Workers’ compensation reform

The state of Illinois recently attracted attention for a bill that proposed to abolish its workers’ compensation statute and revert to a system in which disputes between employers and workers following occupational injuries would be litigated in the circuit court. State Representative John Bradley, D-Marion, after trying to negotiate among labor unions, doctors, and hospitals, insurance companies, trial lawyers, and business groups, concluded that “The different groups all want something different, or don’t want any changes at all. The workers’ compensation system in Illinois is broken. Let’s get rid of the system that we know isn’t working; let’s try something new”.1

Presidential hopeful Newt Gingrich has proposed a plan that would entirely eliminate employer contributions to worker benefits.2 It is his contention that workers should cover the costs of their own needs, including medical care and workers’ compensation benefits. The Gingrich plan would require that workers be self-insured for injuries and illnesses and resulting disability. This, he says, would free workers of the need to contribute to insurance coverage or Social Security benefits. The Gingrich plan may be extreme, but it will not be the only plan designed to bring about drastic reductions to workers’ compensation benefits.

The Gingrich plan and the bill in Illinois serve as warnings that workers’ interests need to be ensured before drastic cost-saving reforms are put in place.

Ignoring the problem

The Patient Protection and Affordable Care Act (PPACA) signed into law by President Obama in 2010 followed one of the most exhaustive public debates in American history. The concern of legislators that 40 million Americans were uninsured was, however, not accompanied by any concern that workers insured under workers’ compensation were, in most instances, not receiving the benefits to which they were entitled. State workers’ compensation systems currently pay for less than one-third of the total cost of occupational injury and illness in the USA, shifting most of these costs to individual workers, their families, private medical insurance, and taxpayers through Medicare and Medicaid.3 Ten times as many severely disabled occupational disease victims receive Social Security Disability Insurance (SSDI) or early retirement benefits as receive workers’ compensation benefits.

How can it be that healthcare legislation so important to the country managed to leave the workers’ compensation system intact? And if anyone did voice concern about workers’ health care and indemnity benefits under the workers’ compensation system, it did not reach the media. The PPACA is intended to end the discriminatory practices of the private insurance industry, ignoring the reality that many more workers are affected by exclusionary practices among workers’ compensation insurance companies than there are citizens denied coverage because of prior illness. Occupational diseases affect one in five Americans, and should be covered by workers’ compensation. But their costs are largely evaded by state agencies and private insurers by amending state laws or by cost shifting. A mere one out of twenty occupational disease victims receives workers’ compensation benefits. For occupational cancer, the number is fewer than one in a hundred.

The perception that workers’ compensation is a small program paid for by employers may explain why it has been excluded from the debate over healthcare reform. But industry does not provide workers’ compensation at little or no cost to workers and to the country. Workers’ compensation is a significant yet largely unrecognized burden on the US economy. The total annual cost of workers’ compensation health care and disability benefits is at least $300 billion.

Workers’ Compensation Reform

Workers’ compensation law in the USA has evolved over the past century through an endless process of reform (or redesign) initiatives. There have been few major reforms ever adopted by government and industry. There have been many hundreds of minor redesigns implemented by the state programs, the net result of which is a workers’ compensation system that fails to provide the required benefits to workers.

National Commission on State Workers’ Compensation Laws

The legislative activity leading to the passage of the Occupational Safety and Health Act (OSHAct) of 1972 raised serious questions about the fairness and adequacy of workers’ compensation programs. Congress found the system to be in disarray, with low benefits, inadequate coverage, and medical care, poor administration, and excessive litigation. The OSHAct established the National Commission on State Workers’ Compensation Laws to “undertake a comprehensive study and evaluation of state workers” compensation laws to determine if they provide an adequate, prompt, and equitable system of compensation’.

The Commission raised the possibility that the medical component of workers’ compensation could be assigned to an expanded Medicare or national health insurance program, and considered the possibility that disability cases could be assigned to the SSDI system. The “Commission recommended that all states provide full coverage for occupational diseases. The commission concluded that workers” compensation laws in general were neither adequate nor equitable.

