Workers Compensation: An Introduction

Tee L. Guidotti George Washington University Medical Center

Workers Compensation
is nations 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 WC
Universal: 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 Usually not covered Agricultural workers Self-employed Business owners Domestic workers Volunteers

Covered under special systems: Maritime workers Railroad workers Federal employees

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 rated

Three basic approaches Impairment model
Based on schedules Based on guidelines (e.g. AMA Guides)

Wage-loss formula
Calculates actual loss of wages due to injury

Loss of earnings capacity

Loss 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, Firemans 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