temporary total disability

Workers Compensation History and Benefits

Workmen’s Compensation

BIBLIOGRAPHY GENERAL WORKS

SERIAL PUBLICATIONS

Workmen’s compensation legislation, intended to assure some recompense for occupational injuries sustained by workers, is the most prevalent form of social insurance—universal in advanced countries and widespread even among developing nations. It is generally among the first social welfare measures to be adopted. Its early acceptance has been facilitated by the fact that it usually does not create a wholly new benefit for workers but replaces existing common law or statutory rights to indemnity for injuries attributable to the employer. It is also generally associated with incentives for prevention of accidents. Moreover, individual and social costs of failure to meet the losses sustained in work injuries and fatalities are especially conspicuous. The necessity for dealing with the problem appears to appeal to a common sense of justice.

European origins . Germany provided the pioneering workmen’s compensation act in 1884, following rapidly upon enactment of its compulsory sickness insurance act a year earlier, although specific laws providing compensation for particular groups of workers date back to the eighteenth century. British legislation followed in 1897, but it departed widely from the German design. The different patterns adopted by these countries became the two central influences upon compensation legislation in the Western world. In retrospect, most authorities now agree that it has proved unfortunate that the British pattern was the one largely followed in the United States, mainly because it was better known there.

Before the adoption of workmen’s compensation legislation, an occupationally injured worker could secure redress only by suing his employer. Everywhere this was slow, costly, and usually ineffective. The legal defenses available to an employer, against whom fault had to be proved, were numerous and formidable, and awards for workers were few and meager. Both Germany, in 1871, and England, in 1880, had first experimented with employer’s liability laws, which were designed to remove or abate some of the more unfair defenses. In both countries such measures were soon found unsatisfactory.

The basic differences between the German and British approaches to compensation, in capsule form, were as follows.

(1) The German required compulsory insurance by the employer with nonprofit public entities which were obliged to ensure that workers received the benefits due them. The entire system was under the administrative supervision of the Federal Insurance Office, and disputes were adjudicated through special courts. In England, employers were declared legally liable for industrial injuries, but insurance was not mandatory. In practice, most large employers did insure with private carriers. Claims for compensation were settled by negotiation between the worker and the employer or insurance carrier. Disputes were carried through the conventional court system. The British regarded the law as self-administering and provided no official administrative agency for supervision of the system. In Germany, protection of the worker’s rights had become a state obligation; in Britain, it was still basically a private matter.

(2) Litigation was minimized in Germany and was never a cost to the worker. It continued to be a prominent feature of British experience, although the worker’s chances had been improved.

(3) In addition to the cash compensation for wage loss, the German law originally also provided medical care benefits (connected with sickness insurance funds), and by 1925 it had added rehabilitation benefits as one part of an increasing emphasis on restoring the injured worker to employability. The British made no specific provision for medical care or rehabilitation.

(4) The German system provided lifetime payments for permanent disability and for widows and children in death cases. Lump-sum settlements were permitted only for minor disabilities. The British law encouraged lump-sum settlements in cases of permanent disability, and they were mandatory in fatalities.

These undesirable features of the British tradition, which was abandoned in Great Britain shortly after World War II in favor of a basically new approach, are still prominent in American legislation and practice.

Development in the United States . Workmen’s compensation came late in the United States, although almost three decades before any other form of social insurance. The frightful human toll of maimings and fatalities around the turn of the twentieth century, years during which industrial accidents were reaching record-breaking heights, aroused the national conscience. Industrial safety, hygiene, and compensation represented three parallel reform movements. In the United States, employer’s liability legislation also preceded workmen’s compensation. By 1910 practically every state had passed some sort of employer’s liability statute. But here, too, these soon proved inadequate, merely mitigating the harshness and cumbersomeness of the common law. The essential basis of employer’s responsibility remained tort liability.

The first state acts to be based on the compensation principle of “liability without fault” —establishing employer liability for assured but limited compensation, irrespective of fault, in return for the worker’s forsaking common law rights to unlimited damage suits—were enacted by Maryland in 1902, Montana in 1909, and New York in 1910. All these were held unconstitutional. But by this time public opinion was highly aroused. Under the leadership of President Theodore Roosevelt, an act covering some categories of federal employees was passed in 1908. In 32 states, 40 official commissions investigated and strongly condemned the existing legal situation and with virtual unanimity recommended adoption of laws based on “liability without fault.”

