Are Waiting Periods for TTD compensation universal in workers’ compensation?

Despite having addressed waiting and retroactive periods before, I continue to receive questions about the law and policy surrounding them.  The questions usually contain assumptions that waiting and retroactive periods are universal features of workers' compensation systems and their design is uniform.  Neither assumption is true.  Understanding the variation in waiting and retroactive periods is critical to interjurisdictional comparison, policy analysis and financial risk planning for employers and workers. It is also essential in any comparative exercise on the costs and benefits of workers' compensation systems.  

Waiting periods are not a universal feature of workers’ compensation for temporary total disability (TTD).  While common in US states, waiting periods for TTD compensation are absent from most Canadian workers’ comp and  Australian “WorkCover” jurisdictions.   Where waiting periods are part of the workers’ compensation legislation, they are far from uniform in design. 

A waiting period for TTD workers’ compensation is a specified time frame following a work-related injury for which TTD compensation is not payable.  A few jurisdictions provide exceptions to the waiting period rule in the case of hospitalization (California, Idaho for example) or for certain professions (firefighters in Maine and New Brunswick). 

Closely aligned with waiting periods are retroactive periods.  If there is a waiting period, legislation usually contains a retroactive provision allowing for TTD compensation to be extended to the waiting period if the duration of disability extends beyond a specified period (7 days in Delaware, 6 weeks in Louisiana, for example) .  Some jurisdictions (Rhode Island and Hawaii, for example) have no retroactive period regardless of the duration of TTD. Where there is no retroactive period or where the duration of disability is less than the retroactive period, the injured worker receives no TTD compensation to offset the lost wages.

An uncompensated waiting period is a worker-paid “deductible”.  From the perspective of the worker, the full value of earnings lost during the waiting period represents a financial cost to the worker in addition to the human cost associated with work-related injury.  A waiting period that is waived or paid retroactively  reduces the financial burden of lost earnings but does not make the workers “whole” with respect to lost earnings.  Earning replacement rates and maximum insurable earnings or maximum benefit payments still apply and virtually guarantee that a portion of lost earnings are never recovered through workers’ compensation insurance. 

There is no universal standard for what constitutes an equitable waiting period.  The 1972 report of the National Commission on State Workmen’s Compensation Laws headed by John F Burton, Jr., noted the pressures for reducing and maintaining waiting periods:

The advantage of reducing both the waiting and the qualifying period [for retroactive benefits] is that workers will have a higher proportion of their lost remuneration replaced by benefits. At the same time, the cost of the program increases, both in benefits paid and in administrative expenses. Proponents of the waiting period argue also that a waiting period is necessary to discourage malingering. (Chapter 3 page 59)

The National Commission’s mandate required an evaluation of various aspects of permanent and temporary compensation under state workers’ compensation laws with respect to adequacy and equity.  Its recommendation regarding waiting and retroactive periods provides guidance to policy makers in the US and beyond.  The National Commission summarized its recommendation this way: 

We recommend that the waiting period for benefits be no more than three days and that a period of no more than 14 days be required to qualify for retroactive benefits for days lost.(Ibid.)

The National Commission’s recommendation defines a reasonable “minimum standard”  or threshold  against which policy makers and stakeholders may examine workers’ compensation waiting and retroactive periods.  Using this “no more than” standard, each workers’ compensation jurisdiction may be assigned to one of  three distinct categories of compliance with National Commission’s  recommendation:   Exceeds, Meets, and Fails to meet the minimum recommended by the National Commission.

In February 2017, I retrieved statutes and/or policy documents regarding waiting and retroactive periods for all North American jurisdictions.  I then categorized each according to its compliance with  the National Commission recommendation. [As an aside, most statutes contain no reference to a “waiting period”.  The provisions that give rise to waiting periods are often framed as prohibitions against payment for losses in the initial days following injury or prescribed timeframes for the “commencement” of temporary total disability compensation payments.]   The preliminary results of my analysis are as follows:

• Exceeds Minimum recommendation:
• No waiting period or
• Waiting period of three days and/or retroactive period of less than 14 days or
• Waiting period less than three days and retroactive period of 14 days or less
• Wyoming, Wisconsin, West Virginia, Minnesota, Vermont, Connecticut, Delaware, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Prince Edward Island, Newfoundland & Labrador, Northwest Territories, Nunavut, Yukon

• Meets Minimum: 
• Waiting period of 3 days and retroactive period of 14 days
• Washington, Oregon, Utah, Colorado, Iowa, Montana, Illinois, Kentucky, District of Columbia, Maryland,  New Hampshire

• Fails to meet recommendation: 
• Waiting period of more than 3 days or
• Waiting period of any length and no retroactive period or
• Waiting period of any length and retroactive period of greater than 14 days
• California, Nevada, Idaho, Montana, Arizona, New Mexico, North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Arkansas, Texas,  Louisiana, Mississippi, Alabama, Georgia, Florida, Tennessee, North Carolina, South Carolina, Virginia, Indiana, Ohio, Pennsylvania, Indiana, Ohio, Michigan, New Jersey, New York, Rhode Island, Massachusetts, Maine, New Brunswick, Nova Scotia

More than half of the North American workers’ compensation systems examined in this analysis fail to meet the minimum waiting period and retroactive period recommendation of the National Commission. 

