WORKERS' COMPENSATION LAWS : Problems and Issues

Problems and Issues
As with unemployment insurance, there are problems and issues associated with workers' compensation insurance. These involve the extent of coverage, the size of benefit payments and increasing costs. One often-discussed issue is whether a system of 24-hour coverage would be an improvement.

Extent of Coverage
Labor unions have been particularly critical of workers' compensation insurance because of its incomplete coverage of workers. State laws do not cover all workers because of elective laws, numerical exemptions and exclusions, or less-than-full coverage for certain groups, such as agricultural, domestic, and casual workers. It is estimated that, nationally, between 10 percent and 15 percent of workers are without coverage and that this figure is as high as 30 percent in some states.

Adequacy of Benefits
Benefits have been criticized as inadequate because they seldom exceed two-thirds of a worker's earnings prior to injury, and most states do not adjust income benefits for inflation. However, some lower-paid workers may have little incentive to return to work because benefits may actually exceed their prior take-home pay. This results from relatively high minimum benefits and the fact that workers' compensation benefits are not subject to Social Security and Medicare taxes or personal income taxes. In terms of the replacement of lost income, the situation is worse for higher-paid employees because of the maximum dollar limits on benefits.

Increasing Costs
A major concern of employers is the soaring cost of workers' compensation coverage. Estimates are that costs have tripled over the past decade. This increase is the result of a combination of several factors, including the following:

Soaring increases in the cost of medical care.

Increased benefits. Most states have increased benefits faster than average wages have increased. One interesting result of higher benefit levels is that they tend to result in an increased number of claims filed and an increase in the duration of claims.

Expansion of coverage to additional workplace injuries and diseases, such as mental stress.

Increased litigation. Estimates are that approximately one-quarter of workers' compensation costs are associated with attorneys' fees and other legal costs.

These increasing costs have resulted in large underwriting losses for many insurance companies, leading in turn to higher premiums and more stringent underwriting. As underwriting has tightened, more employers have been forced into the substandard insurance market, where costs are even higher. These higher costs are ultimately passed on to consumers and increase inflationary pressures. Some firms, particularly small ones, are also finding their financial survival threatened by these high costs.

At the state level, there always seems to be talk of workers' compensation reform. However, labor equates reform with increased benefits, and employers equate it with lower costs. As a result, fundamental changes often do not occur.

The Concept of 24-Hour Coverage
When workers' compensation laws were first passed, most employees did not have employer-provided benefits for medical expenses or disability income. Today both types of benefits are common. As a result, it has been suggested that the old systems are obsolete and that the concept of 24-hour coverage should be adopted. Under this concept, employees would have a single benefit plan that would respond to injuries whether they occurred on or off the job. This concept could be applied to medical expense coverage only or to medical expense coverage and some or all types of disability income coverage. Arguments in favor of 24-hour coverage include the following:

The financial needs of employees are the same regardless of whether an injury or illness is work-related.

It is often impossible to determine whether an injury or illness is work-related.

Medical costs would be better managed because cost-containment techniques used in group insurance could also be used for work-related claims.

The current system is fragmented and may contain both gaps and overlapping benefits. A single comprehensive system may be able to provide better benefits at a lower cost.

Naturally, there are also arguments against 24-hour coverage:

The principle of liability without fault would be violated if employees were required to assume deductibles, copayments, or a percentage of work-related claims.

Smaller firms that have few employee benefits could not afford 24-hour coverage and might be forced out of business.

The strong emphasis on loss control that is associated with workers' compensation insurance might be jeopardized if the program were merged with traditional group insurance programs.

The concept of 24-hour coverage continues to receive a considerable amount of attention. It is an integral part of some proposals for reforms to the nation's health care system. In addition, some states now allow 24-hour coverage to be written for medical expenses, with the employer purchasing a workers' compensation policy to provide benefits other than medical expenses.