How much workers’ compensation coverage do I have… really?

Take five minutes and consider this question:  “If I got hurt at work today and was off work (for a week or year), how much of my financial loss would be covered by workers’ compensation?”

No one expects to suffer a work-related injury or disease but chances are that everyone reading this column will miss time from work because of a work-related injury or illness at least once in their work careers. We expect that workers’ compensation will be there to cover our financial losses, but how much “compensation” will you really get?

In most US states (and the Yukon in Canada), “temporary disability” compensation rates are based on gross average earnings.  Check with your jurisdiction on what is included and excluded from the calculation of average earnings.  In most of Canada and some US states (Alaska, Connecticut, Iowa, Maine, Michigan) ,  Net  or “Spendable” earnings from employment are used.  Net earnings are usually calculated as Gross Earnings less mandatory deductions for social insurance, employment insurance and taxes but check with the jurisdiction to be clear on how the calculation works in your state or province.     In both Canada and the US workers’ compensation payments are tax free.

Step 1.  Calculate the base

• My average Gross Earnings:
   ______Week  ______Year
  • Less: Mandatory deductions (Social Security or Canada Pension, Employment Insurance or Unemployment Insurance, Prov or State income tax, Federal Income Tax, etc. )
• My NET or Spendable earnings:
  ______Week _______Year 

For fun, let’s consider a random skilled worker like a telecommunication line installer (occ code 49-09052) in a random state, say, Delaware, as an example.  The occupation clearly has risks and those that do the job have a lot to lose if an injury occurs.  Annual wage at the 75th percentile in May 2014 in the US was $71,230 ($81,160 at the 90th percentile) [BLS 2014].   Weekly take-home pay for a single status tax filer (result using above gross annual earnings to calculate a week of benefits for May 30 2014 payday for  Delaware Single filer in paychekcity.com payroll calculator ) would be about $946 ($1062 at the 90th percentile) after typical deductions. 

For most of us, we expect workers’ compensation to protect that buying power of our earnings.  Net or Spendable earnings are what we use to pay the mortgage, put food on the table, and support our families.  It is this amount –or something close to it – that we want and expect workers’ compensation to cover.  But there’s a catch!

Most jurisdictions have limits on the earnings that can be insured or the amount of the compensation you can receive on a temporary disability claim.  For example, a workers’ earnings above  $998.35 per week in Delaware, are above the maximum  insured by workers’ compensation and are effectively uninsured [Delaware 2014].   In Canada, most provinces (except Manitoba) have a maximum amount that can be insured ($52,100 in Prince Edward Island, $95,300 in Alberta).  A low maximum benefit or a low maximum insured amount can limit the amount of compensation you will receive.    Check your jurisdiction’s limits.    

Step 2:  Apply restrictions on maximum insurable.

• Insured gross earnings:
   _______Week  ______Year

 The effect of the maximum in Delaware for our line repairer will reduce the weekly gross from $1369.81 (or $1560.77 at the 90th)  to $998.35 insured gross earnings.

But there’s another possible catch!   What you actually get from workers’ compensation is reduced by application of the “compensation rate”.  Compensation rates in most Canadian provinces are 85-90% of Net earnings; compensation rates in the US are typically 66.67% of Gross.  There are exceptions in both countries.  For example, Massachusetts compensates at 60% of Gross, Maine at 80% of Spendable;  Yukon pays 75% of Gross, Nova Scotia pays 75% of Net for the first 26 weeks and 85% of Net thereafter.  Again, check your state or provincial workers’ compensation authority to confirm the compensation rate. 

Step 3.   Calculate the temporary disability compensation

• Workers’ compensation rate in my province or state
  _________ % of   Gross   or  _____% Net
  • Multiply rate times appropriate line from Step 1 (or Step 2 if reduced by the maximum).
  • Check jurisdiction for maximum weekly or yearly compensation payment amounts and reduce to that level if necessary
• Potential temporary disability compensation:  
  _______Week  ______Year  

Using the Delaware line installer and applying Delaware’s compensation rate of 66.67%, the potential weekly compensation for temporary disability will be $665.57. That represents about 48% of gross (42% of gross at the 90th percentile earnings level).   In Kansas, a similar worker would be limited by the weekly maximum benefit in that state of $594. 

But there’s yet another catch!  All US states and a couple of Canadian provinces (New Brunswick, Nova Scotia and PEI) have waiting periods.  These are essentially worker “deductibles”.  Workers get no temporary disability compensation for the first days to a week of time off work due to a work-related injury (3 days in California, 7 days in Nebraska for example).  In most states, there is a “retroactive” period that will allow compensation for the waiting period to be paid if the duration of disability is longer than (typically) one to four weeks (6 weeks in Louisiana)….Unless you work in Hawaii or Rhode Island.  In those states, there is no retroactive period so the waiting period is essentially a pure self-insured deductible and never compensated. 

