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A C T
W
orkers
ompensation
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2006 Workers Compensation: A Cautionary Tale
Copyright © 2006 by the Center for Justice & Democracy.
All rights reserved. No part of this report may be reproduced or transmitted in
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Table of Contents
2006
Written by Amy Widman
Designed by Daniel Albanese
Cover Art by April Warren
W
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C
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Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chipping Away at the Status Quo . . . . . . . . . . . . . . . . . . . . . . . . .
How it Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Path Towards Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slashed Benefits and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No Longer No-Fault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Georgia Cuts, Workers Suffer . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost and Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Safety. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What Fraud?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Compensation Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 ntroduction
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Over the years, there have been many proposals that require wrongly injured per-
sons to have their disputes resolved outside the court system. Very often, these pro-
posals are encouraged based on the experience of workers compensation, an admin-
istrative system to compensate injured workers that was instituted throughout this
country almost a century ago. The most recent proposal to receive attention is
Health Courts, which would cover all those injured or killed by medical malpractice.
Reliance on workers compensation as a model would be terrible public policy.
The workers compensation system has been rife with problems almost since its
inception. Employers who pay into it, employees who rely on it, analysts who look at
it, and scholars who study it all have a long list of complaints about how it does not
work. It is a heavily bureaucratic, adversarial system that shortchanges injured
workers, even while employers struggle now and then with rapidly rising workers
compensation insurance rates. And to the extent that rate reductions have taken
place, they inevitably have come at the expense of the injured, where lawmakers
have slashed benefits and pushed many of the injuredentirely out of the system.
Moreover, in the early 1990s, insurers and businesses began a misleading media cam-
paign focusing on employee fraud, even though only a tiny percentage of workers -
1 to 2 percent - have engaged in fraud. In response to this campaign and complaints
about rising insurance costs, many new restrictions on workers rights and benefits
have been pushed through in many
states. Meanwhile, insurance profits
climbed to new heights while workers
have been dealt more bureaucratic
hurdles, lower benefits, and the new
added stigma that they were somehow
cheating the system.
Workers Compensation: A Cautionary Tale
2
:
I Workers compensation is an unfortunate example of how a seeming-
ly fair program can be manipulated by political forces into a night-
mare for those it was originally meant to help. Once an area of law is
removed from the civil justice system, it becomes vulnerable to money,
politics and influence-peddling. This happens either through aggres-
sive industry lobbying of legislators, political influence on the agen-
cies charged with implementing the system, or orchestrated media
efforts. All have happened to workers compensation.
Workers compensation is in trouble and workers are suffering. This
paper takes a close look at what has contributed to the colossal failure
of this program and will examine a few states legislative battles that
illustrate recent disturbing trends in the system. It is crucial to take a
hard look at workers compensation not only because hard-working
Americans are being left out in the cold, but also because lawmakers
are looking to use this system as a model to create more programs in
other areas a recipe for disaster.
Workers Compensation: A Cautionary Tale
3 uo
Early twentieth century America, a time of great industrial expansion, was also
a time of great contention between workers and employers. Some have estimat-
ed that as many as one worker out of every fifty was killed or seriously disabled
from industrial accidents each year.
1
At the time, the laws on the books were
unfair to injured workers and made it extremely hard for them to get compen-
sation for their injuries.
2
Workers compensation in America was seen as a new system that would help
workers a compromise whereby workers traded their (already limited) rights
to go to court over work-related injuries for a system where they would no
longer have to prove the employer was at fault for their injuries, a no-fault
system that would provide automatic compensation for workplace injuries with-
in certain limits. The theory was one of social efficiency - that the cost of
injuries should be borne by the manufacturers rather than the employee, the
employees family or the government.
The compensation system was meant to keep an injured worker and his family
from becoming destitute due to inability to work while at the same time provid-
ing employers with insurance to cover the fixed liability costs. By setting up a
compensation system, employers knew how much each injury would cost them
and employees received limited benefits, but still more than they were receiv-
ing without workers compensation given the state of law at the time.
The first wave of workers compensation legislation merely removed the old
laws limiting an employers legal responsibility for workers injuries. By 1949,
however, every state
had passed a new
workers compensa-
tion law, which creat-
ed a system of com-
pensation for injuries
that did not allow
going to court.
3
C
hipping
A
way at the
S
tatus
Q
Workers Compensation: A Cautionary Tale
4 Each state devises its own workers compensation system, and state
statutes and court decisions guide most of the restrictions and require-
ments. While each state has its own laws, the following general con-
cepts apply to most workers compensation systems:
o
When a worker is hurt, workers compensation is the exclusive remedy against
an employer. Lawsuits against employers are not allowed (although if another party
causes the injury, such as the manufacturer of defective equipment, suits against this
other party are still allowed). Domestic and agricultural workers are usually excluded, as
are some federal workers.
4
o
Two types of compensation are generally allowed: medical benefits and disabili-
ty (for lost earnings, divided by duration and severity: temporary, permanent, partial,
total). Some programs provide limited death benefits.
5
No compensation is allowed for
pain and suffering.
o
In the case of some disabilities, state lawmakers enact by statute a fixed schedule
of benefits (so much for an eye or leg based on a fixed number of weeks). These sched-
ules ignore actual or projected economic loss.
6
o
If a worker is injured, s/he files a claim with the state workers compensation
agency that oversees administration of the system. Almost all states require that the
injured employee notify the employer promptly of any injury. Usually an informal res-
olution procedure begins. Many times, however, the claim will be contested in some way,
and at this point a more formal adjudicative administrative process begins before the
states workers compensation board.
o
Once the board reaches a decision, a court may only review that decision