How does workers’ compensation work? Some would argue that it does not. There are anecdotal examples in which various individuals or constituencies are not satisfied with the application of a particular state’s law or some particular provision that is perhaps applied in various states.
Workers’ compensation is a state law concept. Each of the 50 states has adopted the concept of workers’ compensation, though there are marked differences in the details. As they say, “the devil is in the details.”
Workers’ compensation is a state law concept. Each of the 50 states has adopted the concept of workers’ compensation, though there are marked differences in the details. As they say, “the devil is in the details.”
Each of the states’ laws has multiple provisions for the replacement of income. A primary driving spirit of the 1972 Workers’ Compensation Commission report is income replacement. Disparity in financial compensation has also been a function of critical writings in recent years. The determination of compensation in any system may require several steps.
First, there has to be a method of calculating the wage or income that is lost. The 1972 Report decried the calculations that called for replacing about two-thirds of lost wages. The logic of this percentage is discussed at length by workers’ compensation commentators. Some portion of the foundation for this number is a legislative grace in the Internal Revenue Code. Wages earned while working are subject to taxation by the federal government. A majority (only seven states have no income tax – yeah Florida!) of states also have a state income tax which applies to wages earned at work.
For whatever reason, the federal government decided that disability benefits from state workers’ compensation programs would not be considered “income” and thus would not be subject to “income tax.” Because of this, if workers’ compensation replaced 100% of lost wages following an accident, the injured worker would potentially have a higher net-income (after taxes) from disability than from work. Some argue that this would disincentivize return to work. Others argue this would perhaps help pay for some inconvenience after an injury that workers' compensation does not pay (having spent the day in doctor's offices and testing, preparing a meal might be avoided with some "take-out"). Injury and disfunction is a challenge in broad context of daily life.
There are, generally speaking, two methodologies for compensating for lost income following a work accident (collectively, lost wage or other income benefits are often referred to as “indemnity” benefits). These are compensation for lost wages, or "income," and compensation for loss of earning capacity, or “impairment.” As a general rule, the compensation process is also divided into two time periods following the injury; the dividing or defining moment between temporary and permanent is a concept called “maximum medical improvement,” or “MMI.”
Income benefits paid after an injury but before MMI are typically referred to as “temporary benefits” as the injured worker during this time period is undergoing "remedial" medical care, care intended to have a lasting effect of diminished symptoms, complaints and increased function. An intent of the physicians during this time period is treatment expected to produce some lasting effect.
As function improves and symptoms are addressed, the injured worker is expected to reach a point beyond which no further permanent or lasting improvement is reasonably expected. This is the date of MMI. Because the time between injury and MMI is a period of (hopefully) improvement and progress, the income replacement during this time period is generally calculated based on the loss of wages, "income."
This loss can be either total (a complete inability to work) or partial (able to work, but with limitations regarding extent, i.e. “four hours per day,” or restrictions regarding activity, i.e. “no lifting over 10 pounds,” or “no climbing ladders”). As a general rule, the compensation for “total” disability is a reasonably straightforward calculation using some measure of wages before the injury, and resulting in a daily or weekly amount due post-injury, during the period of total disability, often called “temporary total disability. In workers' compensation, we love our acronyms and this one is "TTD."
When the “temporary” loss is instead “partial,” the calculation may be more complex. The math may take into account the amount that the injured worker is being paid during that time period. If the medical expert(s) have not excused the worker from work, and yet the worker does not return to work following that advice, the amount the worker “would have” or “could have” earned (sometimes referred to as “deemed earnings”) may be used in a similar computation. This calculation is often called "temporary partial disability" or "TPD."
There can be significant friction in a workers’ compensation system over issues involving temporary indemnity benefits. There can be medical disagreements, with one expert opining that a worker may return to work while another opines that the worker should be medically excused from work. There is no clear-cut, absolute, standard against which such opinions can be measured. And so, this difference of opinion can require someone deciding which doctor to believe.
In most systems, there is an adjudicator of some kind, called a commissioner, deputy commissioner, judge, arbitrator or similar to make that decision. But, it often is made months afterward as both the injured worker and the employer are entitled to due process of law in proving which opinion should be believed. Records are obtained and reviewed, doctors are questioned or deposed (questioned under oath, which is transcribed and printed for an adjudicator to read), and pleadings (formal legal documents setting forth claims or defenses or legal arguments) are filed with the adjudicator.
Once an injured worker reaches MMI, it is thought that science can determine, rationally, the extent of “impairment.” Impairment has many definitions and descriptions, but ultimately impairment refers to a loss of the normal function of the body. Most people have suffered a loss of function as they have aged. Explaining this, a doctor once asked me if I could sit on the floor with my legs crossed immediately in front of me (something once called “indian style” in another age). When I denied that ability, she asked “could you when you were a kid? And the answer was easily “yes.” That, she explained, is a loss of function. My body, over time, does not have the flexibility it had when it was young.
In last century, much of compensating the effect of an injury (in workers’ compensation and in personal injury) was dependent upon the establishment of function loss, "an impairment," which was expected to never go away, a “permanent impairment.” These were conveniently divided into two categories in workers’ compensation (like the temporary parameters above) into “partial” and “total.”
Impairment is not a measure of lost income. It is an expression of lost function perceived by a physician. In the early days, the impairment was expressed as an opinion of a doctor, and two physicians examining the same injured worker might express radically different opinions regarding the appropriate impairment rating. The medical community, in the guise of the American Medical Association began compiling opinions and parameters. In the early 1970s, those were published in a book called the AMA Guides to Permanent Impairment. The intent was clear, a reference that provided criteria and parameters to a physician and thus supported potentially greater opinion consistency and decreased degree of impairment disputes.
