Chapter 5 1 CHAPTER 5 – WORKERS’ COMPENSATION CEE 698 – Construction Health and Safety.

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CHAPTER 5 – WORKERS’ COMPENSATION

CEE 698 – Construction Health and Safety

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Overview of Workers’ Compensation The concept of workers’ compensation

developed as a way to allow injured employees to be compensated without having to take their employer to court.

Two aspects:– Fairness to injured employees, especially those

without the resources to undertake lengthy and expensive legal actions.

– Reduction of costs associated with workplace injuries.


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Overview of Workers’ Compensation Since its inception as a concept, workers’

compensation has evolved into a system that pays out approximately $27 billion in benefits and medical costs annually.

Some of the highest workers’ compensation insurance rates are in construction fields (e.g., roofers)

Compromise between the needs of employees and the needs of employers.


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Overview of Workers’ Compensation Workers’ compensation laws vary from state to

state. In fact there are extreme variations. Workers’ Compensation has several widely

accepted objectives:– Replacement of income for injured employees

• Current and future income at a level of two-thirds (in most states)

– Rehabilitation of the injured employee• Medical care at no cost, vocational training or retraining

– Prevention of accidents• Employers invest in accident prevention programs, lower premiums

– Cost allocation• Spread cost of workers’ compensation appropriately and proportionately


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Who is Covered?


Workers’ compensation laws written at state level– Much variation in laws by state

Workers’ compensation laws are constantly being amended, revised and rewritten.

Contractors/subcontractors are not covered.– They perform a job or service for an agreed amount of

money in a nondirected, nonsupervised format– Therefore are viewed as being self employed

Approximately 80% employees in US are covered

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Historical Perspective

Before workers’ compensation laws were enacted, injured employees had no way to obtain compensation for their injuries except to take their employer to the court.

Proving that an injury was the result of employer negligence in the form of unsafe conditions was too costly, too difficult, and too time consuming

Injured employees who hoped to return to work after recovering were often afraid to file suit because they feared retribution by their employer.


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Historical Perspective

Laws at that time made it easy for employers to defend themselves.

It was sufficient for the employer to show that at least one of the following conditions was existed:– Contributory negligence

– Negligence on the part of a fellow worker

– Assumption of risk on the part of the injured employee.


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Workers’ Compensation Legislation Today, all 50 states, the District of Columbia and

Puerto Rico have workers’ compensation laws. However, these laws did not exist before 1948.

The first workers’ compensation law did not pass until 1908 and it applied only to federal employees working in especially hazardous jobs.

Montana was the first state to pass a compulsory workers’ compensation law. However, it was short-lived. Ruling that the law was unconstitutional, the Montana courts overturned it.


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Workers’ Compensation Legislation The New York State legislature had passed a

compulsory workers’ compensation law in 1910. The New York Court of Appeals declared the law

unconstitutional. Pressure for adequate workers’ compensation grew,

as unsafe working conditions continued to result in injuries, diseases and deaths.

Shortly after the New York Court of Appeals released its due process ruling, tragedy struck in a New York textile factory.


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Workers’ Compensation Legislation On March 25, 1911, the building that housed the

Triangle Shirtwaist Factory on its eighth floor caught fire and burned.

As a result of the fire, 149 of the company’s 600 workers were dead and another 70 were injured.

Unsafe conditions created by the management of the company prevented those who died or were injured from escaping from the fire.

The tragedy did focus nationwide attention on the need for a safe work place and adequate workers’ compensation.


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Workers’ Compensation Legislation The next several years saw a flurry of legislation in other

states relating to workers’ compensation. In response to demands from workers and the general

public, several states passed limited or noncompulsory workers’ compensation laws.

Many such states held back out of fear of being overturned by the courts.

Others disagreed with the New York Court of Appeals and passed compulsory laws.

In 1917 the U.S. Supreme Court ruled that workers’ compensation laws were acceptable.


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Modern Workers’ Compensation Since 1948, all states have had workers’ compensation

laws. Controversy surrounding the workers’ compensation

continues:– As medical and insurance premiums have skyrocketed, many

small businesses have found it difficult to pay the premiums.

– Businesses are closing their doors in those states with the highest workers’ compensation rates and moving to states with lower rates.

– Critics are now saying that workers’ compensation has gotten out of hand and is no longer fulfilling its intended purpose.


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Objectives of Workers’ Comp


1. To provide an appropriate level of income and medical benefits to injured workers, or to provide income to the worker’s dependents, regardless of fault.

