of injury electronically with the state
  and beings medical management of the case. The
  MCO prefers that an injured worker stay within
  its healthcare provider network for care.
  However, injured workers may choose their own
  doctors and hospitals from the list of 100,000
  BWC-certified providers. Except for emergency
  situations, workers who select non-BWC-certified
  health care providers will not have their
  workers compensation medical costs covered by
  the state. Once a claim is filed, MCOs work with
  employers, injured workers, health care
  providers, third-party administrators and BWC.
  This includes authorizing certain medical
  procedures, processing providers bills for
  payment by BWC, and driving the return-to-work
  process.

43
Health Partnership Programs (HPP)

• The HPPs are effective because an MCO coordinates
  the paperwork generated by the injured employee,
  the employer, health care providers, and the BWC.
• The average time required to process an injury
  report before implementation of the HPP was more
  than 66 days. The HPP reduced this to
  approximately 33 days.
• States that have implemented HPPs have learned
  the following lessons
• It is better to mandate HPPs than to make them
  optional
• Cost containment is only part of the goal.
  Managed care programs must also include criteria
  such as lost wages, ability to return to work,
  and administrative costs to the employer.
• Employees want choice in selecting healthcare
  providers.
• Smart return-to-work programs are critical.

44
Administration and Case Management

• If an accident results in a serious injury,
  several agencies must be notified.
• As a general rule an injury is serious if it
  requires more than 24 hours of active medical
  treatment.
• The companys insurer, the state agency, and the
  states federal counterpart must be notified at
  minimum
• Individual states may require additional agencies
  be notified
• Once the notice of injury has been filed, there
  is typically a short period before the victim or
  dependents can begin to receive compensation
  unless impatient hospital care is required.
  However, when payments do begin to flow, they are
  typically retroactive to the date of injury.
• State statutes also provide a maximum time period
  that can elapse before a compensation claim is
  filed.

45
Administration and Case Management

• All such activities filing injury notices,
  filing claim notices, arriving at settlements,
  and handling disputes fall under the collective
  heading of administration and case management.
• Most states have a designated agency that is
  responsible for administration and case
  management.
• In addition, some states have independent boards
  that conducts hearings or hear appeals when
  disputes arise.

46
Administration and Case Management

• Once the claim has been filed for workers
  compensation, three approaches are used to settle
  claims
• Direct settlement
• Employer or insurance company begins making what
  it thinks are the prescribed payments. The
  insurer also sets the period over which payments
  will be made.
• Agreement settlement
• Employee and employer or its insurance company
  work on agreement on how much compensation will
  be paid and for how long. Such an agreement must
  be reached before compensation payments begin.
• Public hearing
• If an injured worker feels he or she has been
  inadequately compensated or unfairly treated, a
  hearing can be requested. Such cases are known as
  contested cases.

47
Problems With Workers Compensation

• There are serious problems with workers
  compensation in the U.S.
• There is evidence of abuse of the system
• Many injured workers who are legitimately
  collecting benefits suffer a substantial loss of
  income.
• Stress claims in 1980 were almost non-existent,
  but now represent a major and costly category
• Of the 27 billion spent on workers
  compensation, only 17 billion goes to the worker
• 10 billion alone goes to medical expenses
• Almost one-half million families each year are
  faced with getting by on a drastically reduced
  income because of a disabling injury suffered by
  the principal income earner. On-the-job
  accidents are supposed to be covered by workers
  compensation and all states have compensation
  systems. However, the injured worker rarely
  receives an income that comes close to what he or
  she was earning before the accident.
• -U.S. Department of Labor

48
Spotting Workers Compensation Fraud or Abuse

• Public outcry against fraudulent claims is making
  states much less tolerant against abuse.
• Ohio legislature passes a statute that allows
  criminal charges to be brought against employees,
  physicians and lawyers who give false information
  in a workers compensation case.
• The following factors should raise cautionary
  flags
• The person filing the claim is never home or
  available by telephone or has an unlisted phone
  number
• The injury in question coincides with a layoff or
  termination

49
Spotting Workers Compensation Fraud or Abuse

• The person filing the claim is active in sports
• The person filing the claim has another job
• The person filing the claim is in line for early
  retirement
• The rehabilitation report contains evidence that
  the person filing the claim is maintaining an
  active lifestyle
• No organic basis exists for disability. The
  person filing the claim appears to have made a
  full recovery.
• The person filing the claim receives all mail at
  a post office box and will not divulge a home
  address.
• The person filing the claim is known to have
  skills, such as carpentry, plumbing, or
  electrical skills, that could be used to work on
  a cash basis while feigning a disability.
• There are no witnesses to the accident in
  question.
• The person filing the claim has relocated out of
  state or our of the country.

