The Irrelevancy of Comp

Wednesday, January 5, 2011 | 0

By David J. DePaolo
WorkCompCentral

The two paragraphs below are borrowed from an editorial about general aviation by Rich Davidson in AeroNews Network, published on Tuesday. While the context is aviation, I felt that the general sentiment is applicable to my arguments that follow regarding workers' compensation. So, with due respect to Mr. Davidson, and publisher of Aero-News Network, Jim Campbell, I quote the first two paragraphs of the editorial:

"Every industry, every community, and every organization has its realities that nobody is willing to admit. Oddly enough, these things always have common threads; nearly all of them involve money and time pushed, with near cult fashion, toward faulty projects and marketed heavily as urgent, life saving, or industry changing. More often than not these programs are also claimed as being 'for the children.'

"Meanwhile, in the dark backrooms of each industry, aviation in this case, many well known figures discuss these failures with a cagey unwillingness to openly question the people who've wasted our time and money. And then the next day, when in public, the same people loudly proclaim the positives of the very project they secretly admitted to be a failure just last night. But why would people do this? Perhaps these folks would rather keep their positions, as big frogs in small ponds, than risk their status in the pond by speaking what many would call heresy?"

So, per above, let me commit some heresy: workers' compensation today is irrelevant and should be disposed of and frankly the faster this is done the better off society will be. And yes your current income source (and mine) will either disappear, or will radically change and we're all part of the big frogs problem.

Take a look at what you actually do in the guise of the workers' compensation system do you REALLY add any value to society that can't be achieved by some other, less costly and currently available method? Before you answer that, consider the balance of this editorial.

We all know when and how workers' compensation came into existence at the beginning of the 20th Century, and the important social function work comp played. What most do not understand is that those important social functions no longer exist.

Work comp was necessary at its infancy because there was no health or medical insurance. In fact most people who were injured on the job in those days remained on the job if possible so that they could earn enough money to go see a doctor! These workers understood that if they stopped working not only would they not be able to feed and house their families, but they would not ever be able to get medical treatment - a huge paradox that the original work comp laws sought to rectify.

There was no such thing as medical insurance back then; starting in the 1920s smart physicians started offering pre-paid services through hospitals. This led to the creation of the "Blues" (Blue Shield, Blue Cross) in the 1930s and there was no altruism involved in this move; the original intent was to reduce price competition among hospitals by allowing the patient a choice of doctors and hospitals.

The "Blues" were "nonprofit," which exempted them from onerous regulation, but the regulators caught up and following an explosion in the health market in the 1940s medical "insurance" became viable; not just pre-paid services, but a more traditional spreading of the risk among a general population as insurance is designed to do.

In 1943 an administrative tax ruling issued that employer contributions to medical insurance was not taxable as employee income. This precipitated a huge boom in the medical insurance market, and along with a major demographic shift from farms to urban settings, created what we now understand as the "health" or medical insurance market.

Medicare and Medicaid added to the frenzy when passed by Congress in 1965. These two programs were never intended to become the behemoth programs that they are today, but demographics, politics and social expectations conspired to create one of the largest and most pervasive federal bureaucracies in existence.

Workers' compensation ran a parallel course, providing medical coverage to workers who did not have medical insurance (because none existed), then providing an income source for workers to support their families while recovering from injuries, and now, providing nearly universal treatment and indemnity IF found to be applicable (i.e. AOE/COE).

But the laws have shifted in response to societal changes and political tinkering that have served only to increase the complexity of workers' compensation and thwart the original intent of this system, all the while increasing costs to government, business and ultimately the injured worker.

And why? Why does an employer have to pay for two different kinds of medical insurance, one that has repeatedly demonstrated to be less efficient in the delivery of care than the other? Why does an employee have to worry about where his or her medical care is coming from or who is responsible for the payment? If an injury is deemed not "compensable" and there is negligence on the part of the employer, then doesn't the employer's "bargained for exchange" become meaningless? Why is there constant negotiations on the pricing of medical services and such disparity between work comp medical and general health?

There are a host more questions related to this debate, but I'm trying your patience ... I have never heard one good argument in my 27 years in this industry why workers' compensation needs to exist anymore - not one.

Some may argue that workers' compensation is necessary because it delivers one component that is not available under any other program: indemnity. But as study after study has demonstrated, tying indemnity to medical only promotes disability and provides incentive to not work, or be productive.

And insurance companies do what they do best: take money in the form of premiums with a smile and a handshake, the promise of "protection", only to deny claims when one arises.