2. To reduce the amount of personal injury litigation in the court system.

3. To relieve public and private charities of the financial strain created by workplace injuries that go uncompensated.

4. To eliminate time-consuming and expensive trials and appeals.

5. To promote employer interest and involvement in maintaining a safe work environment through the application of an experience-rating system.

6. To prevent accidents by encouraging, frank, objective, and open investigations of the cause of accidents.

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Unexpected Factors


Proponents of workers’ compensation did not anticipate the following factors:

1. Employees who see workers’ compensation as a way to ensure themselves a lifelong income without the necessity of working.

2. Enormous increases in the costs of medical care with corresponding increases in workers’ compensation insurance premiums.

3. The radical differences among workers’ compensation laws passed by the various states.

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Modern Workers’ Compensation

Not all employees abide by the spirit of workers’ compensation (e.g., rehabilitation in a reasonable amount of time).

Attempted abuse of the system is perhaps inevitable.

Unfortunately, such attempts result in a return to what workers’ compensation was enacted to eliminate: time-consuming, drawn-out, expensive legal battles and the inevitable appeals.


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Medical costs have skyrocketed in the U.S. since 1960s.

Increases in medical costs can be explained, at least partially, as the normal cost of living increases experienced in other sectors of the economy.

The costs associated with medical care have increased much faster and much more than the costs in these areas.


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The unprecedented increases can be attributed to two factors:1. Technological developments that have resulted in

extraordinary but costly advances in medical care.

2. A proliferation of litigation that has driven the cost of malpractice insurance steadily up

The potential for abuse, steadily increasing medical costs that lead to higher insurance premiums, and differences among workers’ compensation laws all contribute to controversy that still surrounds the issue.


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Workers’ Compensation Insurance


Insurance rates are affected by a number of factors:– Number of employees

– Risk involved in types of work performed

– Accident history of the employer

– Potential future loses

– Quality of the employer’s safety program

– Estimates by actuaries

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Insurance companies use one of the following methods in determining the insurance rates of employers

1. Schedule rating • Comparison of safety conditions and evaluation against set

baselines.• Credits are awarded for conditions better than the baseline and

debits are assessed for conditions worse than the baseline2. Manual rating

• A manual of rates is developed that establishes rates for various occupations

• Each occupation has a different rate based on its perceived level of hazard

• The overall rate for the employer is a pro-rated combination of all the individual rates

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3. Experience rating• Premium rates are assigned based on predictions of average losses

for a given type of employer• Rates are then adjusted either up or down according to employers

actual experience over the past 3 years.

4. Retrospective rating • Employees pay an established rate for a set period• At the end of the period, the actual experience is assessed and an

appropriate monetary adjustment is made at the end of a period

5. Premium discounting• Large employers receive discounts on their premiums based on

their size

6. Combination rating • Combining two or more methods


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Resolution of Workers’ Compensation Disputes When an injured employee and the employer’s insurance

company disagree on some aspect of the compensation owed (e.g., weekly pay, length of benefits, degree of disability), the disagreement must be resolved.

Most states have an arbitration board for this purpose. Workers’ compensation litigation is very common and

expensive. Neither the insurance company nor the injured employee is

required to hire an attorney. However many employees do.– Some do not feel they can adequately represent themselves.– Others are fearful of the “big business running over the little guy”

syndrome.


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Injuries and Workers’ Comp


Accidents traditionally viewed as sudden and unexpected. Now, gradual onset of a disease as result of prolonged exposure to harmful substances or a harmful environment can also be considered as an accident.

The harmfulness of an environment does not have to be limited to its physical components. Psychological factors can also be considered.

The highest rate of growth in workers’ compensation claims over the past two decades has been in the area of stress related injuries.

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Injuries and Workers’ Compensation AOE: Injuries arising out of employment COE: Injuries occurred in the course of employment Workers’ compensation benefits are owed only when the injury

arises out of employment or occurs in the course of employment. When employees are injured undertaking work prescribed in

their job description, work assigned by a supervisor, or work normally expected of employees, they fall into AOE category.

Employee: may be defined as a person who is on a company’s payroll, receives benefits, has a supervisor.

Supervision and direction are the factors that set independent contractors apart from employees and exclude them from coverage.


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Disabilities and Workers’ Comp


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Temporary Disability


When it is probable that an injured worker will be able to return to work with no or only partial disability

Temporary disability assumes that the employee’s condition will substantially improve.

The ability to return to work relates only to work with the company that employed the worker at the time of the accident.

