Workers' Compensation: Our Golden Opportunity

Industrialization in the 19th century brought with it an explosion of injuries at the workplace. Those who were injured were left to themselves to sue for benefits. It was an enormous social problem, made ever more difficult as the courts tended to protect the employer.¹

Employers argued that the employee had to assume the risk of injury as part of having a job. At other times they would maintain that the employee contributed to the injury and was therefore personally responsible.

Thousands of injured workers, unable to afford expensive legal challenges, were left totally uncompensated, often permanently impaired. The sheer inhumanity of the process generated a ground swell of support for a system of workers' compensation in each of the states.

Wisconsin passed the first permanent workers' compensation law in 1911. Between 1911 and 1920 most states enacted some type of workers' compensation legislation. Maritime, federal, and railroad employees were exempted as they were already covered by federal laws.

Workers' compensation insurance in the U.S. is a BIG business. In 1990, workers' compensation insurance had a cash flow of $160 billion -- no small amount.

The workers' compensation system in each state was established to provide no fault type benefits to injured workmen. Benefits are in the form of medical care, disability benefits (for wage loss), rehabilitation services, and death benefits. In its simplest form, the cost of these benefits are paid by the premiums charged to employers by insurance carriers. But in actuality, it is not that simple.

One cannot help but be impressed by the amount of controversy that exists in some state workers' compensation systems. There are arguments over the degree of injury, the history of the injury, its pre-existing status, and even the fact that it happened at all. There is such inefficiency in the system that it is not uncommon to see such elementary issues still being argued in court years later. There are additional arguments over which practitioner should treat the injured worker and when that treatment should stop.

Some states have "exclusive" state funds that act as the sole insurance fund for all workers' compensation claims within that state. No private insurance companies sell workers' compensation insurance in those states.

In other states, workers' compensation insurance is sold by private companies, often with a state sponsored "carrier of last resort." Currently, 13 states have a state sponsored fund. In New York, the state sponsored carrier is "The State Insurance Fund." This fund, although state sponsored, competes with other (private) carriers at the same time that it serves as the "carrier of the last resort," writing the poorest risks. This hybrid system, with private companies operating alongside a state sponsored insurance fund, is seen in a number of states.

Carriers regularly "file" for rate increases with the various state insurance departments.

In an effort to keep premiums low, many state insurance departments "suppress" rates. This purely political "rate suppression" causes problems as it forces carriers either to use their reserves too early, or to fail to create them in the first place. In New York state, surplus funds of the state insurance fund have been swept into the state treasury for several years. They are used to balance the state's budget and are carried as a no interest "loan."

All state workers' compensation systems are affected by the political process. Legislatures demand benefits at the same time that the carriers are prevented from charging adequate rates. This creates a constant tension between the principal players in each states workers' compensation system. Carriers and employers are aligned against claimants, attorneys, and doctors. When added to this, the state itself is responsible for additional friction as it uses the power of law to accomplish its ends. This practice illustrates a cardinal rule when dealing with programs such as workers' compensation; the largest players make most of the rules. Accordingly, you don't "fight" them because they can outlast you. Instead, you attempt to influence them.

Some private insurance companies have refused to write workers' compensation insurance in some states. Other carriers, as well as several of the state sponsored funds have gone broke, causing the state itself to assume responsibility. In many states, workers' compensation carriers are paying out more in benefits than they collect in premiums. One can easily appreciate the gravity of this state of affairs.

At this time the state sponsored Ohio State workers' compensation fund is some two billion dollars in debt. Several other state workers' compensation funds are in similar trouble to a lesser extent. In decreasing order, West Virginia, Montana, Colorado, Nevada, and North Dakota are in a deficit position. States with a serious weakening in their capital position are Michigan, Arizona, Pennsylvania, California, Utah, and Maryland.²

What's the problem? An increasing number of claims, increased costs of claims, controversy, and rate suppression are frequently mentioned in the literature. On television we hear about fraudulent claims and crooked claimants, doctors and attorneys. One is compelled to look deeper.

The poor financial condition of various carriers and state workers' compensation funds has prompted widespread demand for reform. Suggested reforms too commonly involve measures to reduce benefit levels for injured claimants. This is the most simplistic approach, not the most effective.

An article in the July 1992 issue of Nation's Business, "Workers' Comp. Costs: Out of Control," described the enormous increases in both the number of claims and their cost on a national level. The costs of the system are prominently mentioned, highlighted by tales of fraud from claimants, doctors, and attorneys. The article ends with recommendations to improve the system. As you might expect, the strongest recommendations involve initiatives that lower benefit levels. But benefit levels are pretty far down the list of what's wrong.

One currently sees publicity from carriers describing cheating claimants and greedy doctors. There is no hard data showing that fraudulent claims contribute to escalating costs in any significant way. If it were available we would undoubtedly see such studies prominently quoted. Regardless, this publicity campaign will no doubt continue, possible even inspiring legislative changes with time.

A recent "Moneyline" television segment showed a picture of a California chiropractor's shingle and office door during discussion of a doctor being arrested for fraud. Fraud is a despicable practice, if the chiropractor was indeed guilty of such a practice. On the other hand, by showing the chiropractor's shingle, the inference is made that chiropractors are the only ones responsible for fraud in the system. The segment went on to discuss the problems carriers experience in California regarding stress claims. While both fraud and stress claims are legitimate concerns that deserve our serious attention, are these the most serious problems driving the great rate increases seen in recent years? There are other claims that are more expensive and less frequently mentioned. More about this the next workers' compensation article, in the April 23, 1993 issue of Dynamic Chiropractic.

References

1. Final Report of the New York Temporary State Commission on Workers' Compensation and Disability Benefits. 1986.

    

2. Workers' Compensation State Funds: Disappearing Capital. Roger K. Kenney, Director, Actuarial Studies, Alliance of American Insurers. Schamburg, Illinois. (Not dated).