Workers’ compensation “reforms” are typically focused on reducing
employer costs. Enacted reforms often
result in restrictions that limit rather than enhance benefits to workers.
In the US, the National Commission on State Workmen’s
Compensation (1972) [available at https://workerscompresources.com/national-commission-report/]
laid bare the disparity then present across US jurisdictions and established
recommendations for the minimum standards of what workers’ compensation should provide.
Sadly, even the minimum levels
recommended by that report are often missing from current workers’ compensation
statutes.
Workers bear the cost of work-related injury
In a recent event to mark the 50th anniversary of
the National Commission, a US Department of Labor panel met to discuss the
progress and the lack of progress in workers’ compensation reforms in the
US. [See https://youtu.be/fRAZJ2PosE0] Progress
towards improving compensation for workers was noted; so were the many gaps and
shortfalls in the present landscape of state workers’ compensation laws.
US workers’ compensation benefits generally lag those provided
under the Canadian provincial and Australian state workers’ compensation
systems. Workers have no choice but to
bear the physical, psychological, and social costs of work-related injury
illness and disease. Policy makers have options
in their policy choices to lessen the financial losses workers and their
families must also bear.
RAND’s “Earnings Losses and Benefit Adequacy in California's
Workers' Compensation System-Estimates for 2005–2017 Injury Dates” [see https://www.rand.org/pubs/research_reports/RRA964-1.html]
clearly
show that occupationally injured workers suffer significant income losses over
their non-injured counterparts despite workers’ compensation. A similar methodology applied to Ontario by
the Institute for Work and Health found about half of workers achieved earnings
levels similar to their uninjured counterparts when taking post-injury
earnings, Canada Pension Plan-Disability benefits, and workers’ compensation
payments into account [see https://www.iwh.on.ca/summaries/issue-briefing/measuring-adequacy-of-workers-compensation-benefits-in-ontario-an-update
].
Top Ten Priorities for Workers’ Compensation Benefit Reform
Legislators and policy makers have options in any workers’
compensation reform package.
I have
provided analysis for many of these options in this blog series and directly to
policy makers in many jurisdictions.
Here are my top ten priorities.
1. Make prevention the top priority
In the words of the National Commission, Workers’
compensation provides “a built-in stimulus to safety” and recommended insurers
(including self-insurers and state-run insurance systems) sufficiently fund
loss prevention and safety programs. Prevention
should be the number one priority. The occupational injury, illness, disease, or
death prevented is the single best benefit for worker and their families.
Based on media coverage, employer cost rather than worker
safety and health dominate the discourse on workers’ compensation reforms. Costs are important and reforms must be viewed
through the lens of their impact on safety and health. If base premiums or experience rating raise
employer costs, there will be greater focus on loss prevention, safety, and
health of workers. The converse is also true; if the cost of workers’
compensation fails to reflect the true financial cost of work-related injury,
illness, disease and death, there is less of an incentive towards
prevention.
Note: That’s not to
dismiss the concept of effective cost control once a work-related injury
occurs. Effective claim management,
active return-to-work measures, prudent reserve investments, effective audit,
and other administrative functions are essential. Waste and inefficiency in the administration
of workers’ compensation systems can inflate costs in a way that damage both
workers and employers.
The proportion of those financial losses covered by workers’
compensation covers varies across jurisdictions but generally fall well short
of making up for workers’ financial losses incurred because of the work-related
injury. Reforms that reduce that burden injured workers and their families also
increase the safety stimulus workers’ compensation places on employers.
There are two mechanisms by which the net workers’
compensation costs employers pay may under-represent the cost of workers’
compensation: subsidies and cost shifting.
Subsidies may include return of premiums, dividends, distribution of
surplus gains on reserves. Some jurisdictions have implemented controls to
limit or prohibit subsidies being distributed to employers with poor safety
records or workplace fatalities—not a bad idea to further underscore the
prevention priority.
