In a recent New York Times report, Alan Krueger writes: “The central problem in California now is that the costs paid by employers are the highest in country, while benefits received by workers are about average.”
This week, we examine the current weaknesses in California’s workers’ compensation system and how these should — and should not — be remedied.
Joining us are Prof. John Burton of the Rutgers School of Management and Labor Relations, Prof. Les Boden of Boston University, Prof. Peter Barth of the University of Connecticut and Prof. Robert Reville of the RAND Institute for Civil Justice.
In a recent New York Times article, Princeton University economist Alan Krueger describes California’s workers’ compensation (wc) insurance as being the costliest for employers, even though its benefits for workers are about average.
There are currently several wc reforms under review in the State Legislature.
While one would curtail medical treatment for injured workers to only those services that will cure rather than alleviate the symptoms of an injury, other proposed changes will alter the formula used to calculate the monetary compensation given to impaired workers.
Given that the average Californian is not likely familiar with the current workers’ compensation system, what would you suggest is the single most important reform needed to make this system more efficient and equitable?
At the same time, which of the current proposals to alter workers’ compensation gives you pause because, in your estimate, it may create more harm than good?
Q. 1. Given that the average Californian is not likely familiar with the current workers’ compensation system, what would you suggest is the single most important reform needed to make this system more efficient and equitable?
A.I. Mandatory education for journalists, legislators, and policy analysts about the complexity of the workers’ compensation program and the lack of a single reform that will make the system more efficient and equitable. The question is equivalent to asking a Doctor who has never seen a patient before and has no medical records or personal information on the patient: what is the single most important thing this person should do to improve her (or his) health?
A.2. The criteria for evaluating reform should be: what is the single most important reform needed to make this system more efficient, equitable, adequate, and affordable?
A.3. OK, OK. I have been trying to avoid an answer to your question (or my reformulation of the question in A.2). Major changes in the medical benefits in the California workers’ compensation program were made in the last few years, and we need some time to see how well those reforms will work.
The other area where reform is needed is for permanent partial disability (PPD) benefits, which are paid to workers who have injuries with permanent consequences that are not totally disabling. A number of suggestions for reform of PPD benefits were made at a February conference (which can be found at www.communicationsinstitute.com).
It is misleading to think that there is a single “silver bullet” for this system.
The single most important reform would be to change the system used to rate the extent of permanent partial disability. The current rating system in California is complex, allows considerable discretion in its application, and therefore results in considerable litigation, which in turn results in excessive costs of the delivery system (notably lawyers’ fees) and incentives that extend the period before injured workers return to work.
QA.2. At the same time, which of the current proposals to alter workers’ compensation gives you pause because, in your estimate, it may create more harm than good?
A.2. My understanding is that the workers’ compensation reform proposal the Governor is supporting would reduce the number of workers who would qualify for any workers’ compensation benefits. This reduction would, for example, require workers for whom their disability resulted from extended periods of exposure to workplace conditions to prove that the workplace was the primary source of the disability.
The evidence indicates that workers who currently qualify for PPD benefits are not adequately compensated by the California workers’ compensation program, and this reform would only aggravate the adequacy problem.
Also, the essence of the workers’ compensation program is that workers would receive adequate benefits on a no-faultbasis in exchange for which employers would be relieved of liability of tort suits, which could result in much higher awards than those possible under workers’ compensation.
In Oregon, when the legislature limited the number of workers who were eligible for workers’ compensation benefits, the Supreme Court held that it was unconstitutional to preclude the workers who previously were eligible for workers’ compensation from bringing tort suits. Efforts to restrict eligibility for workers’ compensation benefits in California may be equally myopic for employers and insurers.
I will answer only the first question — I have not seen all the proposals that are being floated and I do not want to appear to reject some really terrible ones because I am not familiar with them.
Turning to the need for reform, I have no doubt that multiple parts of the system are in need of repair. However, the costliest, most contentious and oddest is the permanent disability scheme.
It simply does not do a decent job of relating benefits to permanent disability, it costs too much to litigate, it takes much too long to decide (which in turn creates awful problems of returning the injured worker to work as promptly as possible) and it has created distortions in other parts of the system, e.g., temporary disability.
Clearly, improving this permanent disability system will take several things.
In my mind, one of these must be to have qualified and impartial medical people make the initial assessment of the degree of the worker’s impairment. That assessment must be based on certain uniform criteria.
Given that the average Californian is not likely familiar with the current workers’ compensation system, what would you suggest is the single most important reform needed to make this system more efficient and equitable?
In my opinion, the most important thing for California to do is to improve the fraction of injured workers who quickly return to work at their pre-injury employer. I am disappointed that this is not a large part of the current debate, but California has one of the worst rates of return to work of any state. Poor return to work increases costs to employers, and hurts injured workers as well, particularly in the long run.
Oregon and Washington have programs designed to provide assistance to employers with the costs associated with returning injured workers to work. In addition, linking permanent disability benefits to an offer of return to work by the employer can provide employers with incentives to re-employ injured workers.
At the same time, which of the current proposals to alter workers’ compensation gives you pause because, in your estimate, it may create more harm than good?
I agree with Dr. Burton that the proposals to limit access to workers’ compensation through increasing causality standards may be a problem. In addition to the reasons raised by Dr. Burton, these standards are vague and are likely to increase litigation within the workers’ compensation system. The workers’ comp system, which was designed to reduce disputes, is already too litigious, and litigation contributes both to employer costs and to worse long-term employment rates of injured workers.
Given that the average Californian is not likely familiar with the current workers’ compensation system, what would you suggest is the single most important reform needed to make this system more efficient and equitable?
I have seen the responses of John Burton, Peter Barth, and Bob Reville, and I think that they all have suggested reforms that can make California’s system much more efficient and equitable. Of those suggestions, my favorite involves reforms that would return injured workers to productive and gainful employment more quickly.
However, I think that it is misleading to think that there is a single “silver bullet” for this system.
Improving California’s workers’ compensation system will require a set of coordinated changes that work together to improve return to work, provide more adequate benefits, target benefits to those who need them the most, and reduce litigation.
It will also require patience, because, over decades, California has developed a climate favorable to litigation and arbitrariness and unfavorable to the cooperation necessary to improve return to work. The reforms we have suggested can change this climate. But even the best-designed reforms will take years to accomplish this.
At the same time, which of the current proposals to alter workers’ compensation gives you pause because, in your estimate, it may create more harm than good?
Several of the current proposed changes are designed largely to reduce costs by reducing benefit payments to injured workers. But benefits already replace less than half their lost earnings. These reforms would reduce benefits either by limiting eligibility for benefits or by reducing the level of benefits that eligible workers would receive. This would create more harm that good. In addition, by focusing on reducing benefits, we ignore opportunities to improve the system that could help both employers and injured workers.