Expert Commentary

How Should Workers Compensation Evolve?

Workers compensation has been around for over 100 years. It was developed as a grand bargain between labor  and employers to ensure that injured workers received appropriate medical care and wage loss benefits while employers received protections against tort lawsuits arising from workplace injuries.

Workers Compensation Issues
May 2016

The workplace is vastly different than it was when workers compensation was conceived. Workers compensation has also evolved in some ways, but in other ways, it has not kept pace with changing workplace demographics and injury exposures. There are discussions in our industry around whether workers compensation is still meeting the needs of both employers and injured workers. Even the US Department of Labor and Occupational Safety and Health Administration (OSHA) have recently questioned the adequacy of workers compensation benefits. Some employers are actively pushing for an alternative option to workers compensation because they feel it no longer provides suitable protection for employers and injured workers.

As one who has been very actively engaged in the industry, I see a variety of issues within the current system, and I hear complaints from a variety of stakeholders about it. Industry groups are starting to engage in discussion about the future of workers compensation. With that as a backdrop, here are my thoughts around how the line needs to evolve.

Change Medical Delivery Model

The single biggest flaw in workers compensation is the current medical delivery model. Medical costs keep rising, and outcomes are often poor. This is because, historically, the medical delivery model in workers compensation has been focused on two things: discounts and conflict.

Too often, medical treatment in workers compensation claims is used as a weapon for secondary gain. Certain attorneys consistently refer injured workers to certain physicians who extend disability, perform unnecessary treatment, and ultimately produce poor medical outcomes for the injured workers. These physicians producing the poor outcomes are well known by the payers, yet they are allowed to continue to ruin the lives of injured workers so that the settlement will be larger and the attorney fee higher. This is just wrong.

The reimbursement model has prominently focused on who will deliver the cheapest care, not necessarily the best care. If fact, sometimes, the best physicians refuse to treat workers compensation patients because of the low reimbursement rates. In addition, unnecessary utilization review delays workers from receiving care. Bills are not submitted at fee schedule rates, which necessitates spending money on bill-review services to ensure the appropriate amount is paid. There is a lot of money wasted on the bill churn that would be better spent on medical care.

We need to start over completely on the medical delivery model and look at what is happening in group health and Medicare for guidance. Under those models, insureds are not free to treat with any provider they choose; they must treat with someone "in network." Certain treatments must be preauthorized, and prescription drugs must be on an approved formulary to be covered.

Both group health and Medicare are now scoring medical providers to see which produce the best outcomes. Those who consistently produce poor outcomes are excluded from the network. Everyone with medical insurance, including Medicare, has operated under these rules for years. Yet, when the same rules are proposed under workers compensation, there is outrage that injured workers would be denied their right to treat as they wish.

The industry and regulators need to focus on identifying which medical providers produce the best outcomes for injured workers and also which providers follow established treatment guidelines. These physicians—and only these physicians—need to be treating workers compensation patients. Let's eliminate the "plaintiff and defense" doctor mentality and just have good doctors treating our injured workers. Once we have identified those physicians, we need to get out of their way and let them treat the patient. There is no need for utilization review when an approved physician is following treatment guidelines and dispensing off the pharmacy formulary.

Let's change the focus from conflict and discounts to better outcomes and expedited treatment. These won't be easy changes to make, but the end result will be better outcomes for injured workers and lower costs for employers—win-win!

Reduce Bureaucracy

The administrative bureaucracy around workers compensation is complex, time consuming, and extremely costly. It also does little to enhance the underlying purpose of the workers compensation system, which is to deliver benefits to injured workers and return them to the workplace in a timely manner. States create a never-ending mountain of forms that must be filed and data that must be reported. These requirements vary by state, forcing insurers and third-party administrators (TPAs) to comply with over 50 different sets of rules and regulations.

