Systems designed to address and administer employee injuries have played a
substantive role as part of our social safety net for over a century.
Originally labeled the "grand bargain," untold millions of injured
workers have relied on the system's reliability to underpin their recovery
from on-the-job injuries.
This "bargain," and the generally similar design of statutory
workers compensation systems (unique to each US state) have persisted and
served employers and their injured employees well even in the midst of
significant social and economic crisis and change, technological evolutions,
conflict, and peacetime and other forces that can disrupt system effectiveness.
The vast majority of injured workers have received fair treatment, were
compensated equitably, and returned to productive employment, all enabled by
reasonably balanced and effective systems.
At times, the status of the workers compensation system reflects various
states of ineffectiveness or imbalance, despite the systems general stability
and reliability. System effectiveness is often a matter of opinion, but
generally can be defined as systems that do the following.
- Produce a reasonable trade-off between costs and benefits
- Enable the injured party to return to productive work within reasonable
times
- Provide fair compensation during their disability
- Ensure the provision of quality professional care appropriate to the
injury
When a systemic imbalance occurs, the response has typically been an attempt
to incorporate incremental attempts at reform, which have varying degrees of
success.
Whether in or out of balance, the workers compensation "industry"
is subject to change by the actions of disruptive catalysts, some of which are
outside the control of stakeholders. This perspective is explored further in a
new book by Dr. Richard Victor, founder and retired CEO of the Worker's
Compensation Institute, a leading research authority on industrial injury
trends research for over 30 years. The book is titled Scenarios for the
2030s: Threats and Opportunities for Workers' Compensation Systems and
explores several major catalysts for change to workers compensation systems
that, by 2030, may impact the sufficiency of benefits against a backdrop of
radical cost increases.
Based on deep and broad research that includes extensive empirical evidence
for his predictions, Dr. Victor's book examines questions like the
following.
- Is there a feasible scenario where many state workers compensation
systems become seriously out of balance in 2030 and where the workers
compensation reform process is unable to restore a reasonable balance as they
have in the past?
- What are the potential causes of an imbalanced system or systems?
- Will the workers compensation reform process be unable to deliver
effective solutions over the coming period? If so, why?
- How could these systems change and what could replace them if enough
dysfunction emerges?
The Central Scenario: Trouble in Paradise
The central scenario outlined in the book reads as follows: workers
compensation costs are set to triple from 2016 through 2030, with no real
change in benefits to injured workers. As a result, and with other drivers
impacting the system, both employers and worker advocates agree that the system
will likely grow seriously out of balance. Despite applying the historical
approach to system reforms, both legislative and regulatory, too many large
workers compensation systems remain ineffective.
One of the more provocative predictions of the book is the reversal of over
100 years of declining workers compensation frequency. This long-term trend is
what most risk managers have hung their hat on with management, as these
declines were proof of successful safety and loss-prevention interventions.
Yet, Dr. Victor's prediction of a 23 percent increase in frequency by 2030
flies in the face of our historical experience and the view that we could
squeeze frequency, and severity, even further. While some target "zero
lost-time claims" as aspirational, few have attained this, and perhaps
fewer believed it was even possible. Regardless, the long-term view was that
costs would continue to decline even as radical shifts in job types and
responsibilities are expected to continue due to digitization in the world of
work.
While the drivers of this scenario are largely outside of the control of
workers compensation systems, they are real, and their potential to disrupt
this important provision of services to injured workers could cause significant
dysfunction. These drivers include the following.
- Demographic change driven by retiring baby boomers creating historic
labor shortages
- Evolving immigration policies and practices that worsen labor
shortages
- Technology mitigating the labor shortages to a moderate extent, but not
nearly as much as pundits would suggest
- Healthcare reform significantly increasing the number of cases shifted to
workers compensation from other payers
- Congress's approach to the solvency crisis in the Social Security
Disability Insurance (SSDI) program, causing workers compensation costs to
escalate
The historical reform process would have typically moved the systems toward
improvements, producing something that could be viewed as more balanced.
However, in the 2030 scenario, this does not occur, since the large cost
increases arise from causes outside the control of the workers compensation
systems. In addition, Dr. Victor believes that our political institutions may
continue to struggle to solve increasingly complex policy problems.
As the scenario continues, potential solutions ultimately come from a
political paradigm shift that emerges in the late 2020s shaped by the
possibility of the following.
- Widespread fiscal distress at many levels of government
- Increased global competitive pressures on US employers
- Widespread loss of confidence in government as a pragmatic problem
solver
- The increased influence of millennial and postmillennial voters fed up
with the problems they view as laid on them by previous generations
Together, these predicted catalysts create the opportunity to think
differently about many public policy problems, including caring for and
compensating injured workers. However, three strategic threats that could
exacerbate the challenges to the system include the following.
- Increased reliance on nongovernmental solutions to complex problems
- A political drive to eliminate "unnecessary" costs in order to
deal with forecasted massive tax increases
- The need to eliminate growing case-shifting to workers compensation from
nonoccupational health systems
Only time will tell how impactful these threats will be. Meanwhile, several
policy proposals that could shift this paradigm back toward a more balanced
system include the following.
- Improving the interaction of workers compensation and Social Security
disability insurance
- Improving the Social Security administration's ability to identify
recipients whose benefits should be reduced under the workers compensation
offset
- Requiring all states to have the typical offset provision
- Instituting a requirement for SSDI set-asides for workers compensation
indemnity benefits analogous to the set-asides for Medicare
- Applying federal standards for state workers compensation programs
Each of these has both political and legislative process landmines
associated with them, and thus their levels of success or application are hard
to predict.
The Paradigm Shifts in the 2030s
This book explores several options that could ameliorate some of the
predicted impacts, none of which represent perfect solutions. Dr. Victor raises
several strategic questions for the system and its stakeholders that at least
provide us the opportunity to think deeply about the possible magnitude of the
problem and to entertain solutions that could drive a different endgame than
that of the "scenario." Among these strategic questions are the
following.
- Can the current mélange of state workers compensation systems avoid the
large cost increases driven by these external forces?
- Can workers compensation reform prevent cost increases from these
external forces?
- Are major structural reforms to workers compensation programs
inevitable?
Dr. Victor concludes the book by opining that the preparation and response
to these issues will be best addressed through innovative and timely thinking.
He believes that those who employ these approaches will likely have a
competitive advantage in a system that serves a critical purpose in society for
the smooth functioning of the American economy. Therefore, ensuring that those
injured on the job believe that their employers care, that the providers do
their jobs well, and that the regulators target system balance as the outgrowth
of their work are all paramount to the perpetuation of a critically important
set of systems, which must make these goals their priority.
The book Scenarios for the 2030s: Threats and Opportunities for
Workers' Compensation Systems will be available this fall at
SedgwickInstitute.com. Dr. Richard Victor is a senior fellow of the Sedgwick
Institute. Find out more about Sedgwick Institute by visiting www.sedgwickinstitute.com.