The Commission was unanimous in concluding that, “Congressional intervention may be necessary to bring about the reforms essential to survival of the state workers' compensation system”.4 After lengthy hearings, the National Commission rejected the idea of federalization of workers’ compensation. The coalition of employers, insurers, and state agencies that had come together to support federal standards became silent. Further action to implement federal oversight did not meet with the required political will.

Peter Barth, Executive Director of the Commission, saw little likelihood of reform of workers’ compensation so long as the insurance industry and state governments were in control of the reform process.5 Don Elisburg of the AFL-CIO agreed that reform was unlikely. “The constant and frequently-failed efforts to secure equitable benefits, coverage, administration, medical care, and rehabilitation calls into question whether the systems are fundamentally flawed; or whether in today’s economy these systems are relics of the past and not responsive to the needs of the workers, employers, or the public. There has been no broad public consensus about reforming no-fault workers’ compensation programs, and therefore no fundamental change”.6

Department of labor proposals

Given the shortcomings of the state workers’ compensation programs, in 1980 the US Department of Labor advanced three major alternatives for improving compensation benefits for occupational diseases: (1) restructuring the workers’ compensation system through the use of legal presumptions to establish the work-relatedness of specific diseases; (2) supplemental disability payments to the SSDI program recipients who meet specific occupational disease criteria; and (3) the development of a substance-by-substance approach in which benefits would be provided to workers disabled from specific industrial health hazards, such as asbestos, cotton dust, and silica.7 All three reform proposals have been instituted to varying degrees, but with only limited success.

Labor proposals

Organized labor was never satisfied with the state workers’ compensation systems and proposed uniform national workers’ compensation coverage. Labor takes the position that a national health insurance system when enacted in the USA would create the opportunity for free choice of physicians for all injured and ill workers. In such an open system, workers would receive the same health care any citizen would receive in similar circumstances, making the current system of workers’ compensation health care redundant.

Ray Elling added that this more encompassing approach should still provide for tort liability when damage from work has occurred because of employer negligence or wrongdoing.8 The AFL-CIO affirmed support for punitive liability imposed on those who knowingly cause disability, industry-wide shared liability for disability caused without knowledge, and society-wide shared liability for disability whose cause cannot be identified.

The National Commission held that all occupational diseases be covered by workers’ compensation. Organized labor sought to address a fundamental barrier to recognition of occupational disease inherent in the maintenance of the “arising out of, and in the course of” test of linked causation and responsibility. Occupational diseases affect one in five Americans, and should be covered by workers’ compensation. But their costs are largely evaded by state agencies and private insurers by amending state laws or by cost shifting.

Clinton initiative

Early in the development of the Clinton Health Care Security Act, consideration was given to proposals to “integrate” or “merge” workers’ compensation medical care and financing into a new national healthcare system. The insurance industry advanced a familiar objection to reform, that there would be serious problems decoupling health care from the related activity of payment of wage-replacement benefits. “Workers’ compensation medical care is delivered as part of a broader disability benefit package, a substantial component of which involves indemnity payments for lost wages. Employers and insurers have an interest in managing claims in a manner that reduces overall payments — medical and indemnity”.9

APHA Policy Statement

The American Public Health Association (APHA) reviewed the major reform proposals in 2009 and issued a Policy Statement with the following reform objectives, among others.

•.	The current fragmented workers’ compensation system should be replaced by a national program with uniform coverage of health care and adequate loss-of-earnings benefits for all occupational injuries and illnesses.
•.	The system should include a national standard of coverage for all workers, including all federal and state government workers.
•.	The system should be integrated in a seamless manner with the SSDI; benefits should be provided for all permanent injuries and illnesses.
•.	Health care for injured workers should be provided by a national health care system independent of industry involvement and insurance industry control.
•.	Where appropriate, tort and criminal liability for negligence should be permitted for those who knowingly or recklessly cause disability.
•.	There should be a national medical and statistical database on worker injuries, worker illnesses, worker toxic exposures, and resultant diseases.10

Obstacles to Reform

Workers’ compensation reform proposals threaten many powerful vested interests. There are entrenched institutional pressures and enormous financial incentives to maintain the current workers’ compensation system.

