More on Benefit Adequacy

Implicit in the workers’ compensation model has been the idea that the benefits workers receive under the “quid pro quo” are “adequate” or “reasonable” to sustain them. In the original 1917 Supreme Court case upholding the workers’ compensation model, New York Cent. R. Co. v. White, 243 U.S. 188, the Court strongly suggested that it had signed on to the quid pro concept because it assumed that employees’ foregone tort rights would be exchanged with “adequate” workers’ compensation benefits:

. . . it perhaps may be doubted whether the state could abolish all rights of action, on the one hand, or all defenses, on the other, without setting up something adequate in their stead. No such question is here presented, and we intimate no opinion upon it.

White, supra., 243 U.S. at 201.

The legal difficulty is that there has been no clear consensus as to what benefit levels are reasonable or adequate. We have seen that customary benefit levels have traditionally been set at about two-thirds of workers’ average wage loss with full payment of reasonable and necessary medical care occasioned by a work-related injury. However, suppose a state did not want to compensate workers to that level. Must a state provide remedies to injured workers at minimum benefit levels? This is a tricky question. If the entire premise of the quid pro quo is that workers originally surrendered their tort rights for an “adequate” or “reasonable” benefit or remedy, the question arguably boils down to whether a state may provide unreasonable or inadequate benefits without being required to reinstate workers’ original tort rights. One may wonder whether such a reinstatement would be in the interests of workers. After all, the “unholy trinity” of contributory negligence, assumption of the risk, and the fellow-servant rule might again come into play to defeat workers’ claims in a reinstated tort regime.

There is a wrinkle in this discussion, however. In many states affirmative defenses to negligence actions of the type that routinely defeated workers’ tort claims in a prior era have been softened considerably. Only a handful of states, for example, retain the tort defense of contributory negligence that had operated historically to deny plaintiffs a remedy if they were themselves negligent to the slightest degree. Most states have moved to a comparative negligence system in which relative fault is apportioned among all negligent actors. See e.g. Bradley v. Appalachian Power Co., 256 S.E.2d 879 (W.Va.1979).  Indeed, many states also now treat the assumption of the risk defense as part of an overall comparative fault system and will not automatically cut off injured plaintiffs where it is clear that a defendant was negligent. See Davenport v. Cotton Hope Plantation Horizontal Property Regime, 508 S.E.2d 565 (S.C. 1998). If an essential premise of the quid pro quo has been altered—workers are not at the same risk of having their claim cut off completely—does the early 20th Century “exchange” of rights continue to make sense? It has been argued that the value of workers’ injury claims has in theory increased due to the modification of traditional tort affirmative defenses. If those claims were brought as negligence cases under current law their “expected value” would be greater (workers would be more likely to win some level of damages), should not then the value of their workers’ compensation benefits increase?

One should be careful in considering these arguments, however. It remains true that in any negligence claim a prima facie case must be established. Workers’ compensation provides benefits even to injured workers who are unable to make out a prima facie negligence case. After all, many, many workplace injuries arise from “accidents” in which it cannot be shown that a defendant-employer departed from or “breached” an established standard of care. Workers injured under those circumstances might find themselves completely without a remedy in a reinstated tort regime, and it seems very difficult to say whether workers in the aggregate would be better or worse off in such a regime.

As part of the Occupational and Health and Safety Act of 1970, Congress established the National Commission on State Workmen’s Compensation Laws to “undertake a comprehensive study and evaluation of State workmen’s compensation laws in order to determine if such laws provide an adequate, prompt, and equitable system of compensation.” In accord with the Act, a Commission was formed and chaired by Professor John Burton, and a report was transmitted to the President of the United States in 1972. The Report was extremely detailed, and will not be set forth at length here, but the keystone finding was that “[i]n general, workmen’s compensation programs provide cash benefits which are inadequate. The majority of disabled beneficiaries receives less than two-thirds of the lost wages. In most States, the most a beneficiary may receive, ‘the maximum weekly benefit,’ is less than the poverty level of income for a family of four. Moreover, many states limit the duration or the total amount of cash payments.” (Report of the Commission at Page 18).

As a result of its findings, the Commission made 19 essential recommendations “designed to translate . . . five basic objectives into specific guidance for legislators and others involved in improving state workers’ compensation programs.” Those five major objectives [for a modern workers’ compensation system] were: (1) broad coverage of employees and of work-related injuries and diseases; (2) substantial protection against interruption of income; (3) provision of sufficient medical care and rehabilitation services; (4) encouragement of safety; and (5) an effective system for the delivery of the benefits and services. In 2013, Professor Burton, the chair of the original Commission, reported on the status of workers’ compensation systems in a report to the American Bar Association’s Committees on Workers’ Compensation. To quote, Professor Burton from the 2013 Report:

The National Commission recommended “creative Federal assistance” to enhance the virtues of a decentralized, state administered program. A key element of the assistance was to be a 1975 review of the state’s record of compliance with the 19 essential recommendations, which would culminate in Federal mandates enacted by Congress if necessary to guarantee state compliance with these essential recommendations. The National Commission members rejected federalization of state workers’ compensation programs, such as the preemption of state safety programs contained in the OSHAct. Instead, the 18 members unanimously recommended the enactment of federal standards if necessary to achieve compliance with the 19 essential recommendations.

Federal standards were never enacted by Congress, in part because states improved their laws in the 1970s. However, the average compliance score among the states with the 19 essential recommendations never exceeded 12.9 from 1972 to 2004, when the Department of Labor stopped tracking the progress or lack thereof.

There is extremely sparse contemporary evidence on the status of workers’ compensation benefit adequacy. As Professor Burton’s 2013 Report indicated, the Department of Labor no longer tracks workers’ compensation benefit adequacy as measured by state compliance with the 19 essential recommendations.  H. Allan Hunt, a researcher at the W.E. Upjohn Institute, provided a benefit adequacy update in a 2014 Research Newsletter. Perhaps the most striking aspect of the newsletter is that it can point to only three benefit studies of state workers’ compensation systems’ benefit adequacy that have been conducted since 2000. He also expressed surprise that more adequacy studies had not been conducted since he had personally conducted a study in 2004. Each of these studies reflects that benefit levels are more nearly adequate in connection with short term injuries and become more inadequate with the duration of an injury.

A 2014 study in the Journal of Industrial Medicine, Using Linked Federal and State Data to Study the Adequacy of Workers’ Compensation Benefits, concludes:

Earnings losses after an injury are highly persistent, even for comparatively minor injuries. Income benefits replace a smaller fraction of those losses than previously believed.

Given the paucity of studies on benefit adequacy it seems fair to say that little empirical attention has been paid to the issue by either government or private industry. Accordingly, lawsuits based on theories of alleged benefit inadequacy should be expected to continue.

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