The Workmens

Compensation Act,1923
Workers Compensation
is
nations first social
insurance scheme
a state responsibility,
organized by state
a compromise
mostly for industrial
workers
funded by employers
through premiums
is not
a welfare scheme or
entitlement program
a federal government
responsibility
a single plan
required for very small
employers
tax supported
What existed before WC?
Crisis during the Industrial Revolution
Injured workers had to sue employer
Courts deliberately tried to protect employers in
interest of increasing employment, wages
Legal defenses for employers insurmountable:
assumption of risk = worker voluntarily accepts risk of
a dangerous job
fellow servant doctrine = employer is not responsible
if injury due to action of another employee
contributory negligence = if any action by injured
worker can be construed to have contributed to risk
What forced the change?
Skyrocketing injury rates created social, political
problems
Labor unions started using this as an organizing
issue
As economy settled down, courts became more
open to worker-initiated lawsuits
Muckraking (e.g. The Jungle)
Political climate changed: Progressive movement
Model available: Germany, UK
The WC Compromise
Workers would reliably receive care and benefits
Medical care
Lost wages
Employers would be shielded from litigation
No fault
No additional liability, even for negligence
Administration would be fair and efficient
Insurance model (actuarial rating, costs passed to
consumers/employers)
Intended to allow employers to anticipate costs
Rapid, no-fault processing of claims
Exclusive remedy: no appeal outside system, no alternative
system
Early days of EC
Huge wave of state legislation from 1911 to
1915
States set up Industrial Accident
Commissions
Coverage mandatory (except TX)
Early attention to injury prevention
Few permitted enhanced benefits
However, every state different
Services provided by WC
Universal:
Medical services for injured workers
Income replacement
Temporary disability
Permanent disability
Survivor benefits (if fatality)
Variable:
Rehabilitation
Retraining
Who is covered?
Usual coverage
Employees of firms
with more than a few
employees

Covered under special
systems:
Maritime workers
Railroad workers
Federal employees
Usually not covered
Agricultural workers
Self-employed
Business owners
Domestic workers
Volunteers
Permanent disability benefits
Two-thirds of WC disability benefits
Wide variation in adjudication, criteria
Ratings are based on:
Impairment assessment (medically discernable
injury)
Actual wage loss
Permanent loss of earnings potential
(considering job market)
Scheduled awards for specific impairments
are trend (since NJ 1911)
Covers future wage loss
Unjust for injured workers to forgo benefits even
if little wage loss at the time
How permanent disability is rated
Three basic approaches
Impairment model
Based on schedules
Based on guidelines (e.g. AMA Guides)
Wage-loss formula
Calculates actual loss of wages due to injury
Loss of earnings capacity
Loss of future wages based on actuarial model
The AMA Guides to the Evaluation of
Permanent Impairment
Like any tool, needs to be used properly
Not a cookbook: often gives a range
Achieves some consistency
Face validity in terms of relative impairment
within functional systems
Expert consensus
Downside to the AMA Guides
No objective validation
Often used indiscriminately as a formula for
disability
Avoids many important types of disability:
Chronic pain
Mental changes, depression
Reversible conditions, such as airways reactivity
Dermatitis
Stress-related disorders (e.g. irritable colon)
Has become a self-perpetuating industry involving
complicated revisions, guides to the Guides, training
programs and even a certification scheme
Financial realities of WC
Carriers go into but mostly out of business
Six states have exclusive funds
Employers pay insurance premiums
Premiums are based on:
Industry group
Size of enterprise
Historical claims experience (rating)
Administrative expenses are very high (up
to 30 to 40% of premiums)
Industry concentrated in a few big carriers
Liberty Mutual, CAN, Firemans Fund, The Hartford,
Travelers are the biggest
Financial realities:
Special cases
Single payer: ND, OH, WA, WV, WY and
Canadian provinces
State insurance pools (24 states)
intended for residual market at high risk
expensive for employers
Self insurance (
allowed in 47 states, not ND, WY
company pays out, usually sets up fund
only an option for big companies
Financial realities of WC: benefits
Benefits from WC tend to be low
Some states cap as a % of average wage in state, typically 2/3
Some states index to wages
Only considers wages, not additional direct costs or social costs
Costs are shifted from WC to supplemental Social Security
and other programs
Limbo between denied WC claims and rejected LTD claims
injured worker caught in middle
Market forces reductions in benefits to reduce costs:
Reduced dollar benefits
Reduced acceptance rate for claims
Reduced impairment ratings
Choice of rating system
Choice of medical examiner
Occupational disease
Underreported
Underrepresented in claims
Latency period
Often arises during retirement
Difficult to attribute to responsible employer
May be multi-factoral
Requirement for objective finding
Bad or lacking information
Missing data
Incomplete differential diagnosis
Inadequate exposure history
Irrelevant data

Sociology of WC
Deeply rooted distrust
Of workers
Of employers
Of carriers
Abuse of system
By injured workers
By malingering workers
By employers
By carriers
Fear of consequences of filing a claim
Emphasis on moral hazard

Sociology of injured workers
Filing claim may bring stimatizaiton
Esp. if injury is not obvious
Esp. if embarrassing to employer
Esp. if highly visible to other workers
PD or prolonged rehabilitation
Wearing on family
Coworkers often turn unsympathetic, even hostile
Neighbors, friends get tired, even suspicious of abuse
Injured worker gets depressed
Depressed people are difficult to be around
Intimations of fraud, exaggeration, abuse
Involutional cycle
Role of physician
Who picks: the right of choice of physician:
Worker (half of states and DC)
Usually family physician
Employer or insurer (half of states, inc. VA)
Often on list of approved providers
Has given rise to PPO, other managed care models
Control over medical records is lost by worker
Federal and Special Programs
Federal workers
Federal Employees Compensation Act
DoE Office of Compensation Programs
nuclear workers (radiation exposed)
nuclear workers (chemical exposure)
Federally administered
Longshore and Harbor Workers Compensation
Act
Federal Black Lung Program

Occupations not covered by
workers compensation
These workers have programs that cover disability
whether work-related or not; worker retains access to
tort litigation

US Merchant Marine
Railroad workers in interstate commerce