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.

WORKERS' COMPENSATION LAWS : Benefits, Disability Income, Death Benefits

Benefits
Workers' compensation laws typically provide four types of benefits:

- Medical care

- Disability income

- Death benefits

- Rehabilitative services

Medical Care
Benefits for medical expenses are usually provided without any limitations on time or amount. In addition, they are not subject to a waiting period.

Disability Income
For an employee to collect disability income benefits under workers' compensation laws, his or her injuries must result in one of the following four categories of disability:

Temporary total. The employee cannot perform any of the duties of his or her regular job. However, full recovery is expected. Most workers' compensation claims involve this type of disability.

Permanent total. The employee will never be able to perform any of the duties of his or her regular job or any other job. Several states also list in their laws certain disabilities (such as loss of both eyes or both arms) that result in an employee's automatically being considered permanently and totally disabled even though future employment might be possible.

Temporary partial. The employee can perform only some of the duties of his or her regular job but is neither totally nor permanently disabled. For example, an employee with a sprained back might be able to work part-time.

Permanent partial. The employee has a permanent injury, such as the loss of an eye, but may be able to perform his or her regular job or may be retrained for another job.

Most workers' compensation laws have a waiting period for disability income benefits that varies from two to seven days. However, benefits are frequently paid retroactively to the date of the injury if an employee is disabled for a specified period of time or is confined to a hospital.

Disability income benefits under workers' compensation laws are a function of an employee's average weekly wage over some time period, commonly the 13 weeks immediately preceding the disability. For total disabilities, benefits are a percentage (usually 66⅔ percent) of the employee's average weekly wage, subject to maximum and minimum amounts that vary substantially by state. Benefits for temporary total disabilities continue until an employee returns to work; benefits for permanent total disabilities usually continue for life but have a limited duration (such as ten years) in a few states.

Benefits for partial disabilities are calculated as a percentage of the difference between the employee's wages before and after the disability. In most states, the duration of these benefits is subject to a statutory maximum. Several states also provide lump-sum payments to employees whose permanent partial disabilities involve the loss (or loss of use) of an eye, an arm, or other body member. These benefits, which are determined by a schedule in the law, may be in lieu of or in addition to periodic disability income benefits.

Death Benefits
Most workers' compensation laws provide two types of death benefits:

- Burial allowances

- Cash income payments to survivors

Burial allowances are a flat amount in each state and vary from $300 to $5,000 with benefits of $1,000 and $1,500 being common.

Cash income payments to survivors, like disability income benefits, are a function of the worker's average wage prior to the injury resulting in death. Benefits are usually paid only to a surviving spouse and children under age 18. In some states, benefits are paid until the spouse dies or remarries and all children have reached age 18. In other states, benefits are paid for a maximum time, such as ten years, or until a maximum dollar amount has been paid, such as $50,000.

Rehabilitation Benefits
All states have provisions in their workers' compensation laws for rehabilitative services for disabled workers. Benefits are included for medical rehabilitation as well as for vocational rehabilitation, including training, counseling, and job placement.

A difficulty faced in providing vocational rehabilitation is that employers are reluctant to hire workers with permanent physical impairments because a subsequent work-related injury may result in their total disability and thus an increased workers' compensation premium. For example, a worker who lost an arm in a previous work-related accident would probably be totally and permanently disabled if the other arm was lost in a later accident. Consequently, most states have established second-injury funds. If a worker is disabled by a second injury, the employer is responsible only for providing benefits equal to those that would have been provided to a worker who had not suffered the first injury. Any remaining benefits are provided by the second-injury fund.