The rationale for continuing the workmen's compensation programand suggestions for improvements in the program

A. OVERALL EVALUATION OFWORKMEN'S COMPENSATION

The Workmen's Compensation com-mission was directed to "undertake a compre-hensive study and evaluation of State workmen'scompensation laws in order to determine if suchlaws provide an adequate, prompt, and equitablesystem of compensation." (See Glossary for ouruse of "adequate" and "equitable.") This sum-mary of the Commission's evaluation is based onthe five objectives of a modern workmen'scompensation program: coverage, incomemaintenance, medical care and rehabilitation,safety, and an effective delivery system.

Although on an upward trend, workmen'scompensation coverage is inadequate. Onlyabout 85 perc~nt of all employees are presentlycovered. The wide variations among the States inthe proportions of the labor force covered areinequitable. Moreover, those not covered usuallyare those most in need of protection: thenon-union, low-wage workers, such as farm help,domestics, and employ'ees of small firms.

In the past, some work-related injurieswere not compensable because certain legal testscould not be satisfied, such as the requirementthat an injury be the result of an "accident."Because these legal tests have been liberalized,most work-related injuries now are compensable.The status of work-related diseases is less satis-factory. Despite considerable improvement,some 10 States still do not provide full coveragefor work-related diseases, and the statute oflimitations is so short in some States that many

1 Workmen's Compensation Should ProvideBroad Coverage of Employees and Work-Related Injuries and Diseases

118

diseases are not compensable because symptomsappear long after exposure.

2 Workmen's Compensation ShouldProvide Substantial ProtectionAgainst Interruption of Income

to inadequate supervision by some State work-men's compensation agencies, to insufficientattention to the plight of the industrially dis-abled by departments of vocational rehabilita-tion, and to the lack of coordination betweenthe two programs.

The potential of workmen's compensationto return rehabilitated workers to jobs is limitedby the unfortunate reluctance of many firms toemploy the handicapped. Working within thislimitation, workmen's compensation has a rea-sonably good record. One device for supporting,rehabilitation is the second-injury fund, whichprotects employers from extraordinary work-men's compensation costs associated with em-ployment of the physically impaired.

4 Workmen's Compensation ShouldEncourage Safety -

While there is only limited evidence of theactual influence of workmen's compensation onsafety, the use of merit rating means thepotential influence is significant. As incomebenefits and medical care and rehabilitation areprovided, the assessment against the employersfor the benefits should provide automatic in-centives to safety. Substantially stronger safetyincentives would result from the benefits recom-mended by this Commission. The safe way willbecome the economical way.

In general, workmen's compensation pro-grams do not provide adequate income mainte-nance. Disabled workers in the majority of casesreceive less than two-thirds of their lost wages.In most States, maximum weekly benefits for anon-farm family of four are below the povertylevel of income. Many States also have limits onthe duration or total amount of benefits orboth. The inadequacies of benefits mean thattoo high a proportion of the burden of work-related disability is borne by workers and thetaxpayer rather than by employers.

Workmen's compensation income benefitsare not equitable. One obvious inequity is thesubstantial difference among the States in theadequacy of benefits. There are also intra-Stateinequities in those jurisdictions with low maxi-mum weekly benefits because a higher propor-tion of wage loss is replaced for low-wageworkers than for high-wage workers. Anothersource of apparent inequity in some States is thesubstantial amount of benefits paid for minorinjuries relative to the benefits paid for seriousinjuries.

We do not have sufficient data to evaluatedefinitively promptness of payment. The betterprivate carriers, State funds, and self-insurers aredoing excellent jobs 9f beginning payments inuncontested cases. Such promptness appears tobe one of the strengths of workmen's compensa-tion. In contested cases, the record is lesssatisfactory .

5 Workmen's Compensation Should Havean Effective Delivery System

3 Workmen's Compensation ShouldProvide Sufficient Medical Careand Rehabilitation Services

The four basic objectives-coverage, in-come maintenance, medical care and rehabilita-tion, and safety-can be achieved only if em-ployers, insurance carriers, State agencies, andall others involved in the workmen's compen-sation program are organized into an effectivedelivery system. With more than 5,000,000 casesa year, administration of benefits is a huge task.Many States now have reasonably effectivedelivery systems. Some are excellent.

The two main deficiencies in the deliverysystems are rooted in attitudes that are passiverather than active. Some States do not initiateprograms to protect workers, usually for lack ofadequate funding and staffing of the workmen'scompensation agencies.

The provision of medical care, includingphysical rehabilitation, is generally adequate,equitable, and prompt. Serious exceptions arefound in those few States which limit theduration or dollar amount of medical care.

The vocational rehabilitation record isuneven: some programs are excellent but toomany are not. Poor performance is due partially

19

The second deficiency, excessive litiga-tion, results in unnecessary delay, expense, andinterference with rehabilitation. Compoundingthe influence of passive administration, agencyrules and procedures often stimulate litigiousattitudes. Also, because payments of claims leadto. higher costs, employers have greater incen-lives to resist claims than if benefits werefinanced by a flat rate tax or assessment.

Conclusion

provements in several States in 1972 includereductions in numerical exemptions to coverageand removal of limits on medical care. Thisrecent burst of activity is encouraging, but somehave suggested it was caused by the creation ofthis Commission and may not be sustained afterour activities cease.