While subsidies are often quantified, cost shifting
mechanisms are not. The greatest cost
shifting is externalization of the worker’s lost wages to the worker. Injured workers and their families are
forced to carry much of the loss from savings, family resources or community
sources. Some are allowed and even
encouraged to use other entitlements or benefits such as group short-term
disability or sick leave to make up for the shortfalls between regular earnings
and workers’ compensation payments.
Subsidies and cost shifts hide the true cost of work-related
injury and the intended stimulus of workers’ compensation costs toward
increased health and safety.
2. Extend Who
is covered by Workers’ Compensation
Workers’ compensation laws evolved by adding to mandatory
coverage specific industries and sectors.
This left gaps and focused debate on each sector on a piece meal
basis. Some jurisdictions have opted for
universal coverage laws: Every industry
and every worker is covered unless explicitly excluded. This “everyone in” option is a fundamental public
policy shift; exclusions are still allowed but force serious discussion of principles,
criteria, and rationale. Given the high
percentage of jobs now covered by workers’ compensation in the US, Canada and
Australia, opting for universal coverage makes sense.
Regardless of the legislative approach (universal with
exceptions, or comprehensive sectoral listings) exclusions from coverage are still
common. Exclusions in some jurisdictions
include
Agricultural workers
Certain family members
Domestic workers
Small companies with fewer than five workers
Gig workers
While some statutes allow for optional inclusion of such
categories, such exclusions are a far cry from the goal of universal
coverage. The National Commission report
stated workers’ compensation coverage “should be extended to as many workers as
feasible”. Universal coverage remains an
illusive goal in many jurisdictions but should remain a high priority.
3.
3. Extend What is covered by workers’ compensation
Mental injuries, certain cancers, and a variety of other
diseases are known to be work-related on a population level but vastly under
reported and compensated by workers’ compensation systems. The question is not “which of these should be
included in coverage” but rather “what policy changes are needed to ensure that
more cases are accepted”.
Covid-19 exposed serious gaps in workers’ compensation coverage
of occupational disease. In the absence
of presumptive provisions, many front-line workers were not eligible for
coverage from work-related disease. Establishing
presumptive provisions or temporary policy orders may have worked for this
special case (some provisions are still being developed and applied while
others have lapsed), but what about for other occupational diseases and future
pandemics?
The standard of proof and onus of proof in many systems is
far too restrictive. “Predominant cause”
provisions are more common in the US now than fifty years ago. Rather than “taking the worker as you find
them” and considering the work-relatedness at a lower standard, both the higher
standard of proof and shifting onus of proof discourage attribution of injury
or disease to work. Reforms here may
involve re-establishing a lower test and shifting the onus away from the worker
having the burden of proving work-relatedness.
Increasing presumptive provisions to ensure workers are covered when
work is of causative significance in the development of injury, illness, disease,
or death is a policy option we saw used in the COVID-19 crisis. If the work-relatedness of any harm is not recognized,
there will be little stimulus toward its prevention.
4. Raise Maximum Insurable Earnings (Maximum Weekly
Benefit)
For many jurisdictions, the maximum insured earnings or maximum
weekly benefits payable effectively limit compensation. For higher earners, the maximum limitation
means take home or spendable income following injury may be cut in half or
more. Higher wage earners must
effectively self-insure their losses above the maximum (or negotiate supplemental
coverages that are not reflected in workers’ compensation data). Loses may be catastrophic for families with
costs externalized to the community as a result.
While many jurisdictions outside the US have increased insured
earnings maximums, there is no standard formula or target established in most
jurisdictions. Setting a goal of
covering the work earnings of at least 95% of employees in the jurisdiction
would ensure almost all workers could continue to meet financial needs following
work-related disability.
My October 2019 post explores
this further “Are wages or salary fully
covered by workers’ compensation insurance?”
5.
5. Increase the Compensation Rate
The National Commission recommended a compensation rate “at
least 80 percent of the worker's spendable weekly earnings.” Note the “at least” portion of that
recommendation. While most US states have
reached what the National Commission termed as “transitional basis” of
two-thirds of gross, some have lower compensation rates (such as New Hampshire at
60% of gross).