50
Spotting Workers Compensation Fraud or Abuse

• Demands for compensation are excessive
• The person filing the claim has a history of
  filing
• Doctors reports are contradictory in nature
• A soft-tissue injury is claimed to have produced
  a long-term disability.
• The injury in question occurred during hunting
  season.

51
Future of Workers Comp

• REFORM is the key!
• California is the leader in the reform movement
  with its Workers Compensation Improvement Act
• Key elements of the act include
• Stabilizing workers compensation costs over the
  long term
• Streamlining administration of the system
• Reducing the costs associated with the resolution
  of medical issues
• Limiting stress-related claims
• Limiting vocational rehabilitation benefits
• Increasing benefits paid for temporary and
  permanent disabilities
• Reducing the amount that insurers may charge for
  overhead
• Providing more public input into the setting of
  rates

52
Cost Reduction Strategies

• Construction professionals are responsible for
  helping their companies hold down workers
  compensation costs.
• The best way to accomplish this goal outside of
  the legislation process is to maintain a safe and
  healthy workplace, thereby preventing the
  injuries that drive the costs up.

53
General Strategies

• Stay in touch with the injured employee
• Let injured employees know that they have not
  been forgotten and that they have not been
  isolated.
• Have a return-to-work program and use it
• The sooner an injured employee returns to work,
  even with a reduced workload, the lower workers
  compensation costs will be.
• Determine the cause of the accident
• The key to preventing future accidents and
  incidents is determining the cause of the
  accident in question.

54
General Strategies

• Colledge and Johnson recommend using the SPICE
  model for improving the effectiveness of
  return-to-work programs
• Simplicity Medical professionals who treat
  injured employees should work closely with
  employers to prevent system-induced
  complications. Such complications occur when
  employees become convinced their injuries are
  more serious than they really are.
• Proximity, means keeping the injured employee as
  close to the job as possible.
• Immediacy, means that the faster an employees
  injury claims can be handled, the less likely he
  or she is to develop psychosocial issues.
• Centrality, mans ensuring the employees and their
  families that everyone has the same goal and is
  working in good faith to achieve that goal.
• Expectancy, means creating the expectation that
  getting the employee well and back to work is the
  goal of all parties involved.

55
Specific Strategies

• Cultivate job satisfaction
• Recognize and reward employees
• Communicate frequently and openly with employees
  about job-related problems
• Give employees as much control over their work as
  possible
• Encourage employees to talk freely themselves
• Practice conflict management
• Provide adequate staffing and expense budgets
• Encourage employees to use employee assistance
  programs

56
Specific Strategies

• Make safety part of the culture
• Ensure the visible, active leadership,
  involvement, and commitment of senior management
• Involve employees at all levels in the safety
  program and recognize them for their efforts
• Provide comprehensive medical care, part of which
  is a return-to-work program
• Ensure effective communication throughout the
  organization
• Coordinate all safety and health processes
• Provide orientation and training for all
  employees
• Have written safety practices and procedures and
  distribute them to all employees
• Have a comprehensive written safety policy
• Keep comprehensive safety records and analyze the
  data contained in those records

57
Specific Strategies

• Have a systematic cost-reduction program
• Insert safety notes and reminders in employees
  paycheck envelopes
• Call injured employees at home to reassure them
  that they will have a job when they return
• Keep supervisors trained on all applicable safety
  and health issues, procedures, and rules
• Hold monthly meetings to review safety
  procedures, strategies, and techniques
• Reward employees who give suggestions for making
  the workplace safer
• Make safety part of every employees job
  description and performance appraisal
• 4. Use integrated managed care