Moreover some improvements may slipaway. For example, benefit maximums in mostStates must be amended from time to time tokeep benefits in proper relationship to Stateaverage weekly wages. Yet wage increases due toinflation and higher productivity have not beenreflected in proportionate increases in maximumweekly benefits.

No member of this Commission wishes toconvey an unduly bleak assessment of work-men's compensation. The program has manyvirtues and the recent life signs are encouraging.Nonetheless, all of us feel that the presentprogram has serious deficiencies. The properremedy for these deficiencies is the concern ofthe balance of the report.

B. IS THERE A CONTINUING RATIONALE

FOR WORKMEN'S COMPENSATION?

Does our evaluation suggest that work-men's compensation is permanently and totallydisabled, or is there a continuing rationale forthe program ?

Only an ivory tower iconoclast wouldanswer this question in the abstract. Properly, itmust be answered by considering the realisticalternatives to workmen's compensation. Whileworkmen's compensation has weaknesses, it alsohas strengths. It should be abandoned only if analternative has a better mix of strengths andweaknesses.

"---The inescapable conclusion is that Stateworkmen's compensation laws in general are

\inadequate and inequitable. While several Statesihave good programs, and while medical care andsome other aspects of workmen's compensationare commendable in most States, the strongpoints are too often matched by weak.

Consider the record of the States inmeeting the recommended standards publishedby the Department of Labor. (Table 7.1 ) Theserecommendations, have been well publicized.Several are conservative compared to the rec-ommendations of this Commission. If all 50States were in compliance with the 16 recom-mended standards, the total compliance "score"would be 800. As of 1972, the actual "score" is

¥()3 ~. The inequities of workmen's compensationare underlined by the wide variation among theStates in their record of compliance. Although 9States meet 13 or more of the recommenda-tions, 10 States meet 4or fewer.

TABLE 7.1. Number of jurisdictions meeting 16recommended standards, 1 Jan. 72

Other..

.'States

(6)

Standards

Met

States

(50)

F ederal(2)

Damage Suits13-16

9-12

5-8

0-4

1

4

O

1

1

1

0

O

9

%

)8'10

One possible alternative is to rely onnegligence suits. From the worker's standpoint,this option may be somewhat more attractivethan it was 50 years ago, when workmen'scompensation was first widely adopted, becausethe plaintiffs burden subsequently has beeneased in negligence suits. Other reasons, how-ever, have convinced us that, for workers andothers, workmen's compensation is preferable tonegligence actions. .For example. the issue of

See Table 2.3 for explanatory note.

In recent years, legislatures have adoptedmany improvements in State workmen's com-pensation laws. In 1971, more than 300 changeswere enacted, about 50 percent more thancustomary in odd-year sessions. Significant im-

}4}1

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negligence is particularly elusive in the worksetting. Most studies of work-related impair-ments stress the intermingling of employee andemployer responsibility in a substantial propor-tion of accidents. The determination of negli-gence tends to be expensive and the outcomeuncertain. Payments tend to be delayed whennegligence suits are prosecuted, and over-crowded court dockets would compound thedelays. Some workers eventually would receivedamage awards in excess of workmen's compen-sation benefits, but others would receive noprotection. Moreover, even when the workersucceeded in winning monetary damages, thelitigation could be a substantial deterrent tosuccessful rehabilitation.-~ We conclude that damage suits are a

distinctly inferior alternative to workmen'scompensation.

Disassemble Workmen's Compensationand Assign the Components to OtherPrograms

more stringent than those in workmen's com-pensation. In workmen's compensation, theworker is eligible from the first day he is hired,whereas workers are only eligible for Dl benefitsafter several quarters of covered employment.Insofar as short term disability is concerned,only five States plus Puerto Rico have tempo-rary disability insurance programs. It is onething to think about transferring short-termwork-related disability cases to well establishedTDI programs; quite another to think aboutphasing workmen's compensation into largelynonexistent programs.

Even if permanent total disability caseswere absorbed by Dl and temporary totaldisability cases by TDI programs, the mostimportant aspect of cash benefits in workmen'scompensation would remain unassimilated. Nogenerally available program other than work-men's compensation pays benefits because ofpermanent partial impairments. (We excludeveteran's programs from consideration becauseveterans comprise only about one third of thelabor force.) The determination of the extent ofpermanent impairment is complicated and re-quires scarce administrative expertise as well asconsiderable expenditures. There would be sig-nificant startup costs if another program wereassigned the permanent partial aspect of work-men's compensation.

Moreover, any scheme that would assignpermanent total and temporary total cases toother programs but leave permanent partial casesto workmen's compensation would be an admin-istrative nightmare. The typical workmen's com-pensation case paying permanent partial benefitsalso involves payments of temporary total bene-fits, and often eligibility for permanent partialand permanent total benefits is determined atthe same time. Unless this component of work-men's compensation were abandoned, an optionwhich we strenuously oppose, there is no choicebut to continue workmen's compensation as asource of permanent partial benefits.

