State of the States: The Department of Labor's Review of State Worker's Compensation Systems (Part I)

State of the States: The Department of Labor's Review of State Worker's Compensation Systems (Part I)

A recent report from the US Department of Labor reviews the current state of worker's compensation laws through the country and has found them wanting. The October 2016 DOL report begins with a brief history of worker's compensation in the US, and then moves its focus to a 1972 report from the National Commission on State Workmen's Compensation Laws, created in the wake of the enactment of the Occupational Health and Safety Act in 1970. It then discusses changes in the immediate aftermath of the 1972 report, followed by an extensive discussion of perceived regression in compliance with the recommendations of the National Commission's report during the most recent decade. The new report concludes with recommendations for action moving forward that echo many of the recommendations from the original 1972 report.

The 1972 National Commission and Its Aftermath
The 1972 National Commission was formed with 18 members drawn from stakeholders throughout the worker's compensation system, including representatives from state worker's compensation agencies, business, labor, insurance carriers, the medical profession, educators and the general public. The Commission was charged with completing a report for Congress by July 1972 after performing a comprehensive study of state worker's compensation laws to determine if the laws "provide an adequate, prompt, and equitable system of compensation."

The Commission first identified five critical objectives for workers' compensation programs: (1) broad coverage of employees and work-related injuries and diseases; (2) substantial protection against interruption of income; (3) provision of sufficient medical care and rehabilitation services; (4) encouragement of safety; and (5) an effective system for delivery of the benefits and services. With these objectives as their starting point, the Commission endorsed 84 specific recommendations, including 19 recommendations it considered "essential" to meet those objectives.

The Commission did not recommend the federalization of worker's compensation, instead recommending it continue to be managed by the individual states. It did, however, recommend that the states be required to meet the 19 essential recommendations, and, it called for Congress to put in place enforcement mechanisms that included imposing fines or requiring employers in non-complying states to carry supplemental coverage if the state failed to meet those 19 essential recommendations within 3 years.

The act authorizing the Commission included a sunset provision that required the Commission to disband 90 days after completing its report. Despite the disbanding of the Commission – and presumably due to then-existing fear of federal intervention – many states implemented changes to their worker's compensation programs to more closely meet the 19 essential recommendations of the Commission in the years immediately following the report, particularly through the 1970s. Ultimately, Congress did not, however, adopt the Commission's unanimous recommendations to require the state systems to be in full compliance.

Lacking the force of Congressional action, the new DOL report notes a marked waning in state interest in compliance with the Commission's recommendations, particularly after 1980. In both 1980 and 2004, the Department evaluated the states' compliance with the National Committee's recommendations, but lacked any authority to act on the findings. While there was notably increased compliance between the original 1972 report and 1980, the DOL report notes fairly minimal changes between 1980 and 2004. In the absence of federal action to provide impetus to comply with the 19 essential recommendations, further compliance largely stagnated after 1980.

Key Changes Over the Past Decade
The DOL report voices concern with developments since 2004, noting while change was minimal between 1980 and 2004, post-2004 there seems to be evidence of markedly reduced adherence to the 19 essential recommendations. The DOL has not done any further follow-up studies after 2004 due to budget cuts ending the program, thus the report's conclusions are based on studies by other entities.

The DOL mainly relies on a 2015 report jointly authored by NPR and ProPublica, noting that 33 states have either directly reduced benefits or made it more difficult for workers to qualify for benefits. The DOL report identifies a number of key changes that it indicates are emblematic of the shift in worker's compensation in the past decade or so.

The first change is an increase in exclusionary standards that have reportedly resulted in an increase in the denial of claims. In particular it references higher standards for causation, especially in pre-existing condition cases, leading to exclusions of claims that would have previously been approved. Changing the causation standard to require that the work be a "major contributing cause" (or similar language) means that workers with preexisting disabilities have a higher hurdle to overcome. Given the human body's tendency to slowly "wear out," the report asserts that this higher hurdle is particularly problematic for older workers. Other related examples include specific statutory exclusions of certain types of claims (typically occupational disease or mental stress) and of claims by undocumented workers.

