The 100-year history of workers' compensation in the United States can be seen as a grand bargain between employers and labor. Employees would receive statutory benefits in a "no-fault" system, and employers would have immunity from tort action. At the time, this was seen as a win-win. Loss prevention was unheard of, so injury rates were significantly higher. Work injuries were often life-changing events where the employee was left crippled, maimed and helpless. The nature of the injuries coupled with the rather callous attitude toward the workforce left employers exposed to tort liability. Looking back, both employees and employers received a significant benefit from the establishment of workers' comp.
But times have changed. An emphasis on loss prevention and employee safety has significantly reduced injury rates. In addition, the shift from a manufacturing base to a technology base has changed our workforce. The leading cause of injury is no longer 'being caught in a machine.' Instead, it is material handling and repetitive trauma. Chronic pain, rather than amputation is now the leading cost driver.
There have been a number of discussions lately in the Work Comp Analysis Group on LinkedIn that focus on how the workers' compensation system is failing injured workers. Things like benefit caps, a higher burden of proof on compensability, and pushing injured workers into other social programs are cited as examples of how the system is not living up to the "grand bargain" promises to injured workers.
But employers are also questioning whether the system is a bargain for them. They point out how courts around the country have consistently expanded workers' comp. For example, repetitive standing, shaking vending machines, and rising from a chair are now compensable injuries. Illegal immigrants are found to be permanently and totally disabled because they can not legally be put through vocational rehabilitation. And presumption laws shift the burden of proof so that certain conditions are presumed compensable in spite of inconsistent scientific evidence.
We have an aging and overweight workforce, and employers face consistently climbing health insurance costs because of this. However, the degenerative conditions that result from aging and obesity are consistently found compensable under workers' comp. This makes employers pay twice for the same condition. The same thing can be said for presumption laws as the heart and lung conditions these laws make compensable are also showing up in employer's health insurance premiums.
Employers are frustrated with the perceived inequity within the workers' comp system and the high costs associated with it. Because of this, the concept of opting out of workers' comp is getting a lot of attention. Employers that opt-out of workers' comp in Texas have claims costs that are a fraction of those in the traditional system. There is also limited opt-out in Wyoming (something most are unaware of). Recently, the Legislature in Oklahoma passed a reform bill that will allow opt-out in that state. Other states are looking at the Oklahoma opt-out bill with great interest, and it's possible that opt-out in Oklahoma could be the start of a trend.
Some question why employers would be willing to give up tort immunity to exit the workers' comp system. The answer lies in the fact that, in spite of complaints to the contrary, the pendulum has swung too far against employers. It's very simple to illustrate this by focusing on chronic pain-- the biggest cost driver in workers' comp right now.
Years ago, no one heard of complex regional pain syndrome, reflex sympathetic dystrophy or fibromyalgia. These diagnoses did not exist. They are based on chronic pain in the absence of objective physical findings, although they almost always involve a relatively minor physical injury such as a strain from lifting or bending. I remember when I first saw these claims in workers' comp, and thought they were nothing more than a nuisance. They ceased to be a nuisance when judges started awarding them compensability. Not only are these claims now the norm, but they can be very expensive. I have frequently seen claims for soft tissue strains with chronic pain end up costing more than a $1 million.
I'm no expert in civil liability claims, but I believe the potential tort exposure from a back strain caused by standing up is somewhere in the neighborhood of ZERO. When you compare ZERO to $1 million in the workers' comp system, you see why many employers are willing to scrap the entire system and take their chances in the civil courts.
The complexity of the workers' comp system is also out of control and is significantly increasing the costs. Consider for a moment that workers' comp is supposed to be a benefit delivery system designed to treat the injury and return the injured worker to employment. Sounds simple right? It should be, but it takes more like an army to do this -- doctors, lawyers, companies that review the bills of doctors and lawyers, companies that schedule exams with doctors, companies that dispense pills, companies that test to make sure the pills are being taken. The list goes on and on. And lest we forget, the states also require mountains and mountains of paperwork (in multiple languages) to document each and every transaction of this benefit delivery process.
All this complexity does not enhance the benefit delivery process, but it does cost money. Lots and lots of money. Who pays for it? Employers. Are you starting to understand why employers are feeling like this "grand bargain" is not such a great idea?
The pendulum in workers' comp has swung too far against employers. The system has become far too expensive and complex. The time has come to get back to the basics and revisit why the "grand bargain" was created in the first place. This is supposed to be about the employer, the worker, making the workplace safer, and providing medical treatment and wage replacement for injuries sustained at work. Activities of daily living are not work injuries, and normal degenerative processes should not be covered by workers' comp, but in many cases today, they are covered, and are a major reason for the skyrocketing workers' comp costs. If we don't get back to the basics soon, we may see more employers in more states pushing for the elimination of workers' comp.
Mark Walls is senior vice-president and market research leader with Marsh's Workers'
Comp Center of Excellence.
May 3, 2013
Copyright 2013© LRP Publications