We do not believe there is likely to beavailable in the near future a satisfactory alterna-tive to workmen's compensation as a source ofmedical care. If national hea,lth care were to beextended to cover all work-related impairments,employees would in general be affected ad-versely. Most proposals for national health insur-ance contain "deductibles" and other limitations

Another alternative is to disassembleworkmen's compensation and assign the com-ponents to other programs. One scheme wouldassign permanent total disability cases to theDisability Insurance (Dl) program of SocialSecurity and temporary total disability cases toState temporary disability insurance (TDI) pro-grams. The medical component of workmen'scompensation could be assigned to an expandedMedicare or national health insurancel rogram,

and rehabilitation could be absorbe by the

State Departments of Vocational Rehabilitation(DVR). Finally, the safety aspect could beassumed by the enforcement agencies of theOccupational Safety and Health Act of 1970.

This systematic disassembling of work-men's compensation may become feasible insome other era, but we are convinced theproblems associated with this approach are tooserious to justify the strategy now.

Each program to which the componentsof workmen's compensation would be assignedhas at least one serious deficiency compared toworkmen's compensation. A few examples ofthe deficiencies are the following:

The Disability Insurance program underSocial Security has eligibility requirements much

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Many forms of government have beentried and will be tried in this world of sin

and woe. No one pretends that democracy

is perfect or all-wise. Indeed it has been

said that democracy is the worst form of

government except all those other fomlsthat have been tried from time to time.

Perhaps in another decade or two, anattractive alternative to workmen's compen-sation will emerge. We are unable to predict thesocial insurance programs that will appear in oursocial evolution.

For the present and the foreseeablefuture, we are convinced that, if our recom-mendations for a modern workmen's compensa-tion program are adopted, the program shouldbe retained.

C. PREVIOUS EFFORTS TO IMPROVEWORKMEN'S COMPENSATION

The work of this Commission is not thefirst effort to improve State workmen's compen-sation programs. This section briefly recountssome earlier efforts and attempts to isolate thefactors which explain the successes and failures.

on benefits not found in most workmen'scompensation statutes.

We would be reluctant also to see therehabilitation component of workmen's com-pensation assigned to another program. One ofthe difficult tasks of workmen's compensation isthe coordination of the medical care and physi-cal and vocational rehabilitation services. Thedifficulties of coordination would be accentu-ated if rehabilitation were completely removedfrom the workmen's compensation system.

The assignment of the safety aspect ofworkmen's compensation to another programalso has disadvantages. The Federal governmentnow has a substantial safety program establishedby the Occupational Safety and Health Act of1970. We believe this role will be constructive,but the OSHA approach will require extensiveappropriations through the decades to assure itseffectiveness. Workmen's compensation has thevirtue that the linkage of benefits paid toinsurance costs should automatically provide astrong incentive for safety.

Finally, no other delivery system is gener-ally superior to workmen's compensation. Mostalternatives to workmen's compensation involvean expanded role for the Federal government.This Commission has seen no evidence to suggestthat Federal programs are better administeredthan State workmen's compensation programs.It is true that the administrative costs ofworkmen's compensation are higher than insome other social insurance programs. Thesecomparisons, however, can be misleading be-cause other programs do not face the samecomplexities of administration. In particular,because cash benefits for permanent partialdisability are the most expensive component ofworkmen's compensation, and because the de-termination of permanent impairment requiressubstantial administrative expense, we cautionagainst any assumption that administrative costscould be significantly reduced by absorbing theservices now provided by workmen's compensa-tion into another program.

Individual State Reforms

Conclusion

We have written this report neither topraise nor to bury workmen's compensation. Wewould liken our attitude to Winston Churchill'sviews on democracy.

In several States, improvements in the lawwere preceded by concentrated efforts at re-form. In New York, the amendments whichrestructured the administration of the programfollowed a series of studies by Moreland ActCommissioners. The most recent study waspresented to Governor Rockefeller in 1962 by aGovernor's Workmen's Compensation ReviewCommittee.

A California commission~ composed ofrepresentatives from management, labor, theinsurance industry , the medical and legal profes-sions, and the public, issued a report in April1965 which led to improvements directedtoward reducing litigation and separating theadministrative and adjudicative functions.

In Oregon, the Act was entirely restruc-tured in 1965 as a result of an intensivenegotiating process among management, labor,and other interest groups.

A Governor's Study Commission in Mary-land, in continuous existence since 1956, devel-

122

ops its own recommendations and presents themto the legislature and the Governor. Its recom-mendations are considered a major factor inrecent improvements in the Maryland Act.

Idaho revised its workmen's compensationlaw extensively in 1971 following a two-yearstudy by a commission appointed by the Gov-ernor. Improvements included a basic maximumweekly benefit on a sliding scale allowing 60 to90 percent of the average weekly wage in theState, full coverage of occupational diseases, anda second-injury fund with broad coverage of

impairments.I n Pennsylvania, substantial reforms

achieved early in 1972 included the requirementthat all hearing examiners be full-time employ-ees. These reforms were not preceded by aformal study but represented a consensus arrivedat by the current State administration and themany groups interested in workmen's compensa-tion. Late in 1971, the Pennsylvania AFL-CIOand the Pennsylvania State Chamber of Com-merce supported the pending legislative changeswith an unprecedented joint press release.

No one model describes the route of theseachievements. Only a few elements appear con-sistently in many States. Reforms can beachieved by a relatively small number of advo-cates, but their characteristics and followingdiffer from State to State. In general, reformshave resulted from investigations supported orinitiated by State officials, although in Oregonthe workmen's compensation officials did notparticipate until the refo~ effort was under-way. Usually two or more years elapse from theinitiation ofa reform to legislative enactment.

