- Paul TerrellPaul TerrellUniversity of California, Berkeley, Emeritus
Workers' Compensation is a form of social insurance financed and administered by each of the 50 states, the federal government (for federal workers), and the District of Columbia that protects workers and their families from some of the economic consequences of workplace-related accidents and illnesses.
Workers' Compensation (formerly known as Workman's Compensation), the earliest social insurance program enacted in the United States, protects workers who are injured on the job or who suffer job-related illnesses. The federal government established a Workers' Compensation program for its own employees in 1908. Starting in 1911, the individual states, with Wisconsin in the lead, inaugurated their own programs. Workers' Compensation spread broadly during the Progressive Era, with relatively little opposition since it served both business and labor interests. Employer support was widespread because the program standardized their illness and injury obligations. Instead of an unpredictable court system, in which a worker's claim and a sympathetic jury might elicit exceedingly large financial awards, Workers' Compensation created predictable costs, procedures, and awards. For employees, Workers' Compensation provided guaranteed protection—automatic help when one could not continue on the job because of injury or illness.
Work Injury and Illness
While workplace safety has improved considerably in the century since Workers' Compensation was initiated, a significant number of American worker's are still injured on the job annually; an additional number suffer work-related illnesses. These injuries run the gamut from lethal industrial accidents to injuries causing permanent disability (such as spinal cord injury) to chronic stress-related disorders (such as carpel tunnel syndrome) to minor scrapes and burns. Workers' Compensation covers the injury spectrum, modest or severe, temporary or permanent.
At one end of the continuum, Workers' Compensation—and other programs—provides monetary help to the spouses and dependent children of individuals who die on the job. About 6,000 workers are killed on the job annually and claims for compensation are filed for most. After 9/11/2001 for example, over 2,200 claims were made on behalf of surviving family members with an additional 3,400 claims from injured workers themselves. In addition to fatal accidents, nearly 60,000 workers, and former workers, die annually as a result of job-related diseases such as asbestosis and black lung disease.
Most Workers' Compensation claims, however, result from workplace accidents, the number of which has significantly declined since 1990 as a result of changing workplace conditions and greater employer and employee attention to safety. The leading cause of injuries—sprains and strains—account for 44% of all accidents. The remaining injuries—cuts, bruises, puncture and the like—are generally minor, usually requiring no time or just a few days off work. All told, 4.4 million injuries were reported in 2003, the equivalent of 5 cases per 100 workers.
Eligibility, Coverage and Benefits
Workers' Compensation provides automatic, non-means tested protection to over 127 million workers —90% of the workforce—annually. The 10% or so of the workforce excluded work in states that do not cover employees in agriculture, domestic service, firms with fewer than 5 employees, and nonprofit organizations. Three types of compensation are provided—cash benefits, medical benefits, and rehabilitation services. In 2003, $54.9 billion was provided in benefits. Although most claims were for medical expenses, the bulk of program spending is in the form of income-replacement payments.
From the start, the primary objective of Workers' Compensation was to fairly compensate workers for lost wages. While benefit “adequacy” is the ostensible goal, actual wage replacement formulas vary considerably from state to state, and typically vary according to whether payments are for temporary or permanent disability. In the case of temporary disability, payments average about two-thirds of pretax wages, a level that policymakers in most states have come to see as fair to workers without providing a disincentive to returning to work. Most states also set “floors” and “ceilings” on compensation, so state-by-state variations are significant. In 2006, for example, the maximum weekly benefit in Iowa was $1133, and just $351 in Mississippi.
Administration and Finance
Workers' Compensation is designed and operated by the states and, like other state programs, vary significantly by jurisdiction. They vary, for example, in terms of benefit levels, especially wage-replacement levels, the contingencies covered, the remedies for employer or employee appeals, and the balance between private and public involvement.
