Increase Benefits in 3 Simple Ways

Monday, January 19, 2015 | 0

Some states try to severely constrict workers’ compensation claims. Oklahoma decided to exclude from coverage any injury that was “foreseeable.” Any safety professional with a good grasp of her subject will say that most work injuries are quite foreseeable in that they can be statistically predicted based on mountains of OSHA and corporate injury data. 

Injury rates are decreasing. Employer and insurer controls over what happens after injury, in treatment and benefit payments, are increasing.

Is any state legislature ready to consider the 180-degree opposite of cutting benefits, which is to increase them? Let’s stick with benefit increases that are easy to understand, meet a layperson’s sense of fairness and probably bring few unintended consequences. 

Terry Bogyo, an independent researcher, speaker and consultant on workers' compensation and occupational safety and health matters, has zeroed in on what he sees as some attractive opportunities that he thinks should have been seized 40 years ago.  

Bogyo found them in the 1972 report by the National Commission on State Workmen’s Compensation Laws.

Revealingly, alternative benefit plans of Texas employers who opt out usually have introduced the changes that Bogyo recommends. In other words, where employers had a choice, they increased benefits.

Waiting Periods

State workers’ compensation systems have waiting periods for the first indemnity payment to kick in. Drawing upon Bogyo’s analysis of current laws (which I do throughout this column), the median waiting period in the United States is five days; the median among Canadian provinces is zero (all but three provinces have no waiting period at all). Using medians, one has to wait five days on disability to have the wait period paid for in the United States and for zero days among our northern neighbors.

Waiting periods were apparently justified on two grounds. First, they took into account built-in delays in reporting and response. This rationale probably had merit 90 years ago but is questionable today. A worksite incident report and claims report can be submitted electronically within minutes.

The second rationale is to discourage frivolous claims. Here, too, time and progress have shattered the argument. Corporate safety and health information systems today promote close tracking of all incidents. The Gartner Group, in a recent review of these systems, describes the safety functions as “tracking safety incidents, managing observations, performing safety audits and initiating corrective actions.”

Another species of software systems, risk management information systems, enables employers to track all incidents, even an individual’s incident and claiming history over years.   

The commission wrote in 1972 that waiting periods of more than three days were “inequitable.” It urged that retroactive payment commence no later than two days after the close of the waiting period.

Wage Replacement

Disability benefit programs almost always sets the beneficiary’s income replacement check by formula. The governing idea is to make sure that the worker is paid less than he is paid while working but not impose hardship or inequity. The conventional method was created in an era of data scarcity. Today’s rich databases on employment and wages can produce fairer benefits, per Bogyo.

All American states set the wage replacement rate as a tax-free percentage of the injured worker’s gross pre-injury wage. The 1972 commission discovered replacement rates as low as 30%. It recommended that states abandon the percentage of gross wage formula and set the benefit as a percentage, at least 80%, of the worker’s disposable income after taxes and estimated housing and food costs.

Bogyo agrees with the commission. It explicitly focuses on protecting the injured worker’s cash on hand for daily living. There is no simple way to predict how the two systems compare. Very roughly 66 2/3rds of gross wages tax-free is around 80% to 90% of spendable income, after taxes. Canadian systems typically pay 85% to 90% of net income (spendable after taxes).

Cap on Wage Replacement Benefits

All states impose a maximum cap on weekly wage replacement benefits. The median is set at $803.

The reasoning for this cap has always seemed to me a mystery. Bogyo unearthed its origins. When workers’ compensation systems were created, the compensation of workers was at a very different scale as compensation for managers. The statute drafters wanted to launch a system focused exclusively on workers, the ones who predictably were in harm’s way of injury, day after day. The progressive vision seemed compelling and economically disciplined. One way to remove managers from the beneficiary pool was to put a weekly cap on benefits.

Again, we have a benefit oddity for our time. The 1972 commission recommended that states put the cap at 200% of the state’s average weekly wage. But, why have a cap at all? The province of Manitoba has done away with it.

A fresh argument for a cap can be made. Very highly compensated workers, such as $600-an-hour lawyers, typically incur extremely low injury risk. Without a cap, insurance premiums would be higher only to compensate for the rare, idiosyncratic misfortune of the well to do. 

Bogyo prefers a cap that is a percentile of wages in a state. A 90th percentile cap would be an amount equal to the wage of the 90th highest paid worker in the state. Modern data systems can compute that in an instant.

Why not make workers’ compensation more equitable?