Aside from these few generalizations, per-haps the most important conclusion to be drawnabout workmen's compensation reforms in indi-vidual States is that they are all too rare. Thereis no guarantee that a State which needs athorough review of its workmen's compensationlaw will spontaneously generate such an in-vestigation.

standards recommended by other organizationssuch as the American College of Surgeons, theNational Rehabilitation Association, and theCouncil of State Governments. The Departmentof Labor recommendations were first publishedin 1959 and, with some modifications, havesince appeared in four bulletins together with arecord of State compliance.' The International Association of Indus-

trial Accident Boards and Commissions(IAIABC), the professional organization of Stateworkmen's compensation administrators, alsohas recommended standards. The IAIABC hasencouraged States to meet its 22 recommendedstandards by techniques such as sending acertificate to each Governor indicating the num-ber of standards met by his State. The extent ofcompliance with these standards was evaluatedin 1972 by the IAIABC. The 50 States plus theDistrict of Columbia and Puerto Rico werereported on average to comply in full with 14 ofthe 22 standards.

States might be expected to comply withIAIABC standards more readily than thosepublished by the Department of Labor since theIAIABC members administer the State programsand presumably have an intimate and realisticunderstanding of State needs. However, it issometimes awkward for an administrator topursue his own views aggressively when he facesa recalcitrant Governor or State legislature. Thisambivalence was reflected in our hearings whena representative of the IAIABC said that whilethe organization strongly supported its ownrecommended standards, it "specifically rejectsthe proposition that a State act which does notmeet all standards is an inadequate or undesir-able act or that such act is not substantiallymeeting the needs of the worker."

The Atomic Energy Commission since1965 also has recommended standards for Stateworkmen's compensation laws. The AEC inter-est in workmen's compensation stems from theissue of compensability for workers whose expo-sure to ionizing radiation show no clinicaleffects until long after the time allowed in someStates for claiming workmen's compensationbenefits. Several States have modified provisionsof their laws relating to radiation hazards,especially with respect to the time allowed forfiling claims. The IAIABC mentions effects ofradiation in its recommended standards. TheAtomic Energy Commission has had reasonable

Standards Recommended byNational Organizations

Another approach to improving work.men's compensation has been the promulgationof recommended standards by national organiza.tions. The 16 recommended standards publishedby the Department of Labor are based on the

123

success in promoting its standards, perhaps be-cause it is well financed and has concentrated ona narrow range of issues which encompass acompelling need.

In general, past efforts to improve work-men's compensation merely by recommendingthe adoption of standards have a sparse recordof success. Moreover, the standards recom-mended tend to be limited in number and detail.

Lobbying or Other PromotionalEfforts

resulted in the proposed "Workmen's Compensa-tion and Rehabilitation Law ." This Model Actwas drafted by a committee of the Council ofState Governments chaired by Arthur Larson,former Under Secretary of Labor. The commit-tee included representatives from industry ,labor, State agencies, insurance carriers, themedical profession, the academic community,and Federal agencies interested in workmen'scoI.11pensation. The law, drafted over a four yearperiod, was published in 1963 and 1965 by theCouncil of State Governments in SuggestedState Legislation.

Despite the impressive credentials of thedrafting committee and the prestige of thesponsoring organization, no State has adoptedthe act either in its entirety or in substantialpart. In contrast, another model act, the Uni-form Commercial Code, has been adopted withonly minor modifications in 49 States. Since theU.C.C. is perhaps even more controversial thanthe model workmen's compensation act, thelack of success in workmen's compensation canbest be explained by other factors.

Evaluation of Previous Efforts

Some interest groups have attempted toimprove workmen's compensation by lobbyingor other promotional activities. For example,trade unions, by use of their political influence,were a key factor in changes in California andMichigan laws. As their strength varies consid-erably among the States, unions have not beensuccessful in all their efforts to improve work-men's compensation. Moreover, in States wherelabor is weak, reform of workmen's compensa-tion has generally received lower priority thangoals such as repeal of "open shop" or "right towork" laws.

The insurance industry also has attemptedto promote changes in workmen's compensationlaws. The industry is in a difficult position,however, because its clients are employers and itis tempted to avoid any stand which couldpossibly antagonize them. Historically, the insur-ance industry attempted to be at best "neutral"on any issue about workmen's compensation.Much of its lobbying energy was devoted toopening up exclusive-fund States to the privateinsurance industry .During the last decade, therehas been a heartening change of attitude by theprivate carriers, which are taking a more activepart in promoting needed improvements.

It seems clear that, in efforts to improveworkmen's compensation by lobbying or otherpromotional efforts, one interest group seldomcan succeed by itself. In general, reform hasbeen successful only where several interestgroups have acted in concert.

Past efforts to improve workmen's com-pensation have had some success, but it isevident from our evaluation of the workmen'scompensation program, that these efforts havebeen insufficient. The crucial question is why?There appear to be several reasons.

Lack of interest or understanding. Work-men's compensation is relatively complex. Dur-ing our hearings a bewildering array of provi-sions were described. The terms used havedifferent meanings according to context. We canappreciate that State legislators and other offi-cials have difficulty in understanding workmen'scompensation and that lack of understandingtoo often has led to lack of attention.