Step 4: Reduce Compensation by effects of waiting period and retroactive period on the expected duration of disability.

• Waiting period : ________ 
  Retroactive Period: ______
• Actual temporary disability compensation:
  _______Week  _______Year

For our Delaware line repairer,  a week off work will result in 3 days with no income from worker’s compensation but a period of longer than a week will see the waiting period paid retroactively.  A similar worker in Rhode Island would likely get no temporary compensation for a week of disability and only 51 weeks of compensation for a 52 week stretch of temporary disability.   

The point of doing this calculation for yourself in your workers’ compensation jurisdiction is simply this:  you may find that the financial losses for a work-related disability of a week, a couple of months or year are much larger than the workers’ compensation you might have expected to receive.  The presence of a maximum insurable, maximum weekly compensation, low compensation rate, long waiting period with long or non-existent retroactive period may leave you and your family exposed to significant financial losses you are unprepared to bear.

If you figure you can bear a loss of 10 or 15% in net spendable income and that you get that result   from following the above steps then great!  You live in a jurisdiction that is providing relatively good temporary disability compensation.   If your expected loss is greater than your risk tolerance then you need to do some more investigation.

One thing you won’t be able to do is sue for any shortfall.  With very few exceptions, workers’ compensation is the “exclusive remedy”.  The workers’ right to sue was part of what was bargained away, part of the compromise that is the foundation of workers’ compensation;   in exchange, workers’ were to receive no-fault compensation.  One has to wonder at the moral and legal limits of that trade-off (at what point does the justification for the exclusive remedy break down?  When benefits fall below 60% of spendable? 50? 10?)

Leaving aside the question of justice (what the “Grand Bargain” or “Historic Compromise” was intended to provide), if you are in a state or province that leaves you with greater exposure than you expected or are willing to bear, you need to consider doing something about it.  In very practical terms, you need to quantify how much of the exposure you are willing to carry on your own (or impose on your family).  You may want to review your personal disability insurance coverage, the existence of optional group disability plans that may cover potential losses, and other possible means of coverage that will not impact workers’ compensation entitlements (and vice versa).

The good news is some of you will do this calculation and be reassured by the result.  Some workers’ compensation systems are covering temporary disability at 90% of Net earnings to the 90th percentile  of earners.  And they are doing that at a competitive price to employers.  Until and unless other jurisdictions reach that “90 for 90” standard, every wage earner needs to know this:  How much workers’ compensation coverage do I have… really?  

What can we take from the ProPublica/NPR investigative reports on Workers' Compensation?

The ProPublica/NPR investigative reports have highlighted what is wrong with workers’ compensation.  Make no mistake; there is much to criticize among the US and Canadian workers’ compensation systems.  Does that mean we should throw out the current systems and start again?

Marjorie Baldwin, (Professor, Arizona State University, and Chair of the Study Panel on Workers’ Compensation Data of the National Academy of Social Insurance (NASI.org)) recently responded to the main issues highlighted by this investigation.  Her post, “Workers’ Compensation:  Critical Questions, Elusive Answers” addresses some of the obvious issues.  The journalistic approach of focusing on individuals to illustrate the issues effectively shines a light on vivid examples of poor benefits, bad adjudication and abusive processes that re-victimize the victims of work-related injuries, illness, and disease.  The scholarly examination of underlying policies at the root of these failures may not grab headlines but it is critical to public policy development.  Headlines don’t tell the whole story.  Professor Baldwin’s point that stakeholders need “a more informative accounting of how the system performs” succinctly summarizes both what is needed and what has been missing from much of the discussion.

It is not that there isn’t good information out there.  The NASI report on Workers’ Compensation:  Benefits, Coverage and Costs 2012 provides a starting point.  The AWCBC Key Statistical Measures provides similar data for the Canadian workers’ compensation jurisdictions.  The work by IAIABC and WCRI to provide objective data on the Workers’ Compensation Laws that ultimately determine the benefits, costs and coverage on both sides of the boarder is another important information resource. 

And it’s not as if there is no objective yardstick on what a workers’ compensation system ought to do.  The 1972 Report of the National Commission on State Workmen’s Compensation Laws made recommendations that provide clear guidance.  ProPublica/NPR journalists the National Commission’s recommendations to design workers’ compensation laws; public policy analysts in Canada, the US and other countries often take the measure of workers’ compensation systems using the National Commission’s recommendations. 