Despite the adverse constitutional decisions, 30 compensation laws were enacted between 1910 and 1915. But the negative constitutional rulings, particularly in regard to the New York act by the Court of Appeals in 1911, had marked effects. Although seven states amended their constitutions to make certain that compensation would be legal, most laws were narrowed and restricted because of the decisions. In 1917 the issue of constitutionality was permanently settled by the U.S. Supreme Court, which declared the state police power an adequate basis for all proposed types of compensation laws. But the earlier rulings left an enduring and heavy heritage of “elective” provisions and limited coverage of industries, occupations, and injuries, which curtailed the effectiveness of the laws.

By 1920 all but six states had enacted legislation; action by Mississippi in 1948 completed the roster. Today every state operates some kind of workmen’s compensation program. In addition, there are three federal jurisdictions: the District of Columbia, federal government employees, and longshoremen and harbor workers. Most states require subject employers to carry insurance with private companies or to give proof of ability to self-insure. Eighteen states have state funds, eleven of which are “competitive” with private carriers; seven are “exclusive,” although in two of these self-insurance is also permitted.

Since about 63 per cent of the business is carried by private companies and 12 per cent is handied by self-insurance, and since the states assume widely varying degrees of supervision or involvement in the system, data on workmen’s compensation experience have always been inadequate. For example, about a score of states do not have such basic data as the amount of benefits paid, by type of insurer or by type of benefit, and about 35 states have no information on number of covered workers or amount of covered payrolls. Fortunately, the Social Security Administration, which has no operational responsibilities in this field, has carefully developed techniques for obtaining reliable estimates of essential data.

Coverage. Despite wide coverage, workmen’s compensation has never really supplanted the common law and employer’s liability legislation, especially the latter, as remedies for occupational injury. About one-fifth of United States workers are still not covered, a proportion that has remained stable over the past decade. Prominent among the omissions are interstate railway workers and merchant seamen, who feel that their experience under special federal employer’s liability legislation compares favorably with that of workers under state compensation systems. Noncoverage at the state level is attributable to elective laws and exclusion of certain types of employment (e.g., small firms, agricultural work, domestic employment). State laws vary widely in these, as in other, respects. In 13, the ratio of actual to potential coverage is less than 65 per cent. In addition, some types of injuries, particularly occupational diseases (as distinguished from “accidents"), are excluded. Only two states still fail to cover any occupational diseases, but 20 more do not cover all of them. Since World War II, protection has been greatly broadened through liberal judicial interpretation of causal relationship of injury to employment and the meaning of such terms as “accidental injury.”

Benefits. There are three categories of compensation benefits—cash, medical, and rehabilitation— intended to indemnify the injured worker or surviving dependents for loss of wages and/or occupational capacity and for medical and hospital expenses and, where possible, to restore working capacity. Since the end of World War II, cash compensation has fairly constantly represented about two-thirds of total payments, while medical care and related costs have consumed about one-third.

Cash benefits vary in accordance with four classes of injuries: temporary total disability, permanent partial disability, permanent total disability, and death. One of the basic concepts of the American systems was that benefits should be proportionally related to wage loss, as distinguished from uniform benefit amounts paid in Britain. Most of the statutes express the intent to replace about two-thirds of the weekly wage during total disability. However, there are many qualifications in the formulas, including a weekly dollar maximum, a maximum total dollar amount, a maximum amount of time for which benefits may be paid, and a waiting period. In practice, adjustments in these statutory limitations have lagged far behind changes in wage scales, with the following conspicuous results: (1) the weekly maximum has become the effective rate for so large a proportion of beneficiaries as to approximate a flat-sum system;

(2) benefit levels have fallen far below the intended objective for the majority of workers; and

(3) the effective rate of compensation, as a percentage of lost earnings, is considerably lower today than it was in the early periods of the programs.

