State of the States: The Department of Labor's Review of State Worker's Compensation Systems (Part II)

Posted on Tue Jan 10th, 2017 at 8:52 am

State of the States: The Department of Labor's Review of State Worker's Compensation Systems (Part II)

Part I of this article covered the recent Department of Labor report on state worker's compensation systems, including its rather extensive list of criticisms of changes in those systems over the past decade. It noted that numerous states have reduced benefits or made it more difficult for workers to obtain benefits and discussed the key changes that the DOL indicates are emblematic of the shift in worker's compensation over the past decade or so.

The DOL's Response and Proposals

As part of the historic "grand compromise" between employers and employees, state worker's compensation systems have always involved a tightrope walk, seeking to balance benefit adequacy for employees with cost concerns of employers. Cost concerns for employers are two-fold: they're concerned about the cost on an absolute dollar basis and they also have concerns regarding comparative costs between states. The report notes that it is only in the past decade or so that there has been the confluence of political and economic forces to support a shift where these employer concerns are being reflected in new laws and policy that it describes as an "erosion of benefits" and a "race to the bottom" negatively impacting workers.

The clear conclusion of the DOL report is that the changes seen in the worker's compensation system in recent years have made the system worse at meeting the original five objectives of the system (broad coverage, protection of against lost income, providing medical care, encouragement of safety, and an effective system to deliver benefits) than it was roughly 40 years ago.

The report closes not with recommendations per se, but instead with a description of policy options and "areas for consideration." Primary amongst these considerations is the establishment of a new National Commission to study the worker's compensation system continuing the work that was done by the original 1972 National Commission. Along with that is the recommendation for a return to federal tracking of the changes in state worker's compensation programs akin to the studies done in 1980 and 2004. Due to lack of support for funding ongoing monitoring, the report notes that there is a marked lack of data on state worker's compensation programs upon which to base future decisions.

The report also suggests that further steps be taken, including steps that were discussed, but not taken in the 1970s. In addition to newer suggestions such as online resources that would help disseminate information on best practices, and a website that would document the progress of each state toward providing "adequacy, equity and efficiency," the report also points to the establishment of clear standards that would trigger increased federal oversight if a given state's worker's compensation programs fail to hold up or advance to those minimal standards. This clearly hearkens back to the 19 essential recommendations of the 1972 National Commission and their recommendation of similar Congressional action in the mid-1970s.

The report also suggests investigation of several other steps that would be more focused on the "big picture" of industrial injuries. It suggests evaluating steps to strengthen the link between worker's compensation administration and injury and industrial disease prevention at employers. It also suggests investigating programs that would assist all stakeholders – workers, employers and insurance carriers – in using evidence-based standards to address long term management of injuries and efforts to improve the likelihood of leading productive work lives. Finally, it recommended evaluation of the coordination of SSDI and Medicare benefits with worker's compensation to ensure that the costs of work injuries and diseases are not transferred to these general social insurance programs.

Big Picture Perspective and Trend

Clearly, the DOL report comes at this issue from a fixed position: it is highly critical of the current condition of the states' worker's compensation systems and the perceived recent backtracking from the objectives set forth by the 1972 Commission over the past decade. It is notable that while the new report does not make specific recommendations per se, it does implicitly endorse the work and the conclusions of the 1972 Commission and the recommendations set forth in their 1972 report. To put it succinctly, the original 1972 Commission's report and the new DOL report both advocate for strong individual state-run worker's compensation systems that broadly provide benefits to injured workers.

It isn't unreasonable to raise the concern that the Department of Labor is taking a decidedly pro-employee position that doesn't properly account for the significant concerns of employers, who are dealing with rising costs in the form of insurance premium dollars driven by a system that is too favorable for employees, along with ever-increasing costs for employers, particularly relating to medical treatment. In looking through the DOL report's criticisms of the states' workers compensation systems, it is very clear that all concerns raised by the report are concerns for the benefit of the employee rather than the employer.

