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.

Who insures short-duration work-injury caused absences?

Most people would say, “work-related injuries that result in workers losing time and earnings are covered by workers’ compensation”.  In most Canadian provinces, that statement would be true.  In three Canadian provinces (PEI, NB and NS) and all US states, short-duration time-loss claims may receive no compensation under workers’ compensation statutes currently in force.  In all but seventeen states, most injured workers with less than two weeks of missed work due to their injuries will never receive compensation for an initial waiting period of three to seven days.

For these shorter-duration work-injury or illness caused absences, the worker is essentially self-insured for the waiting period.  From a workers’ compensation insurer perspective, these claims may have minor costs for health care but are essentially costless in terms of compensation for temporary disability resulting in lost wages.  I can find no jurisdiction with a waiting period that publicly quantifies either the number of cases where a waiting period was served or the value of uncompensated lost wages being borne by injured workers who miss more than the day of injury.

Without data, it is hard to estimate the number of work-related absence cases that are going uncompensated because of waiting periods.   Without measurement, it is hard to see if this burden is shrinking or growing.  Without a financial implication, the case for prevention may be less than it might otherwise be. 

Jurisdictions such as British Columbia that compensate for time lost beyond the day of injury may provide an indirect indication of what is not being compensated in jurisdictions with waiting periods.   Using WorkSafeBC claims originating with injuries in 2010 and considering all the days paid through to October 2014, approximately 23% of work injury claims were compensated for 1 to 3 days.  Using a one-week measure, about 36.5% of claims received compensation for one week or less. Almost half the claims show a worker with temporary disability of two weeks or less; nearly 60% of these 2010 injured workers  have three weeks or less  lost due to work-related injury.   If a similar distribution of work-related injury absences applies in the US, then about half of work-related injuries involving time-loss are at least partly insured by injured workers themselves. 

These shorter duration time-loss claims provide critical data on the causes and nature of injuries (data that are not typically collected if no wage-loss compensation is paid).  These data can inform prevention activities and public policy that will reduce future incidents.  More importantly, the compensation for wages lost not only lessen the burden the injury imposes on the worker but also creates an incentive toward prevention of all injuries and not just the most costly ones.  This is critically important because the difference between a multi-million dollar claim and one involving just a day or two of wage loss is often a matter of millimeters. 

From the perspective of the insurer, the shorter duration claims are the least costly; from the perspective of the injured worker, three days or a week of lost wages is a significant cost.   Collectively, workers with short-duration, unreimbursed time-loss claims may well be self-insuring a material portion of the cost of workplace injuries.  That burden should be quantified and included in the calculation of the cost and consequences of work-related injury, illness and disease.