Objective assessment of systems’ performance against those recommendations reveals two things.  The first is the point of the ProPublica/NPR reports:  Worker’s compensation is failing in some states.  The second point is really the corollary.  Despite the poor performance of some jurisdictions, there are workers’ compensation systems that are providing benefits that meet or exceed most of the recommendations of the National Commission. 

Workers’ compensation is not one “system”.  There are more than sixty North American jurisdictional attempts at fulfilling a common social policy objective that is the foundation of the Grand Bargain, the Historic Compromise.  It is plainly wrong to extrapolate grievous failings from a few jurisdictions to every workers’ compensation system. 

Yes, there are failures.  Workers’ were promised compensation for work-related injuries but there are jurisdictions where between a third and a half of all workers with lost-time work-place injuries are entitled to no compensation for lost wages—and that does not take into account the issue of claims suppression and under-reporting.  Large proportions of the labour force—particularly agricultural workers and domestics—are excluded from coverage in some jurisdictions.  Middle-to-high wage earners may have less than half their earnings unprotected by workers’ compensation insurance in states/provinces with low maximum benefits and very low indemnity rates.  These inequities are not only unjust, they undermine the social contract and threaten the social policy (and possibly legal) basis of the “exclusive remedy”. 

The ProPublica/NPR reports force policy makers to acknowledge these failures and hopefully seek out those jurisdictions that live up to the bargain.  Those jurisdictions that come closest to meeting the National Commission recommendations cover nearly everyone who works for someone else and even offer coverage to those who are self-employed; they cover high wage earners and provide compensation that restores 80-90% of spendable (after tax) income.  They provide timely decisions and are accountable for their errors in the application of law and interpretation of policy.  They seek and earn a measure of social licence for what they do and do it at a cost that is affordable and sustainable.

H. James Harrington (author of Business Process Improvement among others) said:

Measurement is the first step that leads to control and eventually to improvement.
If you can't measure something, you can't understand it.
If you can't understand it, you can't control it.
If you can't control it, you can't improve it.

NASI, WCRI, IAIABC, AWCBC and others provide objective measurement of jurisdictional and national performance.  The National Commission recommendations provide a standard against which the measures from each jurisdiction may be assessed and understood.  Measuring the performance of each system against those recommendations can be the first step in addressing the failures, controlling the excesses and improving outcomes for injured workers and their families without a wholesale scrapping of all systems. 

No system is perfect.  Among the sixty-plus systems in North America, however, there are a few that have come close to meeting the recommendations of the National Commission.  They are proof that the Grand Bargain, the Historic Compromise can achieve the social policy objective: to protect workers from work-related injury, disability, illness and death in a compassionate and sustainable way that still allows the economic activity and innovation necessary for societies to operate and thrive. 

Improvement is not only possible, it is essential—not only because it is the morally correct thing to do but also because every failure erodes the public confidence in all workers’ compensation systems everywhere.

Rather than taking a defensive posture, insurers and policy makers can thank the ProPublica/NPR journalists for raising the level of discourse, highlighting the disparities that exist and illustrating the need for genuine improvement in under-performing systems.

Does Workers' Compensation need a new "Grand Bargain"?

In a recent blog post, Robert Wilson (WorkersCompensation.com) concluded that workers’ compensation needs a new “grand bargain”.  He supports this conclusion by arguing that the exclusive remedy that is the main underpinning of the workers’ compensation system is under attack.  He cites three trends as evidence that the current arrangement is broken.   Specifically, he notes increasing exceptions to the no-fault aspect of the system, the erosion of worker benefits, and the increasing scope of coverage for co-morbidities and social issues as three categories of threat to the current system. 

Whether you call it a “grand bargain”, “historic compromise”, or  “historic trade-off”,  the current system of workers’ compensation is a social contract and it is under attack.  One need look no further than the daily news to see Bob’s issues in the headlines.  This morning’s Pro-publica / NPR article, “The Demolition of Workers’ Comp”  certainly supports the contention that the current system isn’t working.  They underscore the erosion of benefits for workers, the declining costs for employers,  and externalization of the human and financial costs of workplace injuries to workers, the taxpayers and society at large.

Bob pointed out strains on the original grand bargain.  It was based on principles and designed to apply in an economic and social context that was changing--not static-- at the time.  The basic principles have remained the same but the context has continued to change.  Science has advanced, we use new materials and processes, we have different stressors in our environment.  We understand today that many factors in the work environment can cause or be of causative significance of injury and disease. Workplace stresses including bullying, harassment and work overload are now known to be factors in mental injuries.  We now understand that PTSD is a real and serious consequences of certain work exposures.  We know or suspect strongly that  shift work  that interferes with circadian rhythms is a probable human carcinogen.   This changed context does not mean that the principles should change. 

