Last week, I shared my thoughts in Risk & Insurance on the hot debate ignited by the recent ProPublica/NPR series, “The Demolition of Workers’ Compensation.” While I focused on “big-picture” questions that we must ask ourselves as we examine the points raised, I did want to follow up with some additional commentary. The authors took on some important issues in their articles, but I must take issue with a number of the assumptions and conclusions they made in the process.
Let’s start with a macro-level analysis of the numbers. The article’s statistics do seem to support the “decimation” of the workers’ comp system. However, the basis for many of their assumptions was faulty math. For instance, in most cases, they use total paid wages as a denominator to indicate that the employees’ share of the benefits is declining, which is problematic for a number of reasons. Through improved technology and training, and the fact that many high-risk jobs have gone overseas, the number of work comp incidents per employee is dropping each year. An office job will have far less injuries than a manufacturing job, for example. The workplace is becoming safer.
So let’s say that 2 people out of every 100 were hurt before a safety improvement was made, and afterwards it dropped to 1 per hundred. With the exact same benefits, using their logic, the injured worker just had their benefits cut in half. This is obviously not true. The proper denominator is the number of injured workers, not total paid wages. With a state-specific system, there will obviously be anomalies and outliers among 50 different states, but on the macro-level we have seen wage benefits increase at around the rate of inflation for the last decade. This, to me, seems fair.
The Profitability Puzzle
The article also cites the profitability of workers’ comp and how employers are lobbying to make more money through reforms. Yet according to the very studies they cite, employer costs increased 6.9% between 2011 and 2012, but the number of covered employees only increased 1.6%. That is a 5.2% cost increase per employee. That is much higher than the Consumer Price Index for 2012, and doesn’t correspond with a profit-taking climate.
A critical situation that the articles did raise, and that we as a society must address, is the shift of workers’ compensation liability to the taxpayer through Social Security Disability and Medicare/Medicaid. Perceived profits in the workers’ comp arena aside, this shift of liability to already heavily burdened programs is a critical issue. Candidly, Social Security and Medicare were designed as a program for the elderly. The expansion beyond the original scope into disability insurance is one of the primary reasons (that, and the fact that there was no adjustment for increased life expectancy) these programs will not be sustainable long term.
The Workers’ Comp Social Contract
Workers’ compensation is a social contract to provide benefits to those hurt at work, regardless of fault. In the industrial revolution, someone injured at work could be promptly discarded. Unable to work, they often became beggars or homeless. This resulted in a backlash of lawsuits and strikes, putting companies and all jobs at risk. By covering medical care for those hurt at work, and providing some income, the deal was employees’ healthcare and basic income would be covered and unnecessary friction costs (e.g. legal fees) would be reduced in order to pay for these benefits. Frankly, it was designed for catastrophic injuries, and has expanded to encompass any bump, bruise or paper cut, but that is a different story. How has it worked? OSHA recently reported on the earning power of people in the 10 years after a workers’ compensation injury, finding that the average person makes 85% of their pre-injury wages. This is certainly not ideal, and obviously hard on many people, but candidly it is pretty amazing. From no earning power historically, to 85% over 10 years, is an impressive impact from our system. To a major extent, it is obviously working.
But as the ProPublica article points out, there are gaps in the impact on employees. Objective severe injuries (those medically visible) likely do not receive enough benefits and subjective (patient word only) ones are draining too much of the money available. An employee making high wages will never be able to sustain the same lifestyle, while some employees can make the same or even more by staying on workers’ compensation. States need to find ways to improve their systems to not only ensure that benefits are being fairly distributed to the most severely injured, but also make sure there is a safety net WITH a strong incentive to come back to work. People should not make as much not working as working. These are needed updates to the terms of this social contract.
In our country, we have an expectation of fair play. So when something seems inequitable or one-sided, in written contracts or even in social contracts, it offends our sensibilities. One point where the ProPublica authors and I agree is that the CA IMR rules, where the reviewing provider can remain anonymous, is pretty un-American. Much like red light speed cameras, it is easier for the regulatory body, but that does not make it right. We have a right to face our accusers in the United States.
As I’ve said before, there are no easy answers. But we must not take short-cuts in defining the problems that we face, nor make blanket condemnations of state legislatures, insurers, or employers in a rush to judgment. The challenges facing the workers’ compensation industry today are very real, and frankly deserve nothing less than a measured, thoughtful analysis as to how to make it better overall for society.