Regulatory Watch

Feds Propose Increased Oversight of Workers’ Comp

In a report released Oct. 5, the U.S. Labor Department is elevating the debate over whether federal oversight of state workers' comp programs is warranted.
By: | October 6, 2016

The U.S. Labor Department is elevating the debate over whether the federal government should create standards that could trigger federal oversight for state workers’ comp programs.

Across states, workers’ comp costs are increasingly being shifted from employers to workers and their communities, as well as to federal programs including Social Security retirement benefits, Social Security Disability Insurance and Medicare, “placing additional strains on these programs at a time when they are already under considerable stress,” according to the Labor Department’s State Workers’ Compensation Report, “Does The Workers’ Compensation System Fulfill Its Obligations to Injured Workers?”, released on Oct. 5.

“The time to act is now,” Labor Secretary Thomas E. Perez said during an agency web forum where the report was released.

“I suspect taxpayers don’t even know that a portion of their nest egg for retirement — Social Security and Medicare — is going to subsidize workers’ comp.”

The agency’s report recommends that Congress consider whether to increase federal oversight of workers’ compensation programs. Options include the appointment of a new National Commission to study the workers’ comp system, similar to the 1972 commission that recommended floors for benefit payments; reinstitution of federal tracking of changes in state workers’ comp programs; establishment of standards that would trigger increased federal oversight if workers’ comp programs fail to meet those standards; increased monitoring and data-sharing of workers’ comp information among states and the public, among other recommendations.

The agency’s report also outlined recent changes to the workers’ comp laws, procedures and policies in numerous states that have limited benefits, reduced the likelihood of successful application for workers’ comp, and discouraged injured workers from applying for benefits.

Challenges Ahead

Particularly onerous are “opt-out” statutory proposals that restrict workers’ benefits or rights, according to the report. In 2013, the Oklahoma legislature passed a law that substantially limited benefits and included a provision that allowed employers to opt-out of the state workers’ comp system and largely design their own compensation plans with “considerable latitude.”

“We need federal standards to maintain a floor in these state programs or the system is going to self-destruct.” — John F. Burton Jr., professor emeritus, Rutgers School of Management and Labor Relations

The plans included provisions that excluded payment for specific injuries, required 24-hour or end-of-shift reporting of injuries, allowed no review of claims except by employer-chosen physicians, among other limitations, while allowing employers to retain their immunity from civil negligence legal actions.

The Oklahoma Supreme Court last month ruled that the opt-out provisions of the state law are unconstitutional under the Oklahoma state constitution. Still, opt-out provisions are currently being considered in other states, including Tennessee and South Carolina.

Moreover, new issues have arisen across states, according to the report. Workers who file for compensation are blocked in some cases from receiving benefits because of the combination of higher evidentiary bars, exclusion of conditions that do not meet standards like “major contributing cause,” and requirements for drug testing.

Some states have enacted arbitrary limits on the number of weeks that benefits can be paid; some have enacted caps on medical payments as well.

The agency’s forum also included a panel discussion of the report, and implications on the future of state workers’ comp programs. John F. Burton Jr., a Rutgers School of Management and Labor Relations professor emeritus, said that state programs have been restricting benefits and shifting costs as states compete with one another to attract more employers.

“We need federal standards to maintain a floor in these state programs or the system is going to self-destruct,” Burton said.

“But I’m skeptical — under the current environment, it’s much too tough to develop federal standards.”

Ahead of the Oct. 5 release of the Labor Department’s report, the Washington, D.C.-based business group UWC—Strategic Services on Unemployment & Workers’ Compensation, suggested on its website that the report likely was prompted by an October, 2015 letter sent to the agency by Democrat lawmakers and Senator Bernie Sanders (I-Vt.) calling for a review of the workers’ comp system. In the letter, the lawmakers wrote that they would “welcome a report from the department on how it will reinstate oversight of state workers’ compensation programs.”

In response, the business group wrote on its website, “As employers, states, insurance carriers and worker representatives well know, there has never been federal ‘oversight of state workers’ compensation programs’ and federal requirements imposed on a national basis would be inconsistent with the state workers’ compensation system, which has been in place for more than 100 years without federal oversight.”

The Labor Department’s Wednesday forum also included the release of the report, “Workers’ Compensation: Benefits, Coverage and Costs,” by the National Academy of Social Insurance in Washington, D.C.

The number of U.S. workers covered by workers’ comp in 2014 rose 1.9 percent from a year earlier, to roughly 132.7 million, and by 6.4 percent from 2010, as employment numbers recovered from the Great Recession.

Total benefits paid in 2014 fell 0.3 percent from a year earlier, to $62.3 billion. Medical benefits paid for health care were $31.4 billion, a decrease of 0.1 percent from 2013. Cash benefits paid for lost work time were $30.9 billion, a decrease of 0.6 percent from 2013. Total benefits paid were $0.91 per $100 of covered wages, down by 5.5 percent from 2013.

Total workers’ comp costs to employers in 2014 rose 4.9 percent from a year earlier, to $91.8 billion. Employers’ costs were $1.35 per $100 of covered wages in 2014, unchanged from 2013.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

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