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Temporary total disability: Injured worker is incapable of any work for a period of time but is expected to fully recover. – Most workers’ compensation cases fall into this

classification. – Most states prescribe in law the benefits owed to the

employee. Factors prescribed typically include a set percentage of an employee’s wage that must be paid and a maximum period during which benefits can be collected.


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Temporary partial disability: Injured worker is capable of light or part-time duties. – Depending on the extent of the injury, temporary

partial disabilities sometimes go unreported. – This practice is allowable in some states. It helps

employers hold down the cost of their workers’ compensation premium.

– This is similar to not reporting a fender-bender to your automobile insurance agent.


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Permanent Partial Disability

Condition that exists when an injured employee is not expected to recover fully.

In such cases, the employee will be able to work again but not at full capacity.

Often employees who are partially disabled must be retrained for another occupation.


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Permanent partial disabilities can be classified as schedule or nonschedule disabilities.– Schedule disabilities are typically result of nonambiguous injuries,

such as the loss of a critical but duplicated body part (e.g., arm, ear, hand, finger, or toe). Because injuries are relatively straightforward, the amount of compensation that they generate, and the period of time that it will be paid, can be set forth in a standard schedule.

– Nonschedule injuries are less straightforward and must be dealt with on a case-by-case basis. Disabilities in this category tend to be the result of head injuries, the effects of which can be difficult to determine. The amount of compensation awarded, and the period over which it is awarded, must be determined by studying the evidence. Awards are typically made based on a determination of percentage of disability.


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Four approaches to handling permanent partial disability cases have evolved.

Three of these are based on specific theories , and the fourth is based on a combination of two or more of these theories. The three theories are:– Whole-person theory

– Wage-loss theory

– Loss of wage-earning capacity theory.CEE 698 – Construction Health and Safety

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Whole-Person Theory


Simplest and most straightforward of the theories.

This theory is applied like a subtraction problem

What the worker can do after recuperating from the injury is determined and subtracted from what he or she could do before the accident

Factors such as age, education, and occupation are not considered.

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Wage-Loss Theory Determines the amount of wages the employee

could have earned if the injury did not occur. The wages actually being earned are subtracted

from what could have been earned, and the employee is awarded a percentage of difference.

No consideration is given to the extent or degree of disability. The only consideration is loss of actual wages.


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Loss of Wage-Earning Capacity Theory The most complex of the theories for handling

partial disability cases. It is based on not just what the employee was

earning at the time of accident, but also on what the employee might have earned in the future. Making such a determination is a subjective undertaking.

Factors considered include past job performance, education, age, gender, and advancement potential at the time of the accident, among others.

Once future earning capacity has been determined, the extent to which it has been impaired is estimated, and the employee is awarded a percentage of the difference.


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Use of Schedules

The use of schedules has reduced the amount of litigation and controversy surrounding partial disability cases.

However, they may be inherently unfair:– A surgeon who loses his hand would receive the

same compensation as a laborer with the same injury, if the loss of a hand is scheduled.


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Permanent Total Disability

When an injured employee’s disability means they cannot compete in the job market.

This does not mean that the employee is helpless. Rather, it means an inability to compete reasonably.

Handling permanent total disability cases is similar to handling permanent partial disability cases except that certain injuries simplify the process.

In most states, permanent total disability can be assumed if certain specified injuries have been sustained. (e.g., loss of both eyes or both arms).

In some states, compensation is awarded for life. In others, a time period is specified.


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Monetary Benefits of Workers’ Compensation The monetary benefits vary markedly from

state to state. The actual amounts are of less importance than

the differences among them. The amounts set forth in schedules change

frequently.


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Monetary Benefits of Workers’ Compensation Death and burial benefits:

– Benefits accrue to the families and dependents of workers who are fatally injured.

– The remaining spouse receives benefits for life or until remarriage. However, in some cases, a time period is specified.

– Dependents typically receive benefits until they reach the legal age of maturity unless they have a condition or circumstance that makes them unable to support themselves even after attaining that age.

– Further expenses are provided in addition to death benefits in all states except Oklahoma.


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Medical Treatment and Rehab


All workers’ compensation laws provide for payment of the medical costs associated with injuries.

Most states provide full coverage, but some limit the amount and duration of coverage.

