Experts Debate Need for Federal Standards to Guide Workers’ Compensation Systems

Experts Debate Need for Federal Standards to Guide Workers’ Compensation Systems

In the Spring 2012 edition of the IAIABC Journal, John F. Burton, Jr. J.D., Ph.D., Gregory Krohm, Ph.D., and Douglas J. Holmes, J.D. participated in a roundtable discussion of topics that included the relationship between the federal Social Security Disability (SSDI) program and state workers’ compensation systems. Much of the discussion revolved around Burton advocating federal standards (i.e., guidelines, and not outright federalization) for workers’ compensation, and Krohm and Holmes supporting the current decentralized system.

Effect of  Workers’ Compensation Reforms on Benefits Levels

Burton stated that he and Krohm agreed that workers’ compensation benefits and cost “as a percent of payroll peaked in the early 1990s and subsequently substantially declined.” The agreement extended to attributing the developments in the 1990s to both high workers’ compensation expenses for employers and financial difficulties that private insurance companies (insurers) experienced.

How changes in workers’ compensation laws have impacted access to workers’ compensation benefits was a point of disagreement. The conflict related to Krohm determining that “these isolated law changes produced only a small change in the overall volume of workers’ compensation claims in the country” and Burton referring to his own research “that found that over 30 percent of the decline in incurred cash benefits during the 1990s were due to statutory and administrative tightening of eligibility standards and to a reduced share of cases providing [permanent partial disability] PPD benefits.”

General Interplay Between Workers’ Compensation and SSDI

Krohm focused on remarks by Burton, which are addressed below, regarding the relationship between SSDI and workers’ compensation benefits. Krohm acknowledged that reforms to workers’ compensation laws during the 1990s in response to insurers’ losses “might have increased the [fiscal] burden on SSDI.”

Krohm qualified his statement with the statistic “that the [SSDI] incidence rate dropped nearly every year in the 1990s, when state workers’ compensation laws were being restricted. Then, beginning in 2000, the incidence rate sharply rose.” A more unequivocal declaration regarding that subject was that “I have reviewed several actuarial reports on trends in SSDI and nowhere is workers’ compensation mentioned.”

Holmes stated that “there is no study by John [Burton] or any other researcher that concludes that changes in SSDI application rates are statistically ‘caused’ by changes in WC programs. There is not even a study upon which one could reasonably conclude that there is a statistical correlation.” A related observation was that “the WC programs are generally limited in scope to serve individuals who become disabled in the scope of employment due to accidents or illness arising from employment. SSDI is not limited to disabilities in the course of employment or arising from employment.”

Using ‘Reverse Offset’ to Shift Burden Between Workers’ Compensation and SSDI

Burton agreed with Holmes that abolishing the “reverse offset” provision in state laws that reduced workers’ compensation benefits “if the combined total of workers’ compensation and SSDI benefits exceed 80 percent of the workers’ earnings prior to disability” would increase the workers’ compensation costs in those states. Alternatives for offset rules were reducing either workers’ compensation or SSDI benefits to reduce total benefits to the 80-percent amount.

Burton emphasized that “I want to make clear that cost shifting from state workers’ compensation programs to the SSDI programs can occur in all states regardless of which offset rule is  used.”  

A provided example of a possible consequence of cost shifting from workers’ compensation to SSDI regardless of which offset rule was used was that more injured workers might seek SSDI benefits in response to tighter workers’ compensation eligibility requirements. The theory was that the more restrictive standards would discourage pursuing workers’ compensation benefits.

Debate Regarding Relevant Time Period

Holmes and Burton disagreed as well regarding the time period on which federal lawmakers should have focused when analyzing the interplay between state workers’ compensation law and the SSDI program. Holmes determined that workers’ compensation causing a “very small part of the growth in SSDI applications during a period 20 to 40 years ago … is hardly compelling evidence of a need to rush to federal legislative action.”

Conversely, Burton expressed concern “about the effect of changes in the workers’ compensation programs in the last 20 years (1990 to 2011) that may be causing a growth in SSDI applications.” He added that “more fundamental, even if there is no cost shifting from state workers’ compensation programs to the SSDI program, there is a compelling case for federal standards for state workers’ compensation programs because of the serious equity and adequacy problems with the workers’ compensation programs in many states that have become worse in recent decades.” He emphasized that he did not advocate federalization of state workers’ compensation programs.

The distinction between “federalization” and “federal standards” was that federalization involved the federal government playing an active and direct role in state workers’ compensation systems and federal standards merely provided guidelines that those programs would have to follow. Significant differences in the characteristics of states were the common theme for provided reasons for opposing federal standards for guiding workers’ compensation programs.

Commentary by Thomas A. Robinson, J.D., Staff Writer for Larson’s Workers’ Compensation Law

Noting my great respect for the important lifelong work of Dr. Burton, my comments herein are limited to addressing the issues of “federalization” and “federal standards”. I would respectfully argue that many within the workers' compensation community view the imposition of federal "standards" with the same level of dread and disagreement as they do the prospects of any outright federalization of the state programs.  I say that because the important issue isn't who administers the workers' compensation acts; it's who sets the rules and standards.  

For example, a majority of the states have already agreed that the AMA Guides should be utilized in the determination of an injured employee's level of permanent impairment.  Setting a federal standard ought to be easy.  Not so, since there is heated debate about which edition should be used.  How is it that representatives of the federal government are suddenly endowed with the ability to discern what the states vehemently debate?  

Consider other issues, such as apportionment for prior non-employment-related disabilities, the compensability of so-called "mental-mental" claims, the parameters of the "AOE/COE" standard, or the ability of a third party defendant to proceed against the employer for indemnification or contribution.  The states appear to have legitimate differences of opinion.  In each case, which standard is "correct?"  Which standard is "wrong?"  Why does one (or both) of the state standards have to be judged as wrong for the employers and employees within that state's sovereign territory?  How would all the state variations be sorted out?  Would the federal standard generally follow the more "generous" approach?  If so, generous to whom?

Many at the state level view the workers' compensation arena as one of the last remnants of our federal republic.  Administering workers' compensation programs at the state level, utilizing state--not federal--standards allows for experimentation.  It allows for competition.  Legislators, elected by their state's constituents, charged with advancing the interests of the state's citizens, have viewed the competitive advantages held by other states--e.g., a warm, sunny climate, a long beautiful coastline, or large deposits of natural resources--and they have made determinations as to how best to structure the workers' compensation schemes within their state.  Having those decisions second-guessed and trumped by someone or some group within the District of Columbia in a one-size-fits all approach, is difficult for them to swallow. 

© Copyright 2012 LexisNexis. All rights reserved. We thank Thomas A. Robinson, J.D. and John Stahl, Esq. for their contributions to this blog post.

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