Since that time, there have been multiple revisions to the AMA Guides; the most recent is the 6th Edition. There are those who support the periodic revision process and those who decry it. To some extent the way people feel about them depends on individual perceptions of whether the result on benefits does or does not it the individual’s perspectives generally. Obviously injured workers may advocate for more generous impairments and those who pay workers' compensation benefits may advocate for more restrictive impairments.
Some states have a category of “permanent” indemnity that is “total” in nature. That is, the legal medical conclusion is that this injured worker can no longer work and thus must be compensated for “total disability,” perhaps even called “permanent total disability,” or "PTD." Other states do not recognize such a characterization, but nonetheless statutorily provide for such a duration of benefits.
Thus, there is an injury followed by medical services, and likely also medical opinions. The injured worker cannot return to work (TTD) or can return with some limitation(s) or restriction(s)(TPD), and medical care is rendered. After some period of treatment and hopefully recovery (restoration of function), the physician opines that the worker has reached MMI, and if the result is a permanent injury, some methodology is employed to determine how to pay permanent indemnity benefits of some extent, and if not "PTD," then some form of "permanent partial" indemnity.
With the concept of “permanent partial” comes one of the great fundamental debates of workers’ compensation. How should an injured worker be compensated for the “permanency” of the work accident? There are two major schools of thought on this, the “disability” school and the “impairment” school. Some states compensate workers by making periodic (weekly or biweekly) payment based on the level of “permanent impairment.” These are sometimes referred to as “impairment benefits” and entitlement is dependent primarily on the “impairment” which a physician has opined to be appropriate.
There are disputes regarding the payment of “impairment benefits.” Doctors have the AMA Guides (or in Florida, the Florida Guides) to provide assistance in assigning a permanent impairment rating. However, these are “guides” and there is still room for disagreement.
There might be disagreement regarding the appropriate diagnosis of the injured worker’s medical condition. One diagnosis might lead to one section of the Guides, while another diagnosis might be described in another section.
There can be differing views expressed by physicians as to how much function has been restored. One doctor believes the worker "cannot" bend, or "cannot" extend her/his arm, while another believes the patient merely "will not" perform that function.
There can be multiple conditions or injuries that result from a single work accident or exposure, therefore leading to rating of multiple impairments. And, in case this was not sufficiently complex there can be differing opinions as to how any group of multiple impairments might be combined with one another.
The doctors express opinions, with reference to the Guides, of a "permanent impairment rating," or "PIR." Any dispute is resolved by an adjudicator, or by stipulation of the employee and employer, and then a certain amount is paid to the worker to compensate for this loss of function. Once the PIR is established, this is primarily a mathematical issue.
The “disability” school of permanent partial thought is not overly concerned with the precise numeric value of “impairment” assigned. It is, however, typically concerned with the existence (in the physician’s opinion) of some “permanent” injury. To justify payment of “permanent” benefits, it is thought that a “permanent injury” is required. Thus, systems require that the injury has resulted in some permanent change in ability (i.e. the worker can henceforth work only 4 hours per day, or “can only sit 4 hours per day” or “can only stand one hour at a time.”)
The “disability” school may thus use permanency as a threshold, but not so much as a measure of benefits. In the disability model, income is replaced when the effects of the injury result in diminished earnings. Often, these models require that an injured worker search for work to prove entitlement to benefits. Such claims might be defended on the basis that the scope of the work search is too limited or not “in good faith” (anyone that does not want a job can arguably figure out how to tank an interview or make a poor first impression).
There has been press recently about the disparity of benefits between state systems. Someone losing a leg (not a frequent injury, but one selected by some recent reform advocates) in one state might receive a different basket of benefits than a similarly injured person in a neighboring state. From a casual comparison, some will see inequity. However, an analysis might reveal that differences or disparities are tied directly back to this distinction between “impairment” and “disability” mindsets.
There are benefits and detriments to each theory. An “impairment” system might provide permanent partial benefits to a worker that has returned to work and suffered no real loss in earnings. The “impairment” systems are not concerned with actual earning loss. And thus, a worker with a loss of function (bending, lifting, standing, etc.) might nonetheless return to work at the same wage, and yet be entitled to compensation for the loss of function. The corresponding benefit is relative simplicity. Once the rating is determined, the rest of benefit determination is essentially math, and therefore perhaps less subject to disputes and adjudications.
The “disability” model avoids the perceived issues with benefits being paid seemingly indiscriminately and without regard to earning loss. The burden for this, however, is in the determination of benefit entitlement. The process becomes involved factually, more complex than the mathematical effort in “impairment.” Is the work injury and resulting ability/inability a (or “the”) cause of this particular worker's decrease in earnings? Or is there a lack of motivation or effort in finding work, or is the economic situation (unemployment generally) playing some role? Should focus be on the pre-injury type of work or on work generally (does a 30 year master pipe-fitter have to seek or accept entry-level work at McDonalds?
Is either theory of compensation infallible or perfect? No. Various perspectives can find fault with some effect of either. Will they produce different results or payments despite similarity of injury, disability or impairment? Certainly they can. If different states employ different theories (disability v. impairment) or tools (AMA Guides v. Florida Guides) can payments differ despite similarity of injury? Certainly they can.
Does the fact that results are different inherently mean that one theory or tool is “right” or “wrong?”