In all cases, however, Workers' Compensation is employer-funded. Most states require employers to purchase Workers' Compensation insurance policies, either from commercial firms or from a state Workers' Compensation fund. As with other forms of business insurance, premiums vary with industry classifications—the basis for assessing the degree of employee risk and the associated premium costs. In some states, individual employers are also “experience rated,” meaning that their premiums reflect the number and types of claims made against them in the past. Some companies, particularly large firms, do “self insure,” which means they forego insurance and pay any verified employee claims directly.
Workers' Compensation is an essential element in an extensive and complicated disability compensation system, a system that includes income support, health insurance, and social service components. In medical coverage, Workers' Compensation usually pays the medical costs for initial work-related injuries. Since Medicare does not come into effect until 29 months after the onset of a disabling condition, the “day one” coverage of Workers' Compensation is critical.
Workers' Compensation starts replacing lost income after a short wait period, 3–7 days for temporary disabilities, with employer-provided sick leave, where available, covering the first postaccident days. Temporary disability benefits are critical since Social Security disability insurance is restricted to individuals who have long-term impairments. For those workers who don't qualify for Social Security, Workers' Compensation long-term wage-replacement is available, providing critical safety set benefits. Finally, Workers' Compensation pays benefits to the survivors of workers who die on the job, in conjunction with Social Security survivor insurance. In helping injured workers get back on the job, Workers' Compensation coordinates with vocational rehabilitation programs.
Policy Debates and Trends
While compensation is “no-fault,” with benefits available whether the primary cause of the injury is employee or employer negligence, disagreements about the appropriate remedy for a worker's claim for compensation often occur. One area of contention is whether an injury is, in fact, work related. Psychiatric and substance abuse conditions, for example, create dilemmas—they are covered in some states, but not in others. Controversy also surrounds carpel tunnel syndrome; some argue this as a disability that is more an “ordinary disease of life” than one strictly work related. In situations where an injury claim reflects workplace conditions in combination with other circumstances, an administrative law judge typically resolves the issues in dispute.
The contentious issues surrounding Workers' Compensation reflect the perspectives and interests of the program's primary stakeholders such as unions, insurance carriers, employer organizations, and state regulatory and administrative agencies. In recent years, much of the debate has concerned costs, which rapidly rose in the 1990s. Reflecting what many in the business community interpreted as workers “gaming the system,” many states enacted significant program changes in the decade from 1996 to 2006. Several experimented with cost containment reforms, such as deregulating insurance markets, encouraging competition, and giving carriers greater leeway in rate setting and procedures. A few states created public insurance funds to compete with private insurance firms, while others facilitated self-insurance by individual firms, or groups of firms. In California, the Republican Governor, Arnold Schwarzenegger, reduced program costs substantially by placing a cap on temporary disability payments and the use of chiropractors and physical therapists, requiring workers to choose their health care from a restricted HMO-type panel of providers, and requiring the use of generic drugs.
Unions have their own concerns. A long-term complaint has addressed dangerous work conditions, lax safety regulation, and business-friendly Workers' Compensation procedures that often shortchange or delay or inappropriately deny employee benefits. And given the fact that the value of worker benefits have been cut by nearly a third in recent years, unions have been demanding automatic cost-of-living adjustments in cash benefit levels as well as more clearly identified rights for injured workers.
- Clayton, A. (2003–2004). Workers' compensation: A background for social security professionals. Social Security Bulletin, 65(4), 7–15.
- National Academy of Social Insurance. (2005, July). Workers' compensation: Benefits, coverage, and costs, 2003. Washington, DC: Author.
- National Academy of Social Insurance. (n.d.). Fact sheet: Workers' compensation pays benefits in wake of september 11th attacks. Washington, DC: Author.
- Reno, V., Williams, C. T., & Sengupta, I. (2003–2004). Workers' compensation, social security disability insurance, and the offset: A fact sheet. Social Security Bulletin, 65(4), 3–6.
- Thomason, T., Schmidle, T. P., & Burton, J. F., Jr. (2000). Workers' compensation—Benefits, costs, and safety under alternative insurance arrangements. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.