Also, why are penalties for compliance errors not based on a pattern of conduct instead of being issued with every violation? If payers are 99 percent compliant across thousands of claims, they are making every effort to comply. But mistakes happen when humans are involved, so perfection is not obtainable. The focus of compliance efforts should be ensuring that every effort is being made to comply, not simply generating revenue from every error.

State regulators need to take a critical look at their administrative requirements with a focus on increasing efficiency, reducing redundancy, and lowering the costs to both payers and the states themselves.

Tighten Thresholds of Compensability and Eliminate Presumptions

The threshold for something to be a compensable workers compensation claim varies from 1 percent (an aggravating condition) to over 50 percent (a major cause). Workers compensation benefits should be reserved for injuries and diseases caused by the workplace environment, not a simple aggravation. In addition, the normal human aging process should not produce a compensable workers compensation claim under the theory of "repetitive trauma." There should not be workers compensation benefits for simply standing, walking, bending, and other basic activities related to daily living.

States should adopt a consistent threshold that the work injury is the major cause of the disabling condition. If work is not more than 50 percent responsible for the condition, then it belongs under group health.

While we are at it, presumptions for certain conditions and occupations should be eliminated. These laws are based more on politics than science, and they add significant unnecessary costs to public entity employers, which, in turn, increases the tax burden on every person in this country. They also fly in the face of equal protection under the law by creating a preferred class of injured workers. If the facts of the case and the science support a compensable claim, then it should be compensable. However, a firefighter who has smoked two packs of cigarettes a day for 20 years should not automatically receive workers compensation benefits for lung cancer because of a presumption law.

Eliminate Permanent Partial Disability, and Focus on Return to Work

The human body is a remarkable machine because it has the ability to heal itself. In addition, medical treatment is specifically meant to restore function. Most injuries do not result in some type of permanent impairment, yet most states have a permanent partial disability benefit. Why? This is how workers compensation attorneys get paid. Permanent partial disability benefits represent a tort element injected into this no-fault benefit delivery system, and this is the leading cause of litigation in workers compensation.

The goal of workers compensation is to return injured workers to employment. If they can go back to their regular earnings, then the goal is accomplished. If they cannot, then there should be a wage-loss benefit. This gives incentive to employers to return injured workers to employment, and it would significantly reduce litigation and conflict in the system.

Eliminate Waiting Periods

The suggestions I have provided thus far would all reduce workers compensation costs. Savings produced by this should allow us to increase certain benefits without increasing employer costs. Let's start eliminating the waiting period. Why should someone have to go without pay for 3–7 days because he or she suffered a workplace injury? This creates an unnecessary financial hardship on injured workers. You don't have a waiting period when taking sick days from work, so why is there a waiting period for workers compensation benefits? Yes, this would result in more indemnity claims, but we are talking small dollars in additional benefits when compared to the benefit this would provide to injured workers by reducing the financial strain caused by a workplace injury.

Eliminate Caps on Indemnity Benefits

All states cap the weekly indemnity benefits that injured workers can receive. These caps range from a high of $1,628 (Iowa) to a low of $469 (Mississippi). In 34 states, the benefit cap is below $1,000/week.

Think about that for a moment. In most states, if you are earning over $52,000 per year, you will be subject to the benefit cap. This is not something that only impacts the top 1 percent of the workforce. This cap impacts skilled trade workers, factory workers, teachers, healthcare workers, municipal employees, police, firefighters, and a variety of others. It is truly a penalty on the middle class. For workers subject to the cap, their workers compensation benefits will be significantly less than their normal wages. How many of us could avoid financial ruin if our income was suddenly reduced by a significant percentage?

Workers compensation benefits are designed to be a backstop for those unfortunate enough to suffer a workplace injury. Having a workers compensation claim should not mean someone suffers a significant financial hardship simply because he or she earns a decent living. Eliminating the benefit cap would solve this problem.