Moreover, workmen's compensation isseldom the most compelling topic of the day.The program generally receives far less noticethan pollution, or minimum wage laws, or autoinsurance. This low visibility persists eventhough there are millions of workmen's compen-sation cases a year. The average employee isindifferent perhaps because thinking about in-dustrial accidents is unpleasant; it is only humanto assume "It won't happen to me."

The Model Act Approach

During the 19605, a coordinated effortamong the interest groups in workmen's com-pensation to improve the program nationally

124

For the average employer, workmen'scompensation costs represent only about onepercent of payroll, a relatively unimportantcharge compared to the wages or to other fringebenefits which add about 25 percent to straight-time wages. For trade unions, items such aswages or retirement benefits receive prior atten-tion because these items affect more employeesand represent more money and because they arehandled by direct negotiations with the em-ployer. Collective bargaining usually is a muchmore productive use of union time than lobby-ing to improve workmen's compensation bene-fits.

Legislators and other State officials fortheir part are faced with competing demandsfrom many sources on issues which generallycommand more public attention than work-men's compensation. Too rarely do State work-men's compensation administrators take theinitiative to educate the electorate or to espouselegislation to improve the program. They usuallyrespond to requests for assistance from others

promoting changes, but in few States do admin-istra tors assume responsibility for initiatingreform.

In short, deficiencies in workmen's com-pensation in many States result from lack ofleadership, understanding, and interest.

Veto power of the interest groups. Inmany States, substantial reform is difficultbecause there is more than one interest groupwith power to veto proposed changes in the law,and it is difficult to find a package of amend-ments acceptable to all parties. Under thesecircumstances, a State may be locked into aprogram despite serious abuses.

This veto power takes strength from thegeneral lack of understanding about workmen'scompensation. In some States, the legislatureshave reacted to complexities by in effect dele-gating authority for workmen's compensation toimportant interest groups. Under the "agreedbill" procedure, legislatures adopt amendmentsmutually acceptable to labor and management.Unfortunately, these parties often dead-lock: employers block action because they ob-ject to cost increases associated with generalimprovements in the law; trade unions becausethey will not surrender certain cherished prac-tices, such as the right to a de novo trial, whichlabor in some States considers an important

element of protection. Also, some labor officialsare unwilling to give up the disproportionateawards in minor permanent partial cases inexchange for increased benefits for serious per-manent impairments.

The difficulties confronting labor andmanagement in reaching agreement are some-times compounded by their use of agents.Employers often rely on trade associations,whose staff people sometimes prove their worthby fighting benefit increases and claiming sav-ings. Attorneys representing the various interestgroups abound, and their clients are not alwayswell served. For example, trade unions often arerepresented by plaintiffs' attorneys who toooften view litigation as an end in itself to beprotected at the expense of other reforms.

Competition among States. The eco-nomic system of the United States encouragesthe forces of efficiency and mobility. Theseforces tend to drive employers to locate wherethe environment" offers the best prospect forprofit. At the same time, many of the programswhich governments use to regulate industrializa-tion are designed and applied by States ratherthan the Federal government. Any State whichseeks to regulate the by-products of industrial-ization, such as work accidents, invariably musttax or charge employers to cover the expenses ofsuch regulation. This co.mbination of mobilityand regulation poses a dilemma for policymakersin State governments. Each State is forced toconsider carefully how it will regulate its do-mestic enterprises because relatively restrictiveor costly regulation may precipitate the de-parture of the employers to be regulated ordeter the entry of new enterprises.

Can a State have a modern workmen'scompensation program without driving employ-ers away? Our analysis of the cost of workmen'scompensation has convinced us that no Stateshould hesitate to adopt a modern workmen'scompensation program. Interstate differences inworkmen's compensation costs for the averageemployer rarely exceed one percent of payroll.Surely no rational employer will move hisbusiness to avoid costs of this magnitude. Formost employers, the costs are relatively in-significant compared to other differences amongStates, such as wage differentials or access tomarkets or materials. There are, to be sure, asmall minority of employers for whom work-

125

First, the States could be left to improvetheir laws without Federal guidance or assist-ance. This position was supported by witnesseswho believed that the present State programs areacceptable, particularly in light of the rate ofrecent improvements and current reform move-ments.

men's compensation costs are signifi(;ant becauseof their adverse loss experience, but it seemsfolly for a State to contrive a cheap workmen'scompensation program in order to keep theseemployers from moving elsewhere. In any event,the incentive to relocate is dampened becausethe Federal corporate profits tax would substan-tially reduce the benefit an employer would gainby moving to a State with low workmen'scompensation costs.

While the facts dictate that no Stateshould hesitate to improve its workmen's com-pensation program for fear of losing employers,unfortunately this appears to be an area whereemotion too often triumphs over fact. Given thedegree of uncertainty about the factual costs ofworkmen's compensation, State legislators can-not be expected to become experts on interstatedifferences in such costs to employers. Further-more, whenever a State legislature contemplatesan improvement in workmen's compensationwhich will increase insurance costs, the legis-lators likely will hear claims from some employ-ers that the increase in costs will force a businessexodus. It will be virtually impossible for thelegislators to know how genuine are theseclaims. To add to the confusion, certain Stateshave abetted the illusion of the runaway em-ployer by advertising the low costs of work-men's compensation in their jurisdiction.

