Dr. Richard Victor on the Workers' Compensation System's Elephant in the Room (Podcast Transcript)

Dr. Richard Victor on the Workers' Compensation System's Elephant in the Room (Podcast Transcript)

Note: This transcript of the Dr. Victor podcast has been partially edited.

Elephant Will Work For Peanuts

Steve Berstler: On this edition, Dr. Richard Victor, Executive Director of the Workers' Compensation Research Institute on the workers’ compensation systems Elephant in the Room.

The opinions expressed by guests interviewed on LexisNexis legal podcasts do not necessarily reflect those of Reed Elsevier, Incorporated, LexisNexis and subsidiary companies, shareholders, employees or customers, and should not be considered legal advice.

Dr. Richard Victor has been the Executive Director of the Workers' Compensation Research Institute since its inception in 1983. The institute, located in Cambridge, Massachusetts, is an independent not for profit research organization providing high-quality objective information about public policy issues involving Workers' Compensation systems. Dr. Victor is the author of numerous books and articles on Workers' Compensation issues.

Prior to working at the institute Dr. Victor spent seven years conducting research at the Rand Corporation in both Washington DC and Santa Monica, California. At Rand he was principal researcher at the institute for civil justice. Dr. Victor received his J.D. and a Ph.D. in economics at the University of Michigan where he was the George Humphrey Fellow in Law and Economic Policy.

Dr. Victor, it's a pleasure to have you with us.

Dr. Victor: It is a pleasure to be with you.

Berstler: At a recent Workers' Compensation Research Institute Conference, you did a presentation where you talked about The Elephant in the Room. What are you referring to?

Dr. Victor: I was referring to the impact of the disruption – unprecedented disruption – of the U.S. Labor Market on where workers’ compensation systems may be headed.

Berstler: What was the origin of this?

Dr. Victor: The disruption has its roots in The Great Recession, and what I call the not so great recovery.

Berstler: And you had some rather interesting numbers in that presentation.

Dr. Victor: As of this summer, we are down 6 million jobs. And since the beginning of The Great Recession, we needed to create another 7 million jobs in order to absorb new entrance into the labor market. So we are down 13 million jobs.

Berstler: What is it going to take to recover from all of this?

Dr. Victor: It will take time. That's really the problem.

Berstler: Why do you say that?

Dr. Victor: It will take time because we have to close the gap created by this large drop in demand for many, many things. And that gap is large enough that growth in gross domestic product will need to be 3 percent a year in order to close that gap and go back to normal by a decade from now.

Berstler: So what does it mean as far as return to work opportunities for injured employees?

Dr. Victor: More and more workers will be unable to go back to their preinjury employment, and they will have more limited opportunities than in the past to find new employment.

Berstler: Well, this unprecedented disruption of the labor market, as you call it, probably brings some big Workers' Compensation questions into play, does it not?

Dr. Victor: Absolutely.

Berstler: The payroll perspective‑‑

Dr. Victor: …the perspective of the injured worker who worries about what's next and the perspective of public officials who are trying to find a balance in the design of Workers' Compensation systems that effectively balance the outcomes for workers and the cost to employers.

Berstler: Talk a little about the payor perspective first. How do payors predict and then reserve for the impact on their costs?

Dr. Victor: Most mathematical models look into the rearview mirror and use historical data to predict what will happen in the future. Unfortunately, the recent past is not a very good guide to the future that is in front of us and upon us. For example, we have 6 million workers today who have been out of work for more than 6 months; normally we have a million. We have 7 million workers who are working part time but they want full time jobs. Normally we have 3 to 4 million. So for an injured worker who gets hurt, they are likely to have fewer opportunities to return to work and much, much more competition. Our estimates are there are currently 25 million workers who would like to have the 3 and a half million jobs that are currently available. So what that means for payors – since that is an unprecedented disruption of the labor market – what it means for payors is, if they use the relationships for forecasting and setting reserves, they will be underestimating what their costs will be. The duration of workers' time away from work, hence, the benefits they will expect to receive, is likely to be significantly higher.

Berstler: And how are added costs mitigated?

Dr. Victor: One of the problems with this kind of a disruption is, at a macro level, only growth produces a solution. Even rapid growth will still take a long time to absorb all the excess capacity we have in the labor market and in other areas. So some of it is to be able to recognize that you need to take those extra costs into account. And some of it is to think outside the box about how to help workers get back to work when the opportunities are more limited. And it's helping workers be more competitive in a much more competitive environment. It's not an easy problem.

Berstler: Does it mean there could be more litigation down the road over these issues?