All through the years workers' compensation has become so complex that it is impossible to navigate by the unknowing injured worker without the assistance of a legal expert and these experts have incentive to ensure their clients are as disabled as possible through perverse laws that were originally intended to protect the injured worker. How arcane, how backwards, is that?

And the legislatures and courts of this great land continue to chip away at workers' compensation, creating exceptions to coverage and liability to such an extent that many times workers simply are NOT covered by the very insurance that is supposed to.

For instance, the Supreme Court of Oregon on Dec. 9 took the concept of workers' compensation irrelevancy one step further by concluding that degenerative disc disease is essentially arthritis for which no benefits are covered under Oregon's workers' compensation laws (Hopkins v. SAIF 12/09/2010).

Many states have workers' compensation laws that provide there is no employer liability if work is not the predominant cause of the injury, or at least a major contributing cause. Not only do such ridiculous laws contribute to litigation, but ultimately may leave the employer open to civil liability -  great insurance, huh!

To add to the perversity that is the current workers' compensation morass, employers saddled with high workers' compensation insurance premiums see the Oregon decision as a just and fair result: after all, why should an employer pay for some employee's pre-existing or underlying disease/injury process, something that the job did not contribute to, or at least minimally contributed to? Isn't workers' compensation, after all, to provide recompense for WORK injuries?

And perhaps that's true if that's what the voters think it should be assuming they and their legislators have even a vague idea of what the consequences are. But this might be a short-sighted view of workers' compensation, or just evidence of a shift in social attitudes and towards workers' compensation irrelevancy.

Another example of the increasing irrelevancy of workers' compensation is the recent Congressional passage of the James Zadroga 9/11 Health and Compensation Act. The legislation sets aside $1.8 billion for first responders injured, diseased or killed in the aftermath of 09/11, and $2.5 billion to reopen the Victims Compensation Fund (VCF).

No question these brave first responders did a great service to New York and this country by putting themselves in harms way to take care of a dire emergency situation; likewise the victims of 09/11 had no choice in their deaths or disabilities as a consequence of a terrorist attack. But nearly every single person covered by these funds were at work, and presumably would qualify for, and did receive, workers' compensation benefits. So why are they entitled to greater amounts of compensation than the average worker who might have been exposed to carcinogens in the aftermath of the Twin Towers collapse due to the proximity of the work place to the hazardous environment? Or twisted an ankle running away from the disaster? Or had a heart attack in response to the stress and anxiety of the attack? What is the relevancy of workers' compensation if segments of the population are going to get special treatment because of some exceptional circumstances?

And now the GOP has made headlines by declaring war on "ObamaCare" without offering any viable alternative at all. You may not like "ObamaCare" but it is ONE step and an attempt at dealing with the insanity that is our public health care system. Unfortunately over the course of 70 or so years financial interests in medical care have become so entrenched that any threat to status quo will be severely challenged. In the case of workers' compensation these financial interest have been entrenched for much longer and may be even more vociferous against change.

In my opinion "ObamaCare" didn't go far enough. Congress should have provided more robust exemption from the Employee Retirement Income Security Act (ERISA) for states that elect to go to a single payer system. Intellectually, philosophically, academically, a single payer system makes way too much sense but would create such a cataclysmic shift in entrenched financial interests in both workers' compensation and general health that only heavy-handed strong-arm partisan politics would ever be able to make such a huge policy change.

But in the end, guess who's paying for the general health insurance policy? The same people that are paying for workers' compensation. How much of the employer population is willing to stand up and say, "enough"? I argue that ultimately, there will be a large and vociferous employer population seeking an end to this madness.

We as a society need to take a deep look inside and decide what we want. Do we want endless, maddening, valueless regulation and duplicity of financial expense, or do we want to cover our asses with protection against both financial and medical ruin?

As things stand now, we are all doomed to serve an industry that makes little sense in today's society and if we don't come up with answers now, someone else will later on and those entrenched financial interests may get buried, or more likely, will bury all of us with their dirt as they dig out.

So there you have it I have spoken my heresy. Is the answer to simply get rid of work comp? No, not necessarily - the answer is for all of us to examine why we are here and to openly debate our place in modern society. Until we are willing to admit that we, as an industry, are duplicitous, inefficient, and ultimately hypocrites, then this industry and indeed America is doomed to mediocrity to be supplanted by a more competitive, versatile and relevant economy.

In future editorials I will argue the fundamental change work comp should undergo; not "reform" but a wholesale revisiting of the very reason for work comp in the first place. I don't have all the answers, but I have a big vision - perhaps smarter people than I can fill in the details.

David DePaolo is the founder and chief executive officer of WorkCompCentral.