Introduction and Background: Work-related injuries and illnesses (I&I) cause a tremendous burden on society. I&I are costly for employers, workers, and families due to economic, health and related personal costs that arise from interruption or loss of income, reduced capacity to work, temporary or permanent dislocation, reduced capacity to find new employment, and need for medical care. The National Safety Council (NSC)1 estimated that in 2012, the combined direct and indirect cost of fatal and non-fatal work-related I&I was above $256 billion ($198 billion in injuries and $58 billion in illnesses2). This is greater than the estimated costs of dementia, including Alzheimer’s ($215 billion, per a 2010 Rand Corporation study3), and diabetes ($245 billion, as reported by the American Diabetes Association in 20124).
Workers Compensation (WC) Insurance: The Federal government, each state, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have their own WC programs. These programs typically provide cash benefits and medical care when employees suffer work-related I&I, and survivor benefits to the dependents of workers whose deaths result from a work-related incident. In exchange for receiving benefits, employees relinquish their right to sue their employer for negligence. The WC programs are compulsory for most private employment, with rare exceptions (as addressed below). WC is expected to pay 100% of medical costs for injured workers, and to pay cash benefits for lost work time. Lump-sum settlements are permitted under most programs. WC benefits amounted to $0.98 per $100 of covered wages in 2013.
In 2013, state and federal workers' compensation laws covered approximately 129.6 million employees, with covered payroll (i.e., total wages paid to covered workers), of $6.5 trillion. Benefit payments under the WC programs totaled $63.6 billion in 2013, a 0.9% increase from the 2012 benefit figure of $63 billion ($31 billion in medical benefits and $32 billion for lost wages compensation) 5.
With the exception of Texas and Oklahoma, workers’ compensation insurance coverage is mandatory for employers in all states, with limited exemptions for employers with a small number of employees, or workers in specific classifications, such as agricultural or domestic employees5. There are limited exceptions to the exclusive remedy concept in some states, such as when there is an intentional injury of the employee or when an employer violates a safety regulation. Other exemptions from coverage are casual labor, with some exceptions6. Many programs exempt employees of nonprofit, charitable, or religious institutions5.
Benefits for two other groups are specified by federal laws and not covered by workers' compensation laws: railroad employees engaged in interstate commerce and seamen in the U.S. Merchant Marine. As such, the cost of these programs is not included in our National totals. These workers have health insurance, along with short-term and long-term cash benefit plans, that cover disabilities whether or not the conditions are work-related. In addition, under federal laws these workers retain the right to bring tort suits against their employers for negligence in the case of work-related I&I5.
Major WC-Related Issues: The Occupational Safety & Health Administration (OSHA) estimates that the WC costs represent only a fraction of WC benefits through state programs, as fewer than 40% of eligible workers apply for any WC benefits at all. Also, as many as 97% of occupational illness remain uncompensated, as they manifest later in life and are typically covered by other social programs including Medicare, Medicaid and Veterans’ Benefits7.
Injured Workers Bear the WC Cost: Despite the WC programs, the costs of workplace injuries are actually borne primarily by injured workers, their families, and taxpayer-supported components of the social safety net. Employers provide approximately 21% of the overall financial cost of workplace I&I through WC, while 16% of the cost is paid by taxpayer funds ($41 billion annually). These cost-shifts have forced injured workers, their families and taxpayers to subsidize the vast majority of the lost income and medical care costs generated by workplace I&I. For many injured workers and their families, a workplace I&I creates a burden which significantly diminishes their ability to save for the future or to make the investments in skills and education that provide the opportunity for advancement7.
Fraud and Abuse: WC fraud and abuse continues to be a rampant problem in the USA. Tens of billions of dollars in false claims and unpaid premiums are stolen every year. The federal agencies’ Offices of Inspector General (OIG) are tasked to investigate and curb waste, fraud, and abuse, including that related to WC. OIG investigations in many agencies have been successfully tackling the fraud. As an example, in FY 2008, the US Postal Service (USPS) OIG saved the Agency more than $197 million in future workers’ compensation costs, and arrested 51 individuals for WC fraud. In recent years the USPS OIG has identified many cases in which workers, while claiming total disability benefits, were found exercising very active lifestyles (e.g., logging and grounds-keeping activities). Some of these fraudulent claims exceeded $500,000 per individual8.