We also know that workers and work have changed. A century ago, the argument against including farm workers in the scope of workers’ compensation coverage could plausibly be sustained because farms were mainly family operations and most of the workers were family.  That is not the case today.  I don’t see this change as the basis for throwing out the old paradigm.  In fact, exclusion of farms from the scope of workers’ compensation coverage makes less sense in the present context.  Many temporary foreign and migrant workers would benefit greatly from bringing farms under workers’ compensation rules.  It works in some states and provinces; why not make that coverage universal?

Workers’ compensation has always operated on the principle that we take the worker as we find him or her.  That principle includes many conditions that may make recovery from any workplace injury more complex or protracted.  The fact that the condition did not prevent work prior to the injury is not a reason to decry the current scope of workers’ compensation coverage.  This is not coverage “creep”.  It is, in part, a consequence of medical science enabling more of us to work despite underlying conditions that may be managed.  

Rather than a new grand bargain, why not try living up to the original one?  The  NationalCommission on State Workmen’s  Compensation Laws (1972) defined what living up to the bargain would look like.  Looking only at the main National Commission recommendations on temporary disability compensation, I found only a handful of North American jurisdictions that came close meeting the recommended standard.  The Pro-publica/NPR article found only seven states follow at least 15 of the recommendations.

Clearly, the current system of workers’ compensation is not working in most jurisdictions.  The fact that there are some examples in the US and Canada where the systems do provide something close to the National Commission’s recommended standard demonstrates that the underlying principles of workers’ compensation can achieve the social policy objective:    to protect workers from work-related injury, disability, illness and death in a compassionate and sustainable way that still allows the economic activity and innovation necessary for societies to operate and thrive.  

The failures are not in the foundations or underlying principles of the original grand bargain but in the proliferation of legislative and policy “reforms” that depart from them.  The National Commission defined in exquisite terms the minimum standards workers’ compensation systems ought to achieve.  It is against that standard that each workers’ compensation system should be measured and held to account. 

With apologies to Chesterton, the grand bargain that is workers’ compensation has not been tried and found wanting;  it has been found difficult and not tried.  Before we abandon the grand bargain and strike some new compromise, we ought to try living up to the current one first.   

What happens when everyone has a workplace accommodation?

In recent online Disability Management course, “Mary” (not her real name) raised this question in one of our online discussions:  “What happens when just about everyone in a department has had an injury or has a residual impairment of some kind and has been accommodated?” 

Far from suggesting this situation would be utopian, she pointed out that it created a very difficult situation.  Each job now had specific, explicit changes to required duties in the job description.  This created dependencies and non-generic or non-standard ways in which a particular employee did their job.  Whenever there was an absence, retirement or even a vacation that created a vacancy, the new employee might still have to carry out the job with the accommodations of the former incumbent in order to maintain the work flow for all the others who had accommodations in that workplace.  

Rather a common job description with duties optimized for the job,  Mary argued, the uniqueness of every accommodation required a complex situation.  A modified set of job duties becomes the de facto job description often involving specialized equipment or procedures designed to meet the abilities and restrictions of the former or usual incumbent.  Mary also noted that each new accommodation had an increasingly greater impact on operations and a higher marginal cost.  So, what happens when everyone in the workplace has an accommodation?

Let me be clear about what accommodation is and is not.  Every workplace should be barrier free and inclusive so that all employees can participate fully.  At some point, even the most inclusive and barrier-free work environment may not allow a particular employee with a disability to participate fully.  It is at this point that accommodation through differential treatment is necessary to overcome the particular barrier for a particular employee with a particular set of capabilities and limitations.

Some workers’ compensation statutes have provisions for mandatory reinstatement.  In most cases, injured workers can return to work and participate equally without accommodation.  When returning to work can’t be achieved because of some barrier then accommodation is required. Collective agreements, human right legislation and other statutes including some workers’ compensation laws impose a “duty to accommodate” on the employer.  The employer’s duty must be discharged to the point of “undue hardship”—a very difficult test to meet.  The barrier is only a barrier because of the particular nature of the worker’s residual impairment with respect to a particular job task or set of tasks.  If the worker can carry out the usual task in a dignified and efficient way, then no accommodation is needed.  Accommodation really refers to the alterations to the workplace or job tasks that allow the particular worker to participate. 

