Workers' Compensation Systems Face New Threats

New opt-out systems and the overall reduction of coverage and benefits place more of the risk of injuries and death on workers, while allowing more profit to employers

Workers' Compensation insurance systems have existed for more than a century. In Ohio, as with most states, it is designed to ensure that workers injured on the job have access to medical services and supplemental compensation if they are out of work during their recovery.

The history of workers' compensation

These insurance systems arose out of a desire to do two things. First, they provide benefits for injured workers. These benefits allow an injured worker medical treatment to help them recover from their injuries. If the injuries are sufficiently severe and no amount of surgery, therapy or drugs can undo the damage caused by the workplace accident, they also provide a form of disability compensation.

In addition to the medical aspect of the system, it also provides wage replacement to help the injured worker and his or her family to remain economically solvent during what would otherwise be a financially difficult time for them. With no income coming in, these workers could fall behind on their bills and potentially lose their home and other assets as they are bankrupted by medical expenses and the cost of living.

Employers benefit

The workers' compensation systems are often referred to as "The Great Compromise," because they provide a real benefit for employers. They fix the future. The compromise was that injured workers receive medical treatment and wage compensation, but give up their right to sue employers for compensation in a negligence lawsuit.

Consider a construction company whose employees often work on high, exposed locations. Should they fall and die in the fall due to the employer's negligence that company could be subject to millions of dollars in a damage payout that could bankrupt the business. With workers' compensation, they pay an insurance premium that fixes their costs and eliminates the risk and uncertainty of a lawsuit.

Employers who operate a safe workplace would also receive the free-market benefit of lower insurance costs, just like safe drivers pay lower car insurance premiums.

Opt-out

However, some employers in some states don't like the level playing field created by workers' compensation insurance systems. They want an unfair advantage and they have pushed for what are known as "opt-out" programs. In one state, Oklahoma, a law was passed that allowed employers to opt out of the state program and create their own.

These programs allowed the employers to cut their insurance costs significantly. How did they do this? By making the programs more administratively efficient or by eliminating fraud and waste? No, those solutions all require too much effort and cost, so they adopted a much more direct method.

They cut worker benefits. They also tended to impose restrictions such as reporting any injury before the end of the day, or else any medical issues stemming from that injury are automatically denied coverage.

The system was so detrimental to workers that the state's own Workers' Compensation Commission declared it unconstitutional and a few months later, the state's Supreme Court agreed, also finding the new system unconstitutional.

Cost cutting or plain indifference

While these types of cuts may save individual employers in the short run, they would do untold damage to almost all injured workers subjected to such plans. They represent the worst type of cost shifting, allowing unscrupulous employers to profit, both by underbidding contracts and work from more responsible employers or those who operate under better insurance systems and by lowering their overall costs.

While the employer obtains greater profits, the workers are left with minimal or nonexistence coverage. But worker injuries don't just go away because they lack insurance coverage. These injuries either go untreated or have to be paid out of the employee's pocket. Medical debts are a leading cause of financial distress and for an injured worker struggling to obtain medical coverage and pay the rest of his or her bills, the consequences would be catastrophic and drive them into bankruptcy.

They may be forced to apply for a federal program like Social Security Disability if they are left unable to work, further transferring the cost of their injuries from the employer who is responsible for those injuries to the taxpayer.

The U.S. Department of Labor has begun investigations into some of this destruction of state workers' compensation programs, but with Congress unconcerned about the fate of most workers, it is unlikely to receive the legislative support that would be necessary to create minimum standards, below which employers would not be permitted to fall.