Workers Compensation: An Introduction

1
Workers Compensation An Introduction

• Tee L. Guidotti
• George Washington University Medical Center

2
Workers Compensation

• is
• nations 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

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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

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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

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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

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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

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Services provided by WC

• Universal
• Medical services for injured workers
• Income replacement
• Temporary disability
• Permanent disability
• Survivor benefits (if fatality)
• Variable
• Rehabilitation
• Retraining

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Who is covered?

• 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

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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

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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

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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

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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

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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, Firemans Fund, The
  Hartford, Travelers are the biggest

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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

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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

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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

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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

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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

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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

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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

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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