Dr. Victor: It will raise a number of issues that have been dormant in Workers' Compensation systems. For example, what does it mean to continue to pay benefits to injured workers when you can't tell in reality whether or not the reason the person is away from work is because of their injury, or it's been transformed to regular unemployment, that the person's capable of going back to work, but there is just no job available? It's not hard for that to be murky. That's an area that is more likely to find itself being litigated, and depending upon each state's system's methods of resolving those disputes, the outcomes may seem more or less equitable, more or less efficient. If it's perceived in an environment where jobs are very scarce to be inequitable or inefficient, then there is an opportunity for some stakeholders to say we need to rethink some of the rules.

Berstler: Are there some states that are more vulnerable than others to larger cost increases?

Dr. Victor: There are some states, a relative handful, but some important states, where the weekly benefit is based on ongoing wage loss experienced by the injured worker. States like Massachusetts, Louisiana, Michigan, Pennsylvania are examples of those.

Berstler: As far as the worker's perspective is concerned, is there one overarching question from the worker's perspective?

Dr. Victor: If you put yourself in the shoes of a worker who is 55 years old, suffers a workplace injury, is unable to go back to work for several months, and the employer is downsizing, and so, the opportunities to go back to work are pretty limited, and the opportunities to find new employment are pretty limited for that worker especially. I think the questions are, how do I take care of myself and my family? How do I hold onto the Workers' Compensation benefits that I currently have? Are there public safety net programs that can help me? If I were a unionized construction worker, should I hold out for another well-paying job or should I take a lower paying job? Or should I retire? If I'm offered a lump-sum settlement, should I take that lump-sum settlement or would I be better off holding on to my weekly payments since I can't predict the future as well as I might have a few years ago.

Berstler: I imagine the answer to that probably depends on which state you're in. The rules – the systems – vary from state to state.

Dr. Victor: Exactly. For the same reasons, some of the rules of the systems which were designed for normal times may be seen as either inefficient or inequitable in times where so many people are looking to acquire so few jobs.

Berstler: As far as public policy perspective's concerned, have you seen any indication that systems are being looked at for possible changes?

Dr. Victor: Not yet. At least not in a recession-sensitive context. Return to work has always been an important issue. And a handful of states have tried to think outside the box. But I believe a lot more out of the box thinking will need to be engaged. And the traditional approaches tend to be, let's create some black and white solutions, things that have been done in the past, which have been largely repealed because they didn't work well, or let's mandate all workers who want it can get vocational rehabilitation. So mandates of additional services are not necessarily the best way to approach this. I think the best way to approach this is to incent the payors, figure out how they can create a win-win for themselves and the workers by tailoring to each individual worker what is the best strategy to help them compete better in the labor market.

Berstler: You concluded by saying that even an angry elephant can be tamed if you come prepared. What would you suggest to practitioners as far as being prepared?

Dr. Victor: Well, to payors, I think preparation is the focus on two things. One is, how do I more accurately predict what the costs are going to be so I can reserve and price my product. The second is to focus on some out of the box kinds of programs, to help the injured workers that you are insuring for, to have some better advantage in competing for those scarce jobs. For worker advocates and for injured workers, I would say do whatever you can to get back to work as quickly as you can, try to keep the lines of communication open with your employer, so you have a better shot of returning to your pre-injury job or some other job at that employer. As soon as that employment relationship is fractured, the odds of the worker going back to work drops significantly. For public officials, my suggestion would be to start experimenting, since you cannot know in this unprecedented environment exactly what will work well. Doing some pilot projects is probably the best way to be prepared.

Berstler: In the meantime, what do you see happening down the road, the next year, the next two years, five years?

Dr. Victor: I think slow choppy periods of economic growth. Slow, very slow return to whatever a new normal is, and just a lot of people falling short of their expectations for what their labor market successes are going to be. Is that depressing enough?

Berstler: You certainly created some buzz in the blogosphere regarding all of this. How does it make you feel?

Dr. Victor: Well, I've always believed stimulating people to think about new ideas is a good thing. Stimulating innovation would be a better thing.

Berstler: I think that's a good way to conclude. Dr. Richard Victor, Executive Director of the Workers' Compensation Research Institute, thank you so very much for your time. It's been a pleasure having you with us on this LexisNexis legal podcast.

Dr. Victor: It's been my pleasure.

Berstler: Thank you for listening to this LexisNexis legal podcast. Visit the LexisNexis communities at LexisNexis.com/community, on Facebook, and follow them on Twitter. The LexisNexis Workers' Compensation Law Community Podcast, copyright 2011 by LexisNexis, a division of Reed Elsevier, Incorporated. This is Steve Berstler. Thank you for listening.

© Copyright 2011 LexisNexis. All rights reserved.