Arguably, the very same criticism could have been made of the 1972 Commission. Their report and recommendations were the product of many of the same concerns echoed by the DOL report as outlined above. It is interesting to note, then, that the political makeup of the 1972 Commission was in fact heavily Republican, and therefore, arguably, should have been expected to be more employer friendly. In fact, of the 18 members of the 1972 Commission, three members were part of the Nixon cabinet, with the balance made up of largely Republican stakeholders appointed by the President.
Given the makeup of the 1972 Commission, how did this happen; how did a group made up of seemingly employer-friendly worker's compensation experts reach the consensus conclusions that they did on the 1972 report? John F. Burton Jr., the chairman of the 1972 Commission indicated it was due to an unusual confluence of factors which were probably unique to that particular time and place.

First, he noted that regardless of their political affiliation, the members of the Commission were truly experts in various aspects of worker's compensation with deep experience and background as employers, carriers, academics and administrators actively working within the state systems. He reported that the Commission was collectively surprised to see that after establishing the criteria for a "properly functioning" system, they found the various state systems were in worse shape than they had expected. In light of this, Burton related the Commission was open to fundamental changes while still preserving the state run systems versus creating a new federalized worker's comp program.

Second, Burton noted that the decidedly more "low tech" era of the early 1970s created a situation where the members of the Commission were able to come to decisions in relative isolation from their respective special interest groups. Initially, meetings were met with progress, but then there was backtracking when members discussed the proposals with their constituents. However, according to Burton, several of the most critical meetings were arranged in locations of sufficient isolation that final conclusions and recommendations were reached without outside influence in that pre-mobile phone, pre-texting, pre-social media era.

Finally, Burton noted that the politics of the era were decidedly less partisan than they are in the modern era. The OSHAct, which laid the groundwork for the 1972 National Commission, was enacted by a Republican president who held majorities in both the House and Senate, with the Act itself the product of a Wisconsin Republican and a New Jersey Democrat. Such bi-partisan compromise is now a rarity, and Burton specifically has noted that "a unanimous National Commission report involving members from both parties and a variety of interest groups is inconceivable today." (John F. Burton, Jr., Should There be a 21st Century National Commission on State Worker's Compensation Laws?, American Bar Association Midwinter Seminar and Conference, March 16, 2013.)

Why is the uniqueness of the political circumstances surrounding the 1972 Commission and its report important? The Department of Labor's recent report has received a significant amount of attention and there are strong statements from one side of the aisle arguing such a review is long overdue, while the other side of the aisle argues this represents completely unwanted federal interference. While the issues raised by the report certainly may merit closer examination, the reality is that the current political climate and changed circumstances compared to 1972 makes it unlikely there is support for the recommendations from this report or to support a new National Commission to look into the issues raised by the report. It may not be accurate to say the DOL report is much ado about nothing, but it is much ado about which nothing will be done, given the politics of the day.

All of this is of interest given the recent developments in Wisconsin. The 2016 revisions to the worker's compensation system included three or four significant changes in addition to the usual expected tweaks or revisions, and those changes clearly fall within some of the categories outlined in the DOL report. While these changes were the product of the Worker's Compensation Advisory Council, it seems clear the process was distinctly influenced by other factors outside the Advisory Council, including alternative bills which proposed even more significant changes to the system. With seeming less influence from the Advisory Council or the greater influence of factors outside the Advisory Council, more proposals such as noted in the report may be made here as well.

For Wisconsin employers or worker's compensation insurance carriers who are concerned about the DOL report and the potential for political pressure for changes in line with the "recommendations" of the report, there would seem to be little reason for concern. Regardless of the potential or debatable merit of some of the DOL's concerns, the current political reality is vastly different from the environment in the 1970s as described by John Burton, Jr.; in fact, the current political reality is vastly different from that at the time the DOL report was issued in October 2016. The DOL's report largely positions the federal government in opposition to the states' recent changes and would require federal action and oversight to roll back changes made at the state level. With the political changes of the recent months, it seems reasonable to believe the likelihood of federal action and oversight is extraordinarily low at this point.

Regardless of your position on the DOL report, anyone who is an active stakeholder in a worker's compensation program – whether as an attorney, an employer, an insurer, an administrator, or some other capacity – would do well to consider the issues raised by the report. Do the changes seen in numerous state programs reflect steps backward as posited by the DOL? Or are they long-overdue course corrections to a system that had become much too aligned with employee concerns without adequate thought on the financial impact to employers? These questions, perhaps, circle around the real heart of the matter: over 100 years after Wisconsin's Worker's Compensation Act was established as the first constitutional worker's compensation statute, what should worker's compensation programs in the 21st century look like?

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