Top Ten Priorities for Workers’ Compensation Benefit Reforms

 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 50^th 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.