This wide disparity across systems creates inequalities in the financial burden for workers.  It also complicates comparisons of employer costs for workers’ compensation.   Rate comparisons rarely take into account the financial impact of the variation due to system features such as waiting and retroactive periods.  Clearly, the value provided by  workers’ compensation coverage  with no waiting periods (or a short waiting and retroactive periods) should be taken into account when comparing rates and costs to jurisdictions with lengthy waiting periods (and particularly if they  have lengthy or absent retroactive periods).   That said, I can find no published figures or estimates of the uncompensated wage loss due to waiting periods in any state with a waiting period.  There are estimates of the value of “employer deductibles” but worker deductibles in either dollar amounts or uncompensated time (days or weeks) are not reported.

The laws and policies around the commencement of TTD compensation impact every workers' compensation time-loss claim.  More than any other comparative feature, the policies regarding waiting periods and retroactive periods influence the balance of who bears the cost of the most common workplace injuries.  Workers bear the physical and financial costs of those injuries; the portion uncompensated by workers' compensation systems can vary widely with devastating consequences on families and the potential externalization of costs to other insurers, workers, and the community at large.  These externalizations obscure the full cost of work-related injuries--and amount to a subsidy to the cost of production that removes or dilutes incentives toward prevention of injury and disability.  

Where waiting periods have been eliminated, the uncompensated portion of lost earnings is reduced and may be inferred by the reported value of compensation for TTD paid.  Where waiting periods exist, the uncompensated portion of lost earnings will be significantly higher than for otherwise similar injuries and system features. Quantifying the impact may influence safety and outcomes for millions of workers.  

Does compliance with the National Commission's Temporary Disability Compensation Recommendations matter?

In the last three posts to this blog I have recapped the National Commission on State Workmen’s Compensation Laws (1972) recommendations regarding short-term work-related disability (Temporary Total Disability).  The National Commission under its Chairman, John F. Burton, Jr. recommended compensation with a waiting period of not more than three days with a retroactive period of not more than 14 days, a compensation rate moving to at  least 80% of spendable earnings , and a maximum compensation amount equal to twice the state average weekly wage. 

The last three posts examine the progress towards meeting these recommendations.   Although the National Commission only examined US state laws, its recommendations are referenced internationally in the development of jurisdictional workers’ compensation provisions and the National Commission report remains the one document to make specific minimum recommendations for the equitable sharing of losses between workers and employers due to work-related injury and disease in the US.  The National Commission’s recommendations set the minimum standard for that distribution.  Sadly, only one US state and seven Canadian provinces come close to meeting the all of the provisions noted above.  The accompanying table combines the ratings against the National Commission's recommendations.  Jurisdictions with high compliance (assessed as meeting at least two of the recommendations) are highlighted in yellow; low-compliance states (assessed as meeting one or none of the recommendations) are not highlighted. 

While Iowa was the only US state to meet all the recommendations assessed in this comparison, it should be noted that another 10 came close, meeting or exceeding the recommendations of at least two of the assessed categories (high compliance, for the purposes of this discussion). 

Why does compliance with the National Commission recommendations matter?  Increasingly I am asked to compare the provisions of various workers’ compensation systems.  Sometimes this is part of a policy review but many contracts and trade agreements now stipulate the equivalency of protections for workers.   I can confidently say that workers in most Canadian provinces and Iowa have equivalent protection for work-related losses associated with temporary disability.  I can also say with confidence that workers in an additional 10 states and the remaining provinces have temporary disability compensation protections that meet at least two of the key National Commission recommendations on TD coverage.

I am also asked to compare specific jurisdictions and to comment on the comparisons done by others.  Compliance with the National Commission recommendations is a useful contextual lens in which to view comparisons.  For example, WCRI’s well known CompScope™ product is often used as a comparative and benchmarking tool.  Take the following table, for example. 

Now note the same table highlighting states with high compliance to the National Commission recommendations. This perspective provides a new way of interpreting this table. 