State laws specify the following options:– Employee selects physician of choice (Applicable in Ohio)– Employee selects physician from a list provided by the state agency– Employee selects physician from a list provided by the employer– Employer selects the physician– Employer selects the physician, but the selection may be changed by

the state agency– Employer selects the physician, but after a specified period of time,

the employee may chose another

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Rehabilitation and Workers’ Compensation Occasionally an injured worker needs rehabilitation

before he or she can return to work. Goal of rehabilitation is to restore the injured workers’

capabilities to the level that exited before the accident There are two types of rehabilitation:

– Medical rehabilitation: Consists of providing whatever treatment is required to restore, to the extent possible, any lost ability to function normally. This may include such services as physical therapy or the provision of prosthethic devices.

– Vocational rehabilitation: Involves providing the education and training needed to prepare the worker for a new occupation.


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Medical Management of Workplace Injuries


Out-of-control workers’ compensation cases led to the concept of medical management of workplace injuries.

The goals of these state-level efforts are:– Speed up the processing of workers’ compensation

claims– Reduce costs– Reduce fraud and abuse– Improve medical management of workplace injuries

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Medical Management of Workplace Injuries Workers’ compensation and managed care have

been merged through the creation of Health Partnership Programs (HPP).

HPPs are partnerships between employers and their state’s Bureau of Workers’ Compensation.

Employers who choose to participate are required to have a managed care organization that provides medical management of workplace injuries and illnesses.


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HPP Example - Ohio According to Clairmonte Cappelle,

– “When a workplace injury occurs or an illness manifests itself, the employee reports it to the employer and seeks initial medical treatment. At this early stage, the employer or health care provider informs the MCO, which files a first report of injury electronically with the state and beings medical management of the case. The MCO prefers that an injured worker stay within its healthcare provider network for care. However, injured workers may choose their own doctors and hospitals from the list of 100,000 BWC-certified providers. Except for emergency situations, workers who select non-BWC-certified health care providers will not have their workers’ compensation medical costs covered by the state. Once a claim is filed, MCOs work with employers, injured workers, health care providers, third-party administrators and BWC. This includes authorizing certain medical procedures, processing providers’ bills for payment by BWC, and driving the return-to-work process.”


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Health Partnership Programs (HPP) The HPPs are effective because an MCO coordinates the

paperwork generated by the injured employee, the employer, health care providers, and the BWC.

The average time required to process an injury report before implementation of the HPP was more than 66 days. The HPP reduced this to approximately 33 days.

States that have implemented HPPs have learned the following lessons:

– It is better to mandate HPPs than to make them optional

– Cost containment is only part of the goal. Managed care programs must also include criteria such as lost wages, ability to return to work, and administrative costs to the employer.

– Employees want choice in selecting healthcare providers.

– Smart return-to-work programs are critical.


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Administration and Case Management


If an accident results in a serious injury, several agencies must be notified.

– As a general rule an injury is serious if it requires more than 24 hours of active medical treatment.

The company’s insurer, the state agency, and the state’s federal counterpart must be notified at minimum

– Individual states may require additional agencies be notified Once the notice of injury has been filed, there is typically

a short period before the victim or dependents can begin to receive compensation unless impatient hospital care is required. However, when payments do begin to flow, they are typically retroactive to the date of injury.

State statutes also provide a maximum time period that can elapse before a compensation claim is filed.

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Administration and Case Management All such activities – filing injury notices, filing

claim notices, arriving at settlements, and handling disputes – fall under the collective heading of administration and case management.

Most states have a designated agency that is responsible for administration and case management.

In addition, some states have independent boards that conducts hearings or hear appeals when disputes arise.


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Administration and Case Management Once the claim has been filed for workers’

compensation, three approaches are used to settle claims

1. Direct settlement • Employer or insurance company begins making what it thinks are the

prescribed payments. The insurer also sets the period over which payments will be made.

2. Agreement settlement • Employee and employer or its insurance company work on agreement

on how much compensation will be paid and for how long. Such an agreement must be reached before compensation payments begin.

3. Public hearing • If an injured worker feels he or she has been inadequately

compensated or unfairly treated, a hearing can be requested. Such cases are known as contested cases.


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Problems With Workers’ Compensation


There are serious problems with workers’ compensation in the U.S.– There is evidence of abuse of the system– Many injured workers who are legitimately collecting benefits suffer a substantial

loss of income. Stress claims in 1980 were almost non-existent, but now represent a

major and costly category Of the $27 billion spent on workers’ compensation, only $17 billion

goes to the worker– $10 billion alone goes to medical expenses

“Almost one-half million families each year are faced with getting by on a drastically reduced income because of a disabling injury suffered by the principal income earner. On-the-job accidents are supposed to be covered by workers’ compensation and all states have compensation systems. However, the injured worker rarely receives an income that comes close to what he or she was earning before the accident.”