When tpe sum of these inhibiting factorsis--c:-Q-~sid-e.!e~j it seems likely that many Stateshave been dissuaded from reform of theirworkmen's compensation statute because of thespecter of the vanishing employer, even if thatapparition is a product of fancy not fact. A fewStates have achieved genuine reform, but mostsuffer with inadequate laws because of the dragof laws of competing States.

Second, additional guidance could be pre-sented to the States, and State action encour-aged. This guidance in the forn1 of recommenda-tions by this Commission, especially if endorsedby Congress, could be expected to stimulateState improvements by drawing national atten-tion to the critical needs of injured employees.Reforn1s might then proceed on a State by Statebasis, or multistate action might occur throughtechniques such as an interstate compact.

Third, State action could be mandated bythe Federal government. For example, Congresscould enact basic minimum standards for Stateworkmen's compensation laws and provide anenforcement procedure. Support for this posi-tion was urged by some witnesses because of thelack of extensive compliance with previousrecommendations by eminent national organ-izations.

Fourth, State action could be encouragedby Federal assistance, such as grants to developadditional data on the operation of State pro-grams.

D. NEW STRATEGIES FOR IMPROVINGWORKMEN'S COMPENSATION

Finally, workmen's compensation couldbe taken over entirely by the Federal govern-ment, which would control the substantiveterms and administer the program.

These five methods, though not exhaus-tive, cover the range of possible methods forimproving workmen's compensation most com-monly suggested to the Commission at itshearings. The second, third, and fourth methodsare not mutually exclusive; indeed, most pro-posals to this Commission have consisted of amixture of the three.

The members of this Commission havedevoted much time and effort to considering thepossible methods of implementing our recom-mendations. No topic received more attention atour hearings. Because we all believe so ferventlythat the present program must be strengthened,we have thoroughly debated the issues. Theresult of our debates is that we are in substantialor complete agreement on most aspects ofimplementation.

The main body of this report has beendevoted to evaluation of the present workmen'scompensation program and to our recommenda-tions for a modem workmen's compensationprogram. We are required by the Act to discussthe "methods of implementing the recommenda-tions of the Commission." At least five methodsto improve workmen's compensation were sug-gested at our hearings.

126

We reject the suggestion that Federaladministration be substituted for State programsat this time.

The States have the distinct advantage ofhaving personnel and procedures in place: aFederal takeover would substantially disruptestablished administrative arrangements. More-over, most Commissioners believe there is noevidence that Federal administrative proceduresare superior to those of the States. SeveralCommissioners believe that a Federal takeoverof workmen's compensation may be appropriatein a few years if present deficiencies in th~ Stateprogram are not repaired promptly, but theyalso believe these deficiencies can be overcomeby the States.

We believe that our recommendationsshould be adopted by the States as soon aspossible.

In preceding chapters, we have pre-sented the five major objectives of a modernworkmen's compensation program and our spe-cific recommendations for achieving these objec-tives. Although not every aspect of a workmen'scompensation program is included in our pre-scriptions, we believe we have presented suffi-cient guidance to enable each State to modern-ize its workmen's compensation program thor-oughly.

commission to provide encouragement and tech-nical assistance to the States.

One critical role for the commission willbe to provide encouragement to the States tomodernize their workmen's compensation pro-grams. Another role will be to help the Stateslearn from one another. We have been impressedby the evidence in our hearings that a superiormethod in one State is not adopted swiftly byother States. This lag is partially explained bythe complexity of workmen's compensation.

The specific activities of the new commis-sion should include:

I Providing assistance to the States to helpthem establish committees both to reexaminethe State laws in light of our report and todevelop support for needed reforms. Some ofour recommendations will be modified by eachState to reflect variations in size, population,and economic activity. The assistance of the newFederal commission to the State committeesshould include technical seNices and, if avail-able, commission funds.

2 Reporting annually to the President andto the Congress on the progress of the States inmeeting the recommendations in our report.

3 Analyzing certain critical areas of work-men's compensation, as described below, whichcould not be adequately examined by thisCommission during its limited term.

4 Advising the States on whether their lawsare in compliance with the mandates discussedbelow. The advice could be given to individualStates or employers who are uncertain abouttheir compliance status.

5 Assisting in the development of uniformor comparable data, and analyzing data and theoperation of State workmen's compensationprograms.

Federal Guarantee of Essential Reform

All of our recommendations are im-portant.

Nonetheless, certain of our recommenda-tions are essential and particularly suitable forFederal support to guarantee their adoption.

Adoption of our recommendations willincrease the costs of workmen's compensation inall States and for most employers, but webelieve that employers and States have theresources to meet these costs.

Reform of the workmen's compensationprograms largely can and should take place atthe State level. Nonetheless, we believe that thevirtues of a decentralized, State-administeredworkmen's compensation program can be en-hanced by creative Federal assistance.

This assistance should take twoforms: ( 1) appointment by the President of anew commission and (2) a 1975 review of theStates' record of compliance with the mostessential of our recommendations. This reviewshould culminate in Federal mandates if neces-sary to guarantee compliance.

