The Workmen’s Compensation Act,1923

Workers’ Compensationis• 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

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

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

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

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

Services provided by WCUniversal: • Medical services for injured workers• Income replacement– Temporary disability– Permanent disability

• Survivor benefits (if fatality)Variable:• Rehabilitation• Retraining

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

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

How permanent disability is ratedThree basic approaches• Impairment model – Based on schedules– Based on guidelines (e.g. AMA Guides)

• Wage-loss formulaCalculates actual loss of wages due to injury

• Loss of earnings capacityLoss of future wages based on actuarial model

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

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

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

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

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

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

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”

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

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

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

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