-U.S. Department of Labor

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Spotting Workers’ Compensation Fraud or Abuse Public outcry against fraudulent claims is making

states much less tolerant against abuse. Ohio legislature passes a statute that allows

criminal charges to be brought against employees, physicians and lawyers who give false information in a workers’ compensation case.

The following factors should raise cautionary flags:– The person filing the claim is never home or available by

telephone or has an unlisted phone number

– The injury in question coincides with a layoff or termination


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Spotting Workers’ Compensation Fraud or Abuse

– The person filing the claim is active in sports

– The person filing the claim has another job

– The person filing the claim is in line for early retirement

– The rehabilitation report contains evidence that the person filing the claim is maintaining an active lifestyle

– No organic basis exists for disability. The person filing the claim appears to have made a full recovery.

– The person filing the claim receives all mail at a post office box and will not divulge a home address.

– The person filing the claim is known to have skills, such as carpentry, plumbing, or electrical skills, that could be used to work on a cash basis while feigning a disability.

– There are no witnesses to the accident in question.

– The person filing the claim has relocated out of state or our of the country.


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Spotting Workers’ Compensation Fraud or Abuse

– Demands for compensation are excessive

– The person filing the claim has a history of filing

– Doctor’s reports are contradictory in nature

– A soft-tissue injury is claimed to have produced a long-term disability.

– The injury in question occurred during hunting season.


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Future of Workers’ Comp


REFORM is the key! California is the leader in the reform movement

with its Workers’ Compensation Improvement Act– Key elements of the act include:

• Stabilizing workers’ compensation costs over the long term• Streamlining administration of the system• Reducing the costs associated with the resolution of medical issues• Limiting stress-related claims• Limiting vocational rehabilitation benefits• Increasing benefits paid for temporary and permanent disabilities• Reducing the amount that insurers may charge for overhead• Providing more public input into the setting of rates

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Cost Reduction Strategies


Construction professionals are responsible for helping their companies hold down workers’ compensation costs.

The best way to accomplish this goal outside of the legislation process is to maintain a safe and healthy workplace, thereby preventing the injuries that drive the costs up.

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General Strategies

1. Stay in touch with the injured employee– Let injured employees know that they have not been

forgotten and that they have not been isolated.

2. Have a return-to-work program and use it– The sooner an injured employee returns to work, even

with a reduced workload, the lower workers’ compensation costs will be.

3. Determine the cause of the accident– The key to preventing future accidents and incidents

is determining the cause of the accident in question.


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General Strategies Colledge and Johnson recommend using the SPICE model

for improving the effectiveness of return-to-work programs:– Simplicity: Medical professionals who treat injured employees should work

closely with employers to prevent system-induced complications. Such complications occur when employees become convinced their injuries are more serious than they really are.

– Proximity, means keeping the injured employee as close to the job as possible.

– Immediacy, means that the faster an employee’s injury claims can be handled, the less likely he or she is to develop psychosocial issues.

– Centrality, mans ensuring the employees and their families that everyone has the same goal and is working in good faith to achieve that goal.

– Expectancy, means creating the expectation that getting the employee well and back to work is the goal of all parties involved.


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Specific Strategies


1. Cultivate job satisfaction• Recognize and reward employees• Communicate frequently and openly with employees

about job-related problems• Give employees as much control over their work as

possible• Encourage employees to talk freely themselves• Practice conflict management• Provide adequate staffing and expense budgets• Encourage employees to use employee assistance

programs

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Specific Strategies


2. Make safety part of the culture• Ensure the visible, active leadership, involvement, and

commitment of senior management• Involve employees at all levels in the safety program and

recognize them for their efforts• Provide comprehensive medical care, part of which is a return-

to-work program• Ensure effective communication throughout the organization• Coordinate all safety and health processes• Provide orientation and training for all employees• Have written safety practices and procedures and distribute

them to all employees• Have a comprehensive written safety policy• Keep comprehensive safety records and analyze the data

contained in those records

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Specific Strategies


3. Have a systematic cost-reduction program• Insert safety notes and reminders in employee’s paycheck

envelopes• Call injured employees at home to reassure them that they will

have a job when they return• Keep supervisors trained on all applicable safety and health

issues, procedures, and rules• Hold monthly meetings to review safety procedures, strategies,

and techniques• Reward employees who give suggestions for making the

workplace safer• Make safety part of every employee’s job description and

performance appraisal

4. Use integrated managed care

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Chapter 5 1 CHAPTER 5 – WORKERS’ COMPENSATION CEE 698 – Construction Health and Safety.

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