Recent estimates indicate that, on the average, cash benefits do not replace more than one-third of wage loss. The proportion is highest for temporary disability cases, considerably lower for permanent disability, and lowest for death cases, where the ratio probably does not exceed 15 per cent. This does not take into account the worker’s outlay for medical expenses in states which still limit such benefits, or the legal fees he may have to pay in contested cases. Despite the original intent of workmen’s compensation, much the largest share of the cost of industrial injury falls on the worker and his family or on public assistance or private charity.

Medical benefits are in some degree now included in all the laws and represent the most significant quantitative advance in the programs since the beginning. In part, this progress derives from recognition that effective medical care constitutes a long-term economy, for it reduces the period or intensity of disability. Nonetheless, about half the states still retain some limitations on the time, the amount of expenses, or the types of injury covered.

Qualitatively, medical care progress has been less impressive. Inadequate medical administration and failure to orient medical care toward rehabilitation have been subject to growing criticism from all quarters. In less than half the states does the workmen’s compensation agency have any authority to supervise medical care, despite the uniform testimony to this necessity from such sources as the American Medical Association and the American College of Surgeons.

In recent years, with the rapid advance of rehabilitation techniques, the theoretical focus of workmen’s compensation has been sharply shifted from concentration upon indemnity to maximum restoration of the worker to his previous condition. Despite almost universal verbal dedication of experts and administrators to the principle that rehabilitation should now be the primary goal of the compensation process, because of both its distinct economies and its humanitarianism, the programs have not responded to the new needs. Only half the workmen’s compensation jurisdictions have any specific provisions in their acts to encourage rehabilitation, and these vary widely in their adequacy. Most workmen’s compensation recipients who need such services do not receive them. For those who do, the delay between injury and acceptance for rehabilitation is so long as to threaten the success of the undertaking. Lack of supervision of the kind and quality of medical care has been a major obstacle.

Many authorities have alleged that the basically litigious and indemnity-oriented character of workmen’s compensation generates disincentives to acceptance of rehabilitation procedures. This has led to recommendations that in permanent disability cases compensation be based upon degree of physical impairment rather than on loss of earning capacity. The widespread practice of commutation of periodic benefit rights into lump-sum settlements, which removes the worker from the purview of the workmen’s compensation system (and frequently otherwise defeats the program’s purpose), has also retarded rehabilitation.

The significance of the issue is enlarged by the fact that steady growth of other social insurance and welfare measures, which often overlap with workmen’s compensation, is steadily relegating the latter to a supplementary place in financial protection. The distinctive role of workmen’s compensation is increasingly in its rehabilitation potential. Little wonder that the challenge of rehabilitation is widely regarded as both the crucial opportunity and the Achilles’ heel of workmen’s compensation. Canadian programs, particularly in Ontario, have amply demonstrated that rehabilitation can successfully be made the core of an effective workmen’s compensation system. Although the Canadian practices are widely spoken of in the United States with unstinted admiration, they have nowhere been imitated there.

Costs. The aggregate annual cost of the system to employers has consistently been less than 1 per cent of payroll in covered employment since the end of World War II, moving between 0.90 per cent and 0.99 per cent in all the years from 1946 to 1962. Before the war, costs were as high as 1.2 per cent. National averages conceal great variations among states, industries, and individual employers, rising from negligible proportions to 30 per cent or more of payroll in extra-hazardous industries in some states. The major issue in respect to cost has been the high proportion which fails to find its way into benefits. Overhead expenses of insurance— the major factor—and administration consume about 40 per cent of total costs, far more than in any other form of social insurance.

Major issues in the United States . After more than a half century of experience, workmen’s compensation in the United States is under severe and fundamental challenge as to whether it can meet its stated objectives and, more profoundly, whether the original objectives are adequate for contemporary conditions. The programs have not exhibited adaptability and dynamism commensurate with the altered environment. In part this is related to declining interest. Both absolute and relative rates of injury are decreasing; the injury severity rate (measured by lost workdays) has declined steadily; and the death rate was cut in half in the period 1938-1958. To some degree the preventive incentives of workmen’s compensation may be credited with contributing to advances in industrial safety.