In Canada, most workers’ compensation jurisdictions
compensate at 85-90% of net average earnings (Nova Scotia is an exception at
75% of net for first 26 weeks with a “step up” 85% thereafter). On Canadian jurisdiction (Yukon) calculates
compensation on a 75% of gross basis. In Canada and the US, workers’
compensation payments are not taxable.
Australian states have a variety of compensation rates
ranging from 85% to 100% of normal weekly earning in the initial 13 weeks. “Step-downs” associate with length of claim
are increasingly common after this initial period. Note, wage-loss compensation in Australia is
taxable although lump-sum payouts and settlements are not. [See https://www.safeworkaustralia.gov.au/doc/comparison-workers-compensation-arrangements-australia-and-new-zealand-2021]
6. Eliminate the Waiting Period
In the US, for the initial period of total disability from
many work-related injuries (typically 3 to 5 days), workers are effectively
self-insured for earnings losses. The “waiting
period” is a deductible imposed on workers. Workers must self-fund this initial
period of loss. While some employers allow the use of sick leave or vacation
credits to be applied to cover the waiting period, these are generally part of
the taxable benefits already paid for by the worker and effectively self-funding.
Most jurisdictions waive the waiting period for accepted
injuries after a “retroactive period” where disability extends greater than a
specified number of days or weeks. Some
jurisdictions on’t waive the waiting period at all. For those states (Hawaii, Oklahoma, and Rhode
Island) there is no retroactive period; all
workers suffering wage losses in these jurisdictions have no workers’
compensation indemnity benefits for the waiting period. Nearly a dozen states
have retroactive periods of greater than 14 days (Alabama, Florida, Indiana,
Kansas, Massachusetts, North Carolina and Virginia all have a 21 day
retroactive period; Alaska and New Mexico have a 28 day retroactive period; Nebraska
as a 41 day retroactive period).
That National Commission recommended “…the waiting period be
no more than 3 days and that the retroactive period be no more than 14 days”. Note the “no more than” part of that recommendation—a
clear minimum limit. In the US, I count only
16 states that have met that minimum. No
US state has eliminated the waiting period.
Although once common in Canada, waiting periods have been
eliminated in all but one jurisdiction (Nova Scotia has a 2/5ths of a week
waiting period and a retroactive period of 5 weeks). Australian systems
generally have no waiting period for workers.
Several states require employers to pay workers directly during
their first 5 or 10 days of work-related disability before the workers’
compensation insurer commences payments.
The waiting period is effectively a subsidy to employers,
relieving them of liability for the wage-loss compensation cost of work-related
injuries. Waiting periods externalize those costs to workers, their families
and often the community. The elimination of waiting periods increases the proportion
of the actual cost of work-related injuries nominally paid by the
employers.
7. Raise or Eliminate Age limits or age-related
limits on benefits
My recent post on this topic has additional details and,
full disclosure, age limits would impact me if I suffered a work-related injury
today.
For years I have spoken about demographic changes, and I
posted some current data on this topic in July.
Today we are seeing the population projections we all knew
were coming playing out. In Canada, the
US and Australia, there are growing numbers of older workers in the
workforce. This fact is not just a
consequence of aging baby boomers but the growing participation of older
workers in the employed labour force.
What’s driving this greater participation is multifactorial.
Apart from the consequences of the pandemic, more of us are living longer and
are more fit and healthy in that longevity.
Economics of living longer let alone recent economic challenges brought
on by the Great Recession and the pandemic have driven more older workers to
stay in or return to the workforce well beyond historical retirement ages.
We need these older workers in the work force. And they deserve adequate workers’
compensation coverage. Policies that
effectively limit their access to benefits based on social insurance retirement
eligibility or a couple of years based on age should be changed.
