Robin Hood the Tax Man

Almost forty years ago a National Commission reviewed the adequacy of the State workers’ compensation laws and concluded that the patchwork system of providing benefits and medical care to the families of workers injured on the job was woefully inadequate. It proposed adoption of a series of essential national standards to insure that workers’ injuries did not place workers on down escalators leading to poverty.
Instead by the 1980s the states began a reverse auction, bidding away their workers rights and incomes in an illusory effort to attract businesses. This trend by itself would have been disastrous for working families as their benefits and medical care become eroded, however, in recent years many other constituencies have begun raids on the workers compensation system to fund their own profits and programs.
This devolution of workers’ compensation and the rise of the reverse Robin Hood was the subject of a recent conference of the National Academy of Social Insurance in Washington, D.C.
Professor John Burton of Rutgers University began by reviewing the series of legislative and procedural changes that have been inflicted on the system since 1980. He noted that direct reductions in benefits have been coupled with procedural and administrative changes that have had the stealth effect of further tearing gaps in the social net. These include changes in the definition of partial disability and adoption of a junk definition of disability by the American Medical Association, evidentiary changes that require the worker to prove that the sole or predominant cause of their disability was work, and reductions of benefits for preexisting or co-developing conditions. These changes have been combined with rationing of medical care and giving the insurance companies control of medical management.
The corollary of the reductions in benefits, delays and complexities has lead many workers to seek alternative routes to survival including increased use of Medicare and Social Security Disability.
As employers have extracted great wealth from workers, these other plans have begun responding by viewing workers compensation as a general bank that they can use to fund their own programs. Social Security Disability has long had a policy of reducing benefits for workers who are receiving workers compensation, and Medicare has in recent years stepped up efforts to make workers pay for medical care otherwise covered by Medicare by requiring that substantial portions of workers compensation settlements be set aside to pay for medical care.
The net effect of this reverse cost shifting has been to further erode workers financial foundations. While the conference was intended to look at the shifting of the cost of work related injuries on to workers relatively little of the conference was actual dedicated to the personal impact this pernicious process has had on workers.
Examined or not, the impact has been significant. Christine Baker of the California Labor and Workforce Disability Agency, and a number of other speakers, used the 2004 California reduction in benefits as an example of what compensation reform means. The California legislation drastically limited benefits for both total and partial disability. Total disability was artificially limited to two years in the first five years following the injury, and partial disability benefits were reduced dramatically.
The reduction in partial disability income was accomplished in part by semantic changes in which the actual impact of the injury on wages was disregarded. Wage loss was instead redefined and replaced by artificial ratings set by the American Medical Association. These ratings were subsequently further reduced by a revised definition based on junk and quasi science. Ms. Baker noted that the result has been a 35% reduction in wage replacement payment to workers, and a transfer of $13.7 billion a year from workers to employers and insurers.
However none of the speakers discussed the actual impact this loss of income had on workers or the state economy. Instead most speakers referred to this as a reduction in employer costs, instead of a reduction in workers income.
Tom Rankin, former President of the California Labor Federation suggested that this loss to workers was perhaps an unintended consequence of the reforms. This assertion was refuted by Doug Kim of the California Applicants Attorneys Association who noted that the intended purpose of reductions is to reduce benefits, and it was thus reasonable to assume that the consequences were intended.
Different views of the reforms were offered by a number of employers and industry spokes persons, who suggested that they were preparing to re-sharpen the knife to seek further reduction in benefits.
Other speakers noted that estimates of the actual impact of work related injuries were underestimated. The recent GAO study showing that work related injuries are vastly under reported by employers and physicians was cited by a number of speakers. Another academician reviewed the impact of injuries on earnings and noted that preliminary research indicated that even seemingly minor injuries, which result in as little as a week of work at the time of the injury, might have significant long term impacts, and may double the proportion of workers who eventually go on social security disability decades latter.
The moral of the conference was that while workers compensation appears to be doing an increasingly poor job of protecting workers incomes, there are many who do not seem to care, or worse see workers benefits as a form of Troubled Asset Relief Program that can be used to fund other programs, or increase profits.
Prof Burton concluded his remarks by noting that improvement in workers benefits did not seem likely to happen soon, and suggested that perhaps the Medicare Secondary Payer Act should be expanded to include indemnity benefits. No details were provided as to how such an enhanced social security off set would work, but the Social Security Administration last year proposed amendments to the act, which would significantly affect workers. Under the proposal Social Security disability benefits would be reduced across the board by an amount equal to the lesser of the worker’s monthly workers compensation benefit or 31% of the families social security disability benefit. The revised offset would end after 60 months.
While many of the speakers reported on research relating to systemic reductions in benefit levels, they acknowledged that little of that research investigated the impact of cuts on families or states’ economies. The reductions in benefit payments in California alone are the equivalent to the loss of over 300,000 jobs. This has likely exacerbated the number of bankruptcies and foreclosures in the state. Further reductions in Medicare and Social Security benefits are only likely to aggravate the pain, both to workers and the economy in general.