WORKERS' COMPENSATION

Approximately every 19 seconds someone is injured in an on-the-job accident. But whether or not the injured individual has health insurance, if the injury occurred on the job it is very likely that the injury will be cared for and the worker's lost income replaced under the workers' compensation insurance system.

The workers' compensation system developed to provide medical coverage and/or income replacement for workers (or the families of workers) who were injured or became ill or died as a result of workplace conditions or accidents. These laws, which require an employer to purchase insurance that provides care and income replacement, were developed in the early industrial age. During that period machine industry workers were being injured at a high rate. Their only remedy for medical care and to replace income lost due to days off of work was to sue the employer in court for negligence. For many this was financially impossible and when it could happen, the cost to employers was very high. Both employers and employees found that a legal system of compensation whereby the employee gave up the right to sue, but was guaranteed legal protection and coverage for the injuries, was preferable.

The first workers' compensation law was passed in Germany in 1883. The rest of industrialized Europe quickly followed suit. The first U.S. state law that passed and remained in force was in Wisconsin in 1911. By 1949 every state had a workers' compensation law on the books.

In 1916, the U.S. Congress passed the Federal Employees Compensation Act providing protection to federal workers. The passage of this law, while it had no legal impact on any private, state, or local workers, aided the cause of state workers' compensation laws by providing a national example of caring for employees. Today the federal government also administers the provisions of the Longshoremen's and Harbor Workers' Compensation Act, which provides benefits for longshoremen, and the Black Lung Act, which provides benefits for coal mine workers who suffer from Black Lung disease. Aside from these three exceptions, the rest of the more than 93.7 million wage and salary workers (as of 1989) are covered under the varying provisions of the 50 state laws and those of the District of Columbia.

Each State has its own workers' compensation law and administration. Although the provisions of each State law differ greatly, the underlying principle is the same—that employers should assume the costs of injuries, illnesses, and deaths that occur on the job, without regard to fault, and partially replace wage income lost. While income replacement under workers' compensation is usually a percentage of the actual wage, is it counted as a transfer payment and, as such, is not subject to federal income tax.

Except for a few states, coverage is compulsory for all private employers. Employers who reject coverage also lose the common law defense for suits filed by employees for negligence. Some state laws exempt certain categories of employees from coverage. Those most likely to be excluded from coverage are domestics, agricultural workers, and manual laborers.

In 1995 employers paid $26.1 billion in premiums, 9.4 percent less than was paid in 1994. The general downward trend (the figure in 1990 was $30.9 billion) is further registered in the primary measure of compensation costs: the cost as a percentage of business payrolls. The Bureau of Labor Statistics estimated that in 1998 this figure measured 36 cents per hour worked, down from 38 cents in 1997. In manufacturing industries, the Bureau found that compensation insurance costs decreased an average of nine percent per year between 1994 and 1998. While workers' compensation represents the only aspect of employee compensation and benefit costs that has continually decreased through the 1990s as states have slashed benefits, many analysts expect the typically cyclical pricing for workers' compensation to be on the verge of another increase.

Increasing costs have led employers to a deeper interest in on-the job safety since insurance premiums for workers' compensation are often based on loss ratio. A loss ratio is defined by the Social Security Administration as the proportion of the premium dollar that is returned to the worker as cash or medical benefits.

Generally, there are three different methods available for employers to insure workers for the required workers' compensation protection. These are state insurance funds, private insurance, and self-insurance. The latter is seen as a cost-saving method for many safety-oriented firms. Where states permit it, many large employers now self-insure and many small employers form groups to insure themselves and decrease the risks. Premiums paid out reflect the payment of benefits and the cost of administering the program, policy writing, claims investigations and adjustments, allocation of reserves for long-term accrued disabilities, and other administrative costs.

Managed care, in which health maintenance organizations or other licensed entities pre-pay for health services and administer the financial and medical details for a defined insured population, is the most common avenue by which workers' compensation-related medical insurance is provided. There exists a good deal of controversy relating to these organizations, however; these administrations, often with enormous bureaucracies, generate disfavor among much of the public (and many doctors) because, in order to safeguard their financial bottom line, HMOs often discourage and deny extensive or aggressive treatments that doctors and patients often feel is necessary, but that is considered inconsistent with the HMO's financial concerns.

First popular in the 1980s, "employee leasing" represents an alternative to managed care. It refers to an arrangement in which employees of a business known as a leasing firm are sent to a client firm for a fee, usually based on the workers' wages. This arrangement eliminates a degree of the client firm's payroll, thereby mitigating insurance premiums.

Another emerging issue is how workers' compensation regulations will meet the increasing trend toward telecommuting, whereby many workers are choosing to take advantage of improved office and telecommunications technology by working at home. Just how hours spent working at home will be determined in terms of employer liability for workers' safety and compensation is yet to be settled.

Changes to state workers' compensation laws are made by state legislatures. In 1993, changes mandated by states included measures to implement managed health care as a way to save money for employers, reduce fraud, and improve safety in the workplace.

Fraud is always a concern. But under the workers' compensation program there is also the question not only of legitimacy of the injury but of legitimacy of the place of injury. The system only covers injuries at the workplace or injuries related to workplace activity. If a worker injures his or her back over the weekend while doing yard work he or she is not covered, even though the injury may cost time from the job. The extension of workers' compensation into the full life of the worker and into caring for the family as a whole has been under study by many. In 1992 four states—Alabama, Georgia, California, and Maine—began to examine ways in which workers' compensation might be added to a health insurance plan for the general population.

In 1999 insurance companies lauded the U.S. Supreme Court's decision in the case of American Manufacturers Mutual v. Sullivan. The 3rd Circuit Court of Appeals in Pennsylvania had determined an aspect of that state's workers' compensation reform legislation, which stated that insurers could suspend payments to medical providers pending review, illegitimate on the grounds that, as "state actors," insurers were bound to afford beneficiaries full constitutional protections, including a notice and a hearing before the suspension of payments. The Supreme Court, however, overturned that ruling, upholding the provisions of Pennsylvania's reforms. Similar laws around the country, both current and prospective, now seem more secure, much to the delight of insurers, who will be afforded greater leverage in assessing the appropriateness of beneficiaries' medical treatments.