A New Commission: An ImmediateOpportunity for Federal Assistance

Each State act should incorporate the

following essential recommendations :

We urge the President immediately toappoint a Federal workmen's compensation

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Compulsory coverage. (Recommendation

2.1.)

2 Coverage with no occupational or numeri-cal exemptions: Coverage should include farmworkers, household workers, and State and localemployees. (Recommendations 2.2, 2.4, 2.5,2.6, and 2.7.)

3 Full coverage of work-related diseases.(Recommendation 2.13)

4 Full medical care and physical rehabilita-tion services without limitation as to time ordollar amount. (Recommendations 4.2 and 4.4)

5 Employees may file claim in the Statewhere injured, or where hired, or where employ-ment is principally localized. (Recommendation2.11 )

'3 6 Temporary total benefits. A worker'sbenefit should be no less than 66 2/3 percent ofhis average weekly wage (Recommendation 3.7),subject to a maximum weekly benefit of at least66 2/3 percent of the State's average weeklywage by July I, 1973, and at least 100 percentof the State's average weekly wage by July I,1975. (Recommendation 3.8) There shall be nolimit on duration or total dollar amount duringthe period of disability (Recommendation 3.17).

7 Death benefits. Surviving dependentsshould receive no less than 66 2/3 percent of theworker's average weekly wage (Recom-mendation 3.21 ), subject to same maximums astemporary total (Recommendation 3.23), withno limit on duration or total dollar amount ofbenefits during the period of statutory depend-ency (Recommendation 3.25).

ally. Most States will need time to review thesestatutes carefully on the basis of all our recom-mendations. Nonetheless, we believe these essen-tial recommendations are so feasible and essen-tial that every jurisdiction can be expectedreasonably to adopt them within three years.

We believe that compliance of the Stateswith these essential recommendations should beevaluated on July 1, 1975, and, if necessary,Congress with no further delay in the effectivedate should guarantee compliance.

We believe the most desirable method toinsure that each State program contains ouressential recommendations would be to includethese recommendations as mandates In Federallegislation, applicable to all employers specifiedby our essential recommendations.

9.-<?-~J?liance with the mandates could be iinsured by two complementary methods. Any t'employer within the scope of the Federal ,legislation not already covered by a State work-men's compensation act would be required toelect coverage under the act in an appropriateState. Also all employers affected by the Federallaw would be required to insure or otherwisesecure the mandated recommendations. Em-ployer compliance with the election and securityrequiiemeritsof the-Federallegislation would beassureo by a penalty enforceable through lawsuits filed by the U.S. Attorney's office in theappropriate Federal District Court.

Most employers can be expected to com-ply voluntarily with the Federal mandates;" Forthe remaining recalcitrant employe,rs, the mostcommon enforcement mechanism probably willinvolve suits by the U.S. Attorney's office.There is --~ -~~<;?-~4 enforcement mechanism that '(would---iely on individual employee action. A Iworkman would file his claim with his State ,

workmen's compensation agency, which wouldbe authorized by Federal law to make awardsconsistent with the Federal mandates. The wo~~-man and his employer would have the right toappeal issues col!cerning the mandates to theState courts, with ~n eventual right of appeal tothe Federal courts on the compliance issue.Should the State workmen's compensation'agency refuse to assist in the implementation ofthe Federal mandates, the employee would beentitled to sue his employer for payment inState or Federal courts. If he requests, he shouldhave the assistance of the U.S. Attorney.

8 Permanent total benefits. A worker'sbenefit should be no less than 66 2/3 percent ofhis average weekly wage (Recommendation3.12), subject to same maximums as temporarytotal (Recommendation 3.1 S) with no durationor total dollar limits on benefits. (Recommenda-tion 3.17.) The Commission's recommendationfor the definition of permanent total disabilityshould be used. (Recommendation 3.11.)

We urge the States to incorporate theseessential recommendations into their workmen'scompensation programs as soon as feasible. Werealize that time is required for this achieve-ment. Some State legislatures meet only bienni-

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The enforcement methods we have recom-mended lack the attribute of instant intelligibil-ity. Nonetheless, we believe they represent aworkable solution to our desire to preserveworkmen's compensation as essentially a Stateprogram while providing Federal assurance thatinjured workmen, no matter where they live,receive prompt, adequate, and equitable protec-tion. For the vast majority of workers, themandate approach we have recommended wouldaffect only the substance, not the procedure, oftheir claims compared to the present program.

T ABLE 7.2. Distribution of 50 States and the District

of Columbia according to estimated increase in work-

men's compensation costs resulting from incorporatingour essential recommendations into each juri:sdiction's

present laws

The Costs of Adopting OurEssen tial Recommendations

See Appendix B, especially Table B.I, for explanation of Table7.2.

TABLe 7.3. Distribution of41 States and the District

of Columbia according to estimated percenta!~e of pay-

roll devoted to workmen's compensation premiums by

employers in a representative sample of insuri~nce

classifications

The estimated costs of adopting our essen-tial recommendations in the 50 States and theDistrict of Columbia are summarized in Tables7.2 and 7.3. (Individual State estimates and abrief description of the estimation proceduresare included in Appendix B.)

