DEPARTMENT OF LABOR REPORT

BACKGROUND

In October 2015, National Public Radio (NPR) and ProPublica did a report over the differences between the states workers’ compensation laws.  The report found significant differences in the amount and type of benefits in each states workers’ compensation system.  The report focused heavily on recent attempts by states to allow employers to opt-out of workers’ compensation.  These plans generally allow an employer to set-up a benefit system for injured workers themselves.    In particular, it focused on Oklahoma’s opt-out law – a law that was recently struck down by the Oklahoma Supreme Court as unconstitutional.  The report was very damning of these differences and deficiencies between the states’ systems.

The NPR and ProPublica report led to a letter from 10 prominent national legislators to the Secretary of the Department of Labor.  The letter was itself very critical and condemning of the deficiencies reported by NPR and ProPublica.  As a result, on October 5^, 2016 the Department of Labor issued a 43-page report over the state of the patchwork of workers’ compensation laws across the country.

THE REPORT

The Department of Labor report outlines the history of the ‘grand bargain’ that is the workers’ compensation system outlining the reasons behind workers’ compensation and how we ended-up with a patchwork system of laws.  In particular, the report focuses on a national commission report from 1972 that identified 5 basic 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 of delivery of the benefits and services.

This national commission agreed on 19 essential recommendations to accomplish these goals.  The 19 recommendations themselves focused on six specific areas:

1. compulsory rather than elective coverage with no exemptions for various employers or types of labor,
2. broadening employee choice for filing claims interstate, either where the injury occurred, or where the employment was originated,
3. full coverage for work related diseases,
4. adequate weekly wage replacement benefits and death benefits of no less than 100% of the states average weekly wage,
5. no arbitrary limits on the duration of benefits and
6. full medical and rehabilitation benefits without limit or duration.

The report considers the history since 1972, recognizing that employers’ costs and insurance rates grew from 1984 to 1990.  This cost increase created political pressure to change the benefit packages.  The report cites that per $100 of payroll, costs rose to as high as $1.65, but have since dropped to $.98 per $100 of payroll in 2013.  The report goes on and attributes the decreased cost to states passing legislation to reduce the benefit packages to injured workers. In particular, the report cites to various states that have created ‘proof barriers’ to certain types of claims, such as mental impairment claims, and cites to a reduction in benefits for workers with pre-existing injuries or conditions.  The report mentions mechanisms within each state for reduction of indemnity benefit eligibility through application of apportionment, or other fault-based benefit penalties.  There is also reference to disincentives to workers to report a claim, such as drug screening after an accident or injury.  The report is also critical of restricted medical care for injured workers, through either limited medical care provider choices, or reduced reimbursement keeping medical care providers from accepting work injuries.  Finally, the report is critical of the elimination of second injury funds and other ways in which liability for certain injuries or conditions are accepted.

Overall, the Department of Labor report recognizes that some liability for benefits in the workers’ compensation system is being passed on to other programs, including Medicare, Medicaid and Social Security.  This cost shifting to other public aid programs is a primary concern for the Department of Labor.  The report provides a road-map for Federal action in the future in the form of oversight of state workers’ compensation systems, including mandatory minimums of benefits within each system to halt what the report describes as a ‘race to the bottom.’

Of interest, the report tracks each states progress in complying with the 19 core recommendations from the original national commission.  The report shows how each state was doing in 1972, 1980 and 2004.  In 1972 Colorado had complied with 10 of the 19 recommendations and had increased that to 16 of the 19 recommendations by 1980. By 2004, Colorado compliance had dropped, as is the case with most states, to 12.75.  In 2004 no state had met all 19 recommendations.

BOTTOM LINE

The report tacitly recognizes that the Obama administration is on its way out.  Regardless, the Department of Labor is clearly interested in the functioning of state workers’ compensation systems and it is doubtful that the upcoming election will change that dynamic.  Further, state interest in an opt-out structure only increases this negative attention.  Several states that have considered opt-out arrangements have dropped these proposals.  Under any circumstance, it is to be expected that there will be continued call for increased Federal oversight over workers’ compensation.