Workers’ compensation is a state prerogative. States have never been willing to relinquish the responsibility of regulating workers’ compensation insurance. Some states are the sole providers of coverage. Although separate and independent workers’ compensation programs in each state appeared to be an appropriate interpretation of states’ rights a century ago, today the workers’ compensation system in the 50 states, the territories, and the District of Columbia, are self-perpetuating bureaucracies with no central authority, and interested only in redesigns as opposed to reform.

The insurance industry is a formidable defender of the status quo. Private workers’ compensation insurers are not going to agree to the loss of an entire industry. Insurers are consummate political insiders. State insurance commissioners and their staffs are often former insurance executives, and the federal and state committees that handle insurance matters are dominated by legislators with ties to industry. There are powerful insurance lobbies in nearly every state.

Employers oppose any system that threatens to increase costs or presents tort liability for negligence now barred by the exclusive remedy provision of the workers’ compensation system. Employers and industry associations have successfully lobbied many state legislatures resulting in a strengthening of the exclusivity protections against fault.

Workers’ compensation law places a select group of physicians in a critically important role. The occupational physician serves as the gatekeeper to benefits in the workers’ compensation system. The physician must determine that an injury or illness is caused by work, and assess the extent of impairment and the ability of the worker to resume work. Consequently, workers’ compensation law has created a health care system that is separate from mainstream medicine. The physicians are represented by large and powerful organizations.

Labor fought for decades to improve the workers’ compensation system. It now is in the difficult position of wanting to retain some of the achievements it has gained, while fully cognizant of the systemic problems in the system that provides those benefits. Without labor’s support, no reform proposal will be seriously considered. Workers have very little representation in Congress compared to the influence that industry and insurance companies enjoy.

Many academics who study the workers’ compensation system are skeptical of reform proposals. In some instances, they are strong supporters of the status quo, either because of grant support for research, or because expertise in the workers’ compensation system brings recognition and reputation. They prefer to deal with redesign rather than reform.

The Federal Alternative

The eventual goal of a federalization of workers’ compensation may be in the best interest of the country, but the growth of the Federal Employee Compensation Act (FECA) program to date has not provided any savings by reducing the redundancy of state programs and private industry participation. The FECA program provides benefits without delay, and moves disabled workers to other government programs in a non-adversarial system. The federal program is administered at costs that have not been fully disclosed to the Congress or to the public.11

The federal government participation in workers’ compensation has grown steadily in recent decades in parallel with the state systems. In the absence of a substantive reform agenda in the state programs, Congress simply expands its authority whenever pressed by worker groups that are not well served by the states. The federal government now provides most workers’ compensation benefits in the USA. The benefits provided by the federal government to federal civilian employees and related groups through the FECA program are far more generous than those provided by the state programs.12

The Federal Workers Compensation Modernization and Improvement Act (H.R. 2465) is now before the Congress, the first update to FECA in 40 years. Rather than addressing the costly problems inherent in the program, the sponsors of the bill merely sent a letter to the Government Accountability Office asking for “a comprehensive review of additional reforms that may be needed to strengthen the program and the impact of these potential reforms on beneficiaries. As we heard from many witnesses, more analysis is needed before we consider the proposed cuts to benefits for permanently injured workers and their survivors”.13

Legislation in the interest of workers other than federal employees finds little support in the Congress. Rep. Joe Baca (D-Calif.) introduced H.R. 635 in 2009, a bill that proposed to re-establish the National Commission on State Workers’ Compensation Laws. The new Commission would review the findings and recommendations of the 1972 Commission, then proceed to “study and evaluate state workers’ compensation laws to determine their adequacy and whether additional remedies should be available to ensure the payment of benefits and medical care”.14 Fifteen major insurance and industry groups wrote in opposition to the bill. Not one single organization was in favor.

Conclusion

A new approach and a new willingness to embrace reform will be necessary to deal with the serious problems of workers’ compensation. The powerful vested interests that maintain the status quo must be encouraged to consider reforms that will go beyond the redesigns of a system that may need to be replaced.

Disclosure: The author declares no conflicts of interest.