The human toll is still distressingly large—about fifteen thousand killed annually, some eighty thousand disabled for life, and about two million temporarily disabled each year. The problem remains grim for those directly affected, but they represent a declining proportion of the population. Moreover, increasingly, the injured and the survivors of those fatally injured have other recourse, particularly in the federal Old Age, Survivors, and Disability Insurance program, as well as the far less general provisions of private employee-benefit programs.

Despite the growth of overlapping jurisdictions among public programs and the increasing complexity of distinguishing between occupational and nonoccupational disability, most American authorities agree with the conclusion of England’s Beveridge Report (Great Britain 1942) that continuation of a separate program for the occupationally disabled worker is desirable. But just as England also accepted, in 1946, the necessity of the Bev-eridge Report’s corollary recommendation for a fundamental overhauling of the compensation system, United States experts are convinced that the state programs must be revised to do a far more effective job of rehabilitating the injured worker and restoring him to employment. Unless this can be done, the case for a separate system crumbles.

At the core of this challenge lies not just revised legislation, but a new approach to compensation administration, which in the United States has more nearly resembled arbitration procedure than supervisory responsibility. (Five states have no administrative agency and still rely on “court administration.”) Whether this can be achieved under so many completely independent jurisdictions without any form of central coordination or assistance at the federal level is a sore question. In any case, administrators need tools. Restorative programs will require far broader coverage of injuries; adequate benefit levels, particularly to correct the inequities falling upon the permanently injured and dependent survivors; authority to deal with quality of medical care; minimization of litigation and lump-sum settlements; and more modern methods for rating permanent disability.

Although the desirability of continuing a separate program for occupational injury is accepted, it is generally acknowledged that some form of reconciliation between overlapping social insurance benefits is required. The difficulties of finding a satisfactory formula in the face of the autonomous and widely varying state programs are formidable.

A reformed system need not be more costly. The net costs of effective medical care and rehabilitation are very low; in fact, they often represent net savings. Moreover, improved administration, particularly in reduction of excessive expense ratios in insurance, could bring economies more than sufficient to meet any increased costs of a balanced and comprehensive system of protection. Unfortunately, while the shortcomings of the present system have been a lively subject of discussion for many years, the prospects for effective action do not appear bright.

Herman M. Somers

BIBLIOGRAPHY GENERAL WORKS

Berkowitz, Monroe 1960 Workmen’s Compensation: The New Jersey Experience. New Brunswick, N.J.: Rutgers Univ. Press.

Cheit, Earl F.; and Gordon, Margaret S. (editors) 1963 Occupational Disability and Public Policy. New York: Wiley. Contains discussion of experiences throughout the world.

Great Britain, Inter-Departmental Committee ON Social Insurance and Allied Services 1942 Social Insurance and Allied Services. Papers by Command, Cmd. 6404. London: H.M. Stationery Office; New York: Macmillan. → Known as the Beveridge Report.

Skolnik, Alfred M. 1962 New Benchmarks in Workmen’s Compensation. Social Security Bulletin 25, no. 6:3-18.

Somers, Herman M.; and Somers, Anne R. 1954 Workmen’s Compensation: Prevention, Insurance, and Rehabilitation of Occupational Disability. New York: Wiley.

U.S. Social Security Administration, Division of Program Research 1967 Social Security Programs Throughout the World, 1967. Washington: Government Printing Office.

SERIAL PUBLICATIONS

Chamber of Commerce of the United States of AmericaAnalysis of Workmen’s Compensation Laws.→ Published since 1950. Includes the Canadian provinces.

International Association of Industrial Accident Boards and CommissionsProceedings.→ Published since 1914 by the U.S. Bureau of Labor Standards. Provides general information on administration and policy issues.

International Labour Review.→ Published since 1921 by the International Labor Office, which has also published numerous special studies.

International Social Security AssociationBulletin. → Published since 1948. Reports regularly on new developments in many nations.

Social Security Bulletin.→ Published since 1938 by the Social Security Administration. Provides financial and benefit data annually, usually in the January issue.

U.S. Bureau of Labor StandardsState Workmen’s Compensation Laws.→ Published since 1943.