8. Increase Funeral/Burial expense coverage
Each work-related death is a tragedy. Compounding grief and emotional loss with heavy
financial costs makes no sense. Despite
the rarity of such tragedies, the financial costs of funerals and burials can
be substantial. Unfortunately, families
and communities must bear a disproportionate financial burden as a result.
Most workers’ compensation systems cover some funeral or
burial expenses. The cost of the average
funeral has risen but the benefit provisions in most statutes are stubbornly
resistant to increases. At a minimum,
families or the estate of a fatally injured workers should receive sufficient
funds to cover related funeral and burial costs.
Some jurisdictions do not cover costs if there is no funeral
or burial. If a worker is lost in a
flood and the body not recovered, should the workers’ death be costless to the
workers’ compensation system? Clearly, this
should not be an option. What policy
makers must decide is what minimum amount of the be provided to the estate in every
case and what additional reasonable costs to memorialize and celebrate the life
of the worker should be accepted.
9. Provide a Lump-sum Death Benefit
What is the value of a life lost at work? Policy makers have
options in answering that question. I recommend
that every policy makers sit across from a grieving spouse learning that the work-related
death of a partner before addressing that question. Speak with the survivors and dependents. Talk with parents or children having lost their
son, daughter or parent. From
experience, I can say their losses—financial, emotional, and personal—are immense
and not differentiated by the earnings level of the fatally injured worker at
the instant of their work-related death.
All workers have unrealized opportunities – often unimaginable
positive ones—that are lost upon death. Those losses have nothing to do with past
earnings.
Some jurisdictions have moved away from wage-based
compensation to lump sums.
For example, a lump-sum death benefit equal to the benefit a maximum wage
earner’s yearly compensation for temporary total disability recognizes lost
futures. Thankfully work-related
fatalities are relatively rare.
Increasing compensation will add further incentives toward improved
safety.
10. Inflation protection
Back in January 2019, I posted some background on the
question “Are Workers’ Compensation benefits protected against the rising cost
of living?”. Many workers’ compensation
system do adjust payments to workers on long-term claims or permanent
disability. Just how those adjustments
are calculated and applied varies widely.
The cumulative impact of inflation when it was running below
two percent was modest over the term of most temporary disability claims. That impact is much greater when annual
inflation hits seven, eight or even nine percent.
Fair, predictable protection of the purchasing power of workers’
compensation benefits should be built into legislation.
Is anyone reforming workers compensation benefits currently?
Many systems have proposed or enacted changes to workers’ benefits
but most are limited to modest increases in the maximum insurable
earnings. One of the most ambitious
proposals was recently posted for the provincial workers’ compensation system
in Prince Edward Island, Canada. The
proposal includes:
Increase benefit
rates for workers off work due to an injury from 85 per cent of net pre-injury
earnings to 90 per cent.
Increase the cap on
annual long-term benefits indexation to six per cent from four per
cent.
Reset the maximum
assessable earnings to current Statistics Canada data each year.
In the case of a
workplace fatality, increase financial support for burial expenses to $15,000
from $7,500.
Increase the lump
sum death benefit to 100 per cent of maximum annual earnings. [see an archived
version of the proposal at https://web.archive.org/web/2022
0628225241/http://wcb.pe.ca/DocumentManagement/Document/leg_benefitenhancementsconsultation.pdf ]
Which of these policy options will make it into this
jurisdiction’s workers’ compensation reform legislation is not known at this
writing.
Some closing thoughts
The RAND study noted above asserts [page 106]:
…[T]o improve adequacy, there are two options:
·
Policymakers can increase benefits or
·
reduce earnings losses through increased earnings
and employment for workers with disability
The latter path still exists. The fact or its existence has not changed
worker outcomes significantly in years. The
employer’s “duty to accommodate”, mandatory reinstatement laws, and vocational
rehabilitation provisions have been around for years yet work-related injury
still imposes heavy financial costs on workers that are not offset.
Workers’ compensation benefit enhancements are needed to
mitigate at least some of the losses imposed on workers. Policy makers have options
to begin to do just that.
