Friday, December 12, 2014

What should be the Maximum Temporary Disability level under Workers’ Compensation?

Workers’ compensation costs for temporary disability are a function of:

  • The compensation rate (66 2/3rds% of gross, 90% of net spendable)
  • Waiting periods (none, 3 days, 2/5ths of a week) and retroactive periods (none, two weeks, four weeks)
  • Maximum compensation value  

The National Commission on State Workmen’s Compensation Laws (1972) set out what ought to be the standard for each of these measures.  In my previous posts, I have evaluated each US state and Canadian province against the National Commission’s recommendations regarding compensation rate and waiting periods/retroactive periods.  This time, I examine the recommendation regarding weekly maximum compensation for temporary disability.

The National Commission recommended:

We recommend progressive increases in the maximum weekly wage benefit, according to a time schedule stipulated in Chapter 3, so that by 1981 the maximum in each State would be at least 200 percent of the State's average weekly wage. [Emphasis added]

To be clear, the recommendation was just that, a recommendation.  Each jurisdiction must evaluate their response in accordance with their own priorities and circumstances. But we are thirty plus years from the aspirational deadline set by the National Commission.  It is time to evaluate what progress has been made towards its recommendation.

To evaluate progress, I took the 2012 maximums for each state and province from the IAIABC/WCRI Workers’ Compensation State Laws and AWCBC data that either stated the maximum directly or allowed it to be calculated based on maximum assessable or insurable earnings and the compensation rate.  I then used the BLS average (mean) annual earnings from their May 2013 published data, converted this to a weekly amount and multiplied by two to get a recent quantification of the National Commission goal that the maximum benefit equal  200% of state average weekly wage.  I used Statistics Canada data for average weekly wages (including overtime) for 2013.

Finally, I calculated how much the maximum compensation for temporary disability compensation has progressed toward the Nation Commission total.  I arbitrarily set a standard of 50% toward the National Commission “at least 200%” recommendation as having met the spirit of the recommendation.

How did the states and provinces measure up?  Only 17 states  and all but two Canadian provinces exceed the 50% threshold towards the National Commission recommended level of at least 200% of the state average weekly wage.  

Again, this is not about benefit adequacy.  This is about the equity in how the earnings losses due to work-related injury are shared.

There are two insurers:  the employer and the employee.  The employer transfers the risk of his share of the losses due to workplace injury to the insurer for the price of the premium and, by virtue of the exclusive remedy, is protected from suit for losses beyond those covered by the workers’ compensation insurance.  The other part of the earnings loss is self-insured by the worker.  The worker bears the physical and mental impact of the loss and the share of the earnings loss not covered by the workers’ compensation insurer.

The policy equity questions here are two-fold:

  • How much of the financial loss should each insurer bear?  
  • What is equitable (not adequate) compensation relative to what workers traded off in the “grand bargain” or “historic compromise” that created workers’ compensation?

A low maximum shifts a greater portion upon the worker.   What this analysis shows is two things:

  • Meeting the recommendations of the National Commission is achievable as evidenced by the states and provinces that have met and exceeded the recommendations.  
  • Many states and a couple of provinces have compensation levels that fall far short of the National Commission standard—a situation that may fundamentally undermine the foundations of the historic compromise that is workers’ compensation.  


Jenna said...

Very Informative Post Terry. I agree that the compensation in most of the states doesn't meet the National Commission standards.

Peter said...

Thanks Terry for sharing the interesting info.