Another change is the decreasing adequacy of cash benefits. Some states have enacted arbitrary limits or shortened limits on the number of weeks that temporary total disability is payable on a claim. Others, like Wisconsin with its recent revisions, have put in place standards which require physicians to apportion the amount of impairment or disability between work and non-work factors, thereby reducing permanent disability benefits. Permanent total disability claims have been similarly affected, with some states enacting reductions in benefit periods including cessation of benefits at retirement age.

The DOL report also cites the growth of policies and programs that discourage the reporting of injuries as a notable change. Per the report, the institution of policies for post-injury drug testing – while admirable for a deterrent for illicit drug use – may have the effect of discouraging employees from filing claims for fear of termination. Similarly, the report notes that the spike in surveillance usage and the related stigmatization for suggesting an employee is faking an injury is likewise discouraging claim filing.

A further change is restriction on medical care for injured workers. The report points to the enactment of fee schedules with lower reimbursement schedules and various administrative review processes as decreasing worker choice as the pool of physicians willing to treat injured workers is decreased by these policies. More pointed examples of such restrictions are policies that provide for employer choice rather than worker choice for selection of physicians, or policies that limit the number of physician or therapy visits or which cap the duration of medical coverage.

One of the more significant changes is the imposition of new evidentiary and procedural rules that create a variety of barriers to workers who file claims. The DOL report cites changes to the burden of proof as a notable concern; whereas the historical rule allowed that "all things being equal" meant the benefit was given to the worker, new standards requiring a preponderance of the evidence or even clear and convincing evidence set the bar on claims substantially higher than have historically been the case. Concurrent with these changes is the increased complexity of the system which affects physicians' already-limited interest in getting involved in claims, and also leads to an increased need for attorneys given the higher burdens of proof and overall complexity of the litigation. On the issue of attorneys, the report notes that caps on attorney fees or other fee restrictions could decrease both the quantity and quality of the attorneys who represent workers for their claims. Finally, the report points to an increase in the use of complete settlements (such as full and final compromises in Wisconsin) to foreclose future claims including future medical expenses, as further evidence of procedural rules adding barriers to a worker's claim.

The elimination of second injury and other special funds is another change noted in the study. Second injury and other related funds are often "patches" for holes in the system to provide benefits in certain cases where the statutes of limitations eliminated eligibility for certain benefits or for employers who are not covered by worker's compensation insurance. The elimination of these patches has meant that more workers have fallen out of the worker's compensation system.

The penultimate change cited is the dawning of opt out provisions, in which employers are allowed to opt out of requirements for worker's compensation coverage so long as they implement their own similar system of benefits for injured workers. The DOL report notes that while these provisions require like levels of benefits, the devil is in the details, and many of these plans have limited windows to report injuries, exclusions for certain injuries, notable limitations on physician choice, and other mechanisms that make them largely more favorable to employers than workers.

The final change outlined in the DOL report is the change in the structure of work organizations and classification used by employers. In particular, it notes an increased move to classify certain groups or classes of workers as independent contractors rather than employees, thereby negating coverage for more workers.

In viewing the accumulated effect of these changes, the DOL report takes the position that they represent a significant cost shifting of industrial injuries. First, the cost of work-related injuries are shifting away from employers. It notes that this shift of direct costs has the effect of decreasing the economic incentive to invest in safety. Second, it notes that workers and their families are instead responsible for paying a larger portion of these shifted costs. Third, the DOL report notes that costs are shifted to the larger society. In the absence of coverage via worker's compensation programs, injured workers seek relief of financial stress through other federal programs. Their claims and the costs associated with those claims are shifted to Medicare and Social Security Disability Insurance, both of which are currently subject to high levels of scrutiny with accompanying questions regarding their long-term funding levels and the ability to meet their future obligations. Both programs are funded by general taxpayers, but are specifically targeted toward those who are unable to work due to factors other than industrial injury. The report raises notable concerns regarding the appropriateness of this cost-shifting from employers to employees and their families as well as to the general public.

Part II of this article covers the recommendations of the DOL and offers commentary on same, particularly as the report relates to Wisconsin.