Define and Cover Known Occupational Diseases

One area where workers compensation really needs to evolve is the coverage of occupational diseases. This concept was not contemplated when workers compensation statutes were drafted because the focus was on sudden traumatic injuries. However, we now know that occupational diseases are a reality. Science tells us that there are certain conditions that may be caused by workplace exposures. These conditions can take years to manifest.

The industry and regulators need to work together to identify those diseases that are caused by the work environment and ensure that benefits are available to address them. This means eliminating statutes of limitations that are shorter than the latency period for the condition to develop.

I refer back to my comments on thresholds of compensability. If the workplace exposure is more than 50 percent responsible for the condition, then it should be covered. If not, then it should be paid under group health.

Reduce Inconsistency between States

Workers compensation is a state-based system, so there will always be variations between the states. However, there are some areas where the inconsistency increases costs and does not treat all workers equally.

If states could agree on a common data template for insurer reporting, it would significantly reduce the administrative costs associated with gathering and reporting data. All the states don't need to utilize the same data elements, but they could accept the fee and simply ignore what they did not need. There have been efforts underway in this area for years with no resolution. In addition, a common workplace poster for coverage and common forms would also significantly reduce the costs associated with compliance in these areas. As mentioned previously, the bureaucracy of workers compensation adds unnecessary cost to the system. We should be able to make some small changes to common templates to reduce costs and increase efficiency.

Another area of inconsistency is the simple definition of who is an employee subject to workers compensation coverage. If two people work for the same company and perform the same job in different states, one should not be subject to workers compensation while the other is not, yet this occurs. States vary on their definitions of employees versus independent contractors. Some states exclude farm workers and domestic servants from workers compensation, while others mandate coverage for those workers. Whether or not you are eligible for workers compensation should not vary based on your state of employment.

Ensure Permanent Total and Death Benefits Are Adequate

Having a family's breadwinner die or become permanently totally disabled (PTD) is both emotionally and financially devastating. Workers compensation benefits are supposed to help reduce the financial impact. Yet, there are four states that have hard caps on all indemnity benefits (DC, MS, IN, and SC). If you are permanently totally disabled in those states, benefits only pay for 450–500 weeks. This means that, by design, those states shift PTD claims to the social welfare system.

Things are even worse with death benefits. There are 19 states that cap death benefits, including the four listed above. In Georgia and Florida, death benefits are capped at only $150,000. Some would argue that there may be life insurance to provide additional funds, but there is certainly no guarantee of that.

The most devastating injuries should not result in even more devastating financial consequences for injured workers and their families.

Adopt an Advocacy-Based Claims Model

In many ways, workers compensation is a system based on conflict. We have "adjusters" who "investigate" your claim. A very small percentage of claims are ultimately denied as not being compensable, yet the claims review process is based on those claims rather than the vast majority that resolve without any issues. Businesses stress the importance of customer service, and most employers agree that the workforce is the most valuable asset of any business. However, many businesses often fail to treat their own injured employees with the same consideration they give to their customers. That customer service focus needs to be extended not just to customers, but to their own employees.

In discussions around creating an "Advocacy-Based Claims Model," employers adopting this are seeing less litigation, lower costs, and greater employee satisfaction. Rather than just denying a claim and inviting litigation, workers are told about their benefit options that are available when workers compensation is not appropriate. Changing this model is about changing attitudes, the language we use to communicate, and even the workflow. It can be done.


Workers compensation is still a valuable protection for both injured workers and employers. However, the time has come for it to evolve to better reflect the realities of the current workforce, risks present in the workplace, and advances in science and medicine. If workers compensation is to remain relevant for another 100 years, it needs to keep up with changes in society.

Mark Walls is vice president of Communications & Strategic Analysis for Safety National. See his full bio.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

Like This Article?

IRMI Update

Dive into thought-provoking industry commentary every other week, including links to free articles from industry experts. Discover practical risk management tips, insight on important case law and be the first to receive important news regarding IRMI products and events.

Learn More