The National Council on CompensationInsurance, the actuarial organization for theworkmen's compensation insurance industry ,has estimated for 51 jurisdictions the impact ofincorporating certain of our essential recom-mendations into the actual State law in effect onJ anuary I, 1972. These recommendationsare: full coverage of work-related diseases; fullmedical care and physical rehabilitation services;and the designated improvements in temporarytotal, permanent total, and death benefits. Ourbenefit recommendations have 1973 and 1975stages for maximum weekly benefits but eventhe more expensive stage could be met in 46jurisdictions by a less than 50 percent increase inworkmen's compensation costs. (Table 7.2)

Data on workmen's compensation premi-ums as a percentage of payroll for a sample ofinsurance classifications are available for 41States and the District of Columbia. (Table 7.3)These estimates by the Commission staff indi-cate that the average employer in 37 jurisdic-tions now expends one percent or less onworkmen's compensation premiums. If our 1975essential recommendations were adopted, theaverage employer in 37 jurisdictions wouldspend 1.25 percent or less on workmen's com-pensation premiums. Workmen's compensationcosts would be somewhat more expensive in asmall minority of States. Those employers

See Appendix B, especially Table B.2, for explanation of Table7.3.

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whose workmen's compensation premiums noware above the average for their State would,unless their loss experience improves, continueto pay premiums above the State averages shownfor 1973 and 1975. Despite these qualifications,we believe our essential recommendations arerealistic as to their cost significance.

Other Critical Areas ofWorkmen's Compensation

We are unanimous in concluding thatCongressional intervention may be necessary tobring about the reforms essential to survival of aState workmen's compensation system. Themajor difference among us concerns the time forurging Congressional action. A majority of theCommission believes there are two major reasonswhy Congress should not be asked to mandateany State action until after the States are givenan opportunity for self-reform.

First, many recommended reforms of afundamental nature are not susceptible to im-mediate Federal mandates, and some probablycan never be mandated. If only the recommend-ations which can be Federally mandated areadopted by a State, many needed reforms willbe neglected. If our list of mandates isadopted and made immediately applicable to theStates, some States are likely to forego thethorough review of their workmen's compen-sation program which we believe is essential.

Second, an immediate push for Congres-sionallegislation mandating some of our recom-mendations could precipitate a confrontation atthe Federal level which could delay positiveaction at the State level pending the outcomeand would divert energies and resources fromreform efforts at the State level.

Certain subjects of vital importance in amodern workmen's compensation program arenot appropriate for the mandates approach atthe present time. These areas are more elusive;necessary data are unavailable; and the means ofinsuring compliance unclear. Still these issues areso important that the vitality of the Statesystem will be tested by the ability of States toresolve them satisf~ctorily. A primary responsi-bility of the new Federal commission we haverecommended is consideration of the followingsubjects.

Permanent partial benefits. States varywidely in their approach to these benefits. Moredata are needed to answer questions such as howwell do schedules predict actual wage loss andwhy is an apparently disproportionate amountof resources devoted to these benefits in someStates?

Administration. Although there is broadconsensus on the general requisites of goodadministration, such as adequate financing, apermanent staff with tenure, an active informalprocedures unit, and supervision of medical andrehabilitation services, the methods of insuringcompliance with these criteria warrant furtherexamination. Other aspects of administration,such as the appropriate place for compromiseand release agreements and the effective use ofsecond-injury funds, presently are matters ofcontroversy and require additional intensiveexamination.

Conclusion

The members of the National Commissionon State Workmen's Compensation Laws wereasked by the Occupational Safety and HealthAct of 1970 to provide an effective study andobjective evaluation of State workmen's com-pensation laws. We have done our best to fulfillthat assignment. But in the process, we haveproduced a report which undoubtedly has somelimitations imposed by the complexities of thesubject and the pressures of time-pressures wefelt were justified by the urgency of our task. Asa result of these limitations, we know that ourreport can be misused. We know we cannotentirely stop the possible misuses, but in orderto eliminate one possible misapplication, wewish to stress one central point which may besubmerged in the details of our recommenda-tions:

Rationale for Commission's Viewson Methods of Implementing ourRecommendations

Having now indicated our recommendedimplementation procedures, it is necessary toindicate our primary reasons for choosing thiscourse.

We are without exception supporters ofthe basic principles of workmen's compensation.

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We have criticized the present State work-men's compensation programs, but not becausewe believe the basic principles are inherentlywrong. Indeed they are right. We voice ourcriticism because present practice falls so farshort of the basic principles, and because there isno possible justification for this short-fall.

workmen's compensation's best friends and, asfriends, we are telling those who control the fateof the program that it should and can and mustimprove. Our disagreements within the com-mission as to the exact nature of the program'spresent impairment and as to precisely how theimprovements must occur are far overshadowedby our agreement that the time has now come toreform workmen's compensation substantially inorder to bring the reality of the program closerto its promise.

Our report must then be understood as arepudiation of the old saw that eve1;1 your bestfriends won't tell you. We believe we are

REFERENCES FOR CHAPTER 7

Section A, See Compendium, Chapters 3J 4, and 20

Section B, See Compendium, Chapter 19

Section C, See Compendium, Chapter 17

Section D, See Compendium, Chapter 20

The Compendium on Workmen's Compensation wasprepared for the National Commission on State Workmen'sCompensation Laws. References for data cited in this Report areincluded in the Compendium, but the Commissia,n does notendorse all ideas expressed in the Compendium.