One would expect that compliance with the National Commission's recommendations on temporary total disability compensation would translate into higher costs for the insurers and that these costs might also be reflected in higher premiums.  Similarly, the worker self-insured portion of losses not covered by workers’ compensation will be lower (waiting periods not reimbursed, spendable income losses not compensated, uninsured earnings above maximum compensation).  Unfortunately, there is no comprehensive ranking from the worker perspective.  From the employer perspective, however, there is the Oregon Workers’ Compensation Premium Rate Ranking study.  While this study is based on Oregon industrial mix and costs, highlighting the states with high compliance with the National Commission  TD recommendations provides new insights into the ranking. 

Suddenly, Iowa in the middle of the list stands out.  It complies with all the recommendations as assessed in this review. High-compliance states are clustered in the top half of the ranking.  Suddenly,  ranking for high-cost  / low compliance states (meeting only one or none of the recommendations) like California look much worse while the costs for high compliance states like Washington look less severe.   Oregon’s ranking as a high-compliance, low-cost state looks even better.  In a listing of high compliance states, it is well below others.  Even if you add back the costs paid by workers and employers into the Oregon Worker Benefit Fund, Oregon is still the lowest of the high compliant states. 

Now, there may be lots of other reasons why some low compliance states have high costs.  They may pay much more for administration, provide larger payments for permanent disability, or have much higher medical and legal costs, for example.  Those comparisons are not possible with the data I have but would be clearly worthwhile. 

What this assessment does say is that the horizontal equity objective of the National Commission’s temporary disability recommendations has not been achieved.  Workers with work-related total temporary disability in 80% of US states are not getting the minimum temporary disability compensation coverage recommended by the National Commission.   Workers in low-compliance states are bearing a much greater share of the cost of work-related injury than those in high-compliance states.

Forty years on, the National Commission’s conclusion sadly remains little changed: 

… We also agree that the protection furnished by workmen's compensation to American workers presently is, in general, inadequate and inequitable. Significant improvements in workmen's compensation are necessary if the program is to fulfill its potential.

States and provinces in high compliance with the National Commission recommendations have proven that a more equitable sharing of the costs of work-related injury, illness and disease is possible.  Let's hope by the fiftieth anniversary of the National Commission report, all jurisdictions will achieve full compliance with its temporary disability recommendations.
 

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.  

What percentage of earnings should be replaced by temporary disability benefits?

Workers’ compensation levels for temporary disability are of critical importance to workers and their families.  Any discussions I’ve read recently are around “benefit adequacy” of temporary disability benefits.  This is, of course, critically important but misses some important points.

Workers’ suffer from work-related injuries.  No one can share the physical and psychological pain.  Workers’ compensation is intended to offset the financial impact in terms of lost wages.  In addition to the pain and suffering of the work-related injury, workers must also bear the earnings lost that are not compensated by workers’ compensation temporary disability payments.  As with uncompensated waiting periods and earnings above the maximum insurable, workers are self-insured for the difference between what they lose in wages and what they get in compensation.

The obvious benefit adequacy argument characterizes the loss as a worker deductible.  It also shifts the cost of work-related injury from employer to worker.  The lower the cost to the employer, the less the incentive to invest in worker safety and return-to-work initiatives.  Workers’ compensation costs are part of the prevention feedback mechanism.  The historic trade-off that made workers’ compensation the exclusive remedy envisioned that costs of workplace injury would not unduly shift costs as well as the burden of injury upon the worker.  

How much of the worker’s loss should be compensated?  The National Commission on State Workmen’s Compensation Laws (July 1972) said the following:

We recommend that cash benefits for temporary total disability be at least two-thirds of the worker's gross weekly wage. The two-thirds formulation should be used only on a transitional basis until the State adopts a provision making payments at least 80 percent of the worker's spendable weekly earnings. (See R3.6 and R3.7)  [Emphasis added]

Here we are more than four decades after Professor Burton’s authoritative and comprehensive report and the fact is only 10 US state have made progress toward meeting this recommendation.  By contrast, all Canadian jurisdictions could be assessed as having met the recommendation with the majority exceeding the “at least 80% of net” standard set out in the report’s recommendation. [see accompanying table]

Beyond the benefit-adequacy argument, the financial costs of work-related injury being borne by workers are real and measurable cost.  Workers and their families bear other costs and there can be debates about what estimates of those ought to include.  Temporary Disability losses are easily quantifiable into the portion covered by workers’ compensation insurance and the portion self-insured by the workers themselves.  

If the work at least 80% of that loss.  Clearly a handful of US states and most Canadian jurisdictions have found ways to meet this standard.  Doing so may be fundamental to preserving workers’ compensation as the essential social insurance program it has become in the world today.