In the private sector, both employers and employees can defraud the system, yet in the public sector only employees pose the threat. Private businesses tend to commit fraud by underreporting payroll, misclassifying employees, or evading experience modification (e.g., closure and re-emergence). Employees, on the other hand, often file false claims and pretend to prolong the disability period. As the benefit process is designed to help replicate an employee’s entire post-tax salary, the benefit pays 66% to 75% of an employee’s take home pay in tax free income. Thus, the benefit payments and process provides limited incentive for employees to return to work. Additionally, the potential for fraud increases when employees feel that a significant event might threaten their livelihood (e.g., an impending layoff, termination, project end). Tell-tale signs of potential fraud include Monday morning reporting of injuries, claims with no witnesses, delayed reporting of claims, incongruity in event description, frequent job changes, and the claimant’s past history of frequent claims. The Federal Employee Compensation Act (FECA) places no restrictions on when benefits should cut off. For example, at the USPS more than 10,000 (of 493,381) employees collecting FECA benefits are currently older than 55, nearly 2,000 are older than 70 and two employees are more than 100 years old8. Commercial industry has documented tens of billions of dollars in false claims and unpaid premiums every year. Scams force WC premiums higher, reducing business profits and resulting in costs being passed on to the consumers.
Recommended Solutions: Altarum’s recommendations listed below help address the main solutions to reduce the cost burden and curb WC fraud. The most effective solution to reducing total WC claims is to prevent workplace I&I from occurring. Both public and private employers should consider the following recommended practices:
- Implement a systems-based approach for workplace hazard abatement, with a strong element of employer leadership and employee engagement.
- Systematically eliminate hazards and strive to continuously improve the conditions.
- Support and incentivize all workers in reporting and eliminating hazardous conditions.
- All workers’ compensation programs should identify and eliminate roadblocks that prevent workers from receiving the full compensation to which they are entitled.
- Implement processes to critically examine and evaluate each WC claim, including thorough investigation of all WC claims before award and controvert where reasonable.
- Educate and encourage First-Line Supervisors (FLS) in the process of WC claim reviews.
- Insist upon return-to-work programs. Encourage and support employees to return to work as soon as possible following an injury, as it has been found this accelerates the healing process.
- Create light-duty positions or tailor employee’s job to accommodate injury.
- Invest in employee wellness processes to ensure a fit and healthy workforce.
- Expand use of vocational and rehabilitation programs.
- Consider implementing time limits for benefits or a total amount of compensation an injured employee could collect. Limitations may motivate employees to return to work sooner, obtain vocational rehabilitation and training, or retire, thereby reducing costs.
- If possible, limit physicians who determine and treat workplace I&I to those selected by the organization.
- National Safety Council. Injury Facts. 2014 edition. Itasca, IL
- Leigh JP. Economic burden of occupational injury and illness in the United States. Milbank Quarterly 2011; 89:728-772.
- Hurd MD, Martorell P, Delavande, A, Mullen KJ, Langa KM. Monetary costs of dementia in the United, States. New England Journal of Medicine 2013; 368:1326-1334OSHA Publication,
- Diabetes costs are from Economic costs of diabetes in the U.S. in 2012. Diabetes Care 2013; 36:1033-1046.
- SSA, Annual Statistical Supplement, 2015, https://www.ssa.gov/policy/docs/statcomps/supplement/2015/workerscomp.html
- NASI, https://www.nasi.org/research/2015/report-workers-compensation-benefits-coverage-costs-2013
- Adding Inequality to Injury: The Costs Of Failing To Protect Workers On The Job, David Michaels, PhD, MPH, Assistant Secretary of Labor for Occupational Safety and Health, JUNE 2015