Take the case of a worker unable to walk up stairs to deliver work product from one location to another.  If this is an essential job requirement, the worker is incapable of doing the job without some accommodation.  The employer has a duty to accommodate up to the point of undue hardship.  If the particular individual must carry out this essential task, the employer may consider accommodations like installing a designated stairway elevator for the individual.  That would be a classic accommodation: an individualized approach to remove a specific barrier.

Over time, the number of workplace accommodations put in place can increase because more people have been accommodated.  None of the accommodations may impose an undue hardship on the employer.  To Mary’s point, it is indeed possible that many or all persons in a particular workplace have accommodations and the challenges Mary points out are real.  Those challenges may actually work against the ambitions and career aspirations of employees with accommodation.  For example, why would an employer even consider an accommodated staff member to take on a temporary training role (not requiring any accommodation) if doing so creates a recruitment headache?

When accommodated positions dominate a workplace, here is a short list of actions to consider:

1. Make certain restrictions are properly understood, relevant,  and current.  Many conditions change over time and people learn to work in ways that don't make their permanent impairments disabling with respect to required job tasks.  Conditions, even permanent impairments, may become less restrictive over time as the body and mind adapt.
2. Have a current, accurate process description and job-task analysis.  Jobs, process and tasks change over time.  Technology and new materials are constantly altering the very nature of particular jobs.  A traditional job analysis may reveal that the requirements of a particular position are no longer restrictive.  In the staircase example, the duty to accommodate disappears if the requirement to climb stairs disappears from the required process.
3.  Examine current work processes to determine truly required tasks.  Adherents to Total Quality Management, LEAN, Six Sigma, and Business Process Re-engineering recognize the value of this sort of analysis.  The results often reveal tasks that can be eliminated, addressed by new technology, or combined into simpler clusters.  Eliminate a task that imposes a barrier to some and you eliminate the need for accommodation.   In the stairway example, a redesign of operations may co-locate two departments on one floor thus eliminating the required task. 
4. Review the required tasks and the abilities collectively.  Ad hoc accommodations made over time may conflict and create unnecessary requirements.  Having a current, well documented list of required tasks in processes and current list of abilities (and restrictions) of staff members may allow assignment without the need for formal accommodation.  
5. Change restricting processes and tasks.  If a required process has an inherently difficult, barrier-generating task, rather than thinking about individual accommodation, consider alternatives that lessen or remove the barrier entirely.  An ergonometric consultation may generate systemic as well as individual solutions.  In the stairway example, a public elevator would eliminate the restrictive process and make the workplace more accessible for everyone.
6. Up-skill your staff.  If a person has a restriction that is significant in their current position, identify other positions where the impairment doesn't necessitate an accommodation.  We often neglect to look to more senior positions but, with some training and mentoring, a person with restrictions in a current job may be able to advance to one where any restrictions imposed by the impairment are irrelevant. Up-skilling may also allow incumbents with accommodations to become proficient with technology that can lessen or reduce the effect of any handicap.
7.  Group restrictive tasks into one job…  (And hire appropriately for that).  If several employees have similar restrictions, there may be an opportunity to eliminate the need for accommodation by combining the relevant tasks into one job and recruit appropriately for that position. 
8. Develop career paths with related departments, suppliers and customers.  This may seem counter-intuitive but your challenge may be similar to the challenges of others in your industry supply chain and customer base.  The collective employee set is likely to have overlapping skill and knowledge bases with differing physical (and mental) requirements.  By developing relationships to increase new career opportunities, your department, your trading partners and  employees in both may all be better off. 
9. Create different roles or new jobs that make sense for your company.  Managers or supervisors may be doing tasks that you can be devolved and grouped into a new job.  I love the example from healthcare where a senior nurse with physical impairments was able to take on many of the orientation and mentoring tasks of several supervisors.    
10.  Foster staff resilience, mobility and flexibility.  People can and do change.  They learn, have changing aspirations, and even change jobs and careers.  Often they need some help to do these things.  Companies that have staff education and development programs create opportunities both inside and outside the firm for their staff. 

By the way, accommodated staff needs to be included in most of these actions.  They are likely to have important insights and may generate some of the best ideas.  After all, they live with their impairments and may well have discovered ways of living with off the job that can apply on the job.  

None of this is to suggest there is anything wrong with the duty to accommodate.  On the contrary, it is an important and fundamental part of social justice and corporate social responsibility.   It is the morally (and often legally) right thing to do.  However, rather than a sign of progressiveness and flexibility, a high prevalence of formal accommodations in a department may indicate rigidity, stagnation and a lack of imagination.  These actions may provide a starting point in developing new ways to meet both the needs of persons with disabilities and the objectives of the organizations that employ them.   

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.