Members of the House Insurance and Banking Subcommittee listened to a number of witnesses testify regarding the cost/benefit balance in the current workers’ compensation scheme.
Committee Chairman Danny Burgess (R-Dade City) noted that, according to a recent survey, 66% of stakeholders felt that the current system does not strike the proper balance between employer and worker interests. “The purpose of the grand bargain is to get the workers better and get them back to work,” he noted, and the Florida system seems to fall short of that purpose. Some witnesses complained that they usually cannot choose their own doctors, a deficiency that, according to Fraser Cobb, could be corrected by allowing injured victims to chose a physician from a preferred provider list. Some employers embraced this idea, as well, including Shelby Johnson, president of Pensacola firm Johnson Construction. “The insurance company can provide a list of doctors for my employees to choose from”, he suggested. Such a move might make the medical end of the process more collegial, he added. If that is the case, attorneys may have less to do and litigation costs will not be as high, opined ranking Democrat Richard Stark (D-Broward County).
Mr. Cobb, the executive director of the Florida Orthopaedic Society, also complained about low reimbursement rates which diminished the quality of care.
Workers’ Compensation Theory
The “grand bargain” that Rep. Burgess referenced is the agreement that workers and employers reached a little over a hundred years ago. In the era of unbridled capitalism (Bayer supposedly sold pure heroin as a children’s cough suppressant during this same period), incidents that employers usually labeled “industrial accidents” were quite common, as many workers spent long hours in dangerous factories that were almost completely unregulated. For the most part, these individuals were hard workers who really just wanted to quickly recover from their injuries so they could get back on the job and provide for their families. But the sheer number of claims meant that the courts were clogged.
So, workers and factory owners reached an informal agreement whereby injured workers gave up their rights to obtain compensation for noneconomic damages, and owners agreed to set up a no-fault insurance system with benefits that paid for lost wages, medical bills, and other out-of-pocket expenses. Although victims were eligible for less money, they only had to show that their injuries occurred at work in order to obtain compensation, and some common employer defenses, like contributory negligence and assumption of the risk, were either limited or barred altogether.
After several years of success in Germany, England, and other European countries, in 1911, Wisconsin was the first state to adopt a workers’ compensation plan.
Workers’ Compensation in Practice
The theory sounds good, the tradeoff was fairly even, and the system worked well for many decades. But over the years, policy changes and benefits reductions slowly unravelled the grand bargain, and both these problems were serious in Florida by the mid-2000s.
To reduce employer costs, pro-business lawmakers in Tallahassee sharply limited attorneys’ fees. Unintentional or not, the effect of this reduction was to deny effective representation to injured workers, as many attorneys showed little to no interests in workers’ compensation matters, especially those involving complex legal or factual issues. The Florida Supreme Court eventually rectified this deficiency and ruled the attorneys’ fee limit unconstitutional.
If lawmakers were serious about reducing costs, they might consider passing tougher anti-fraud laws, a point that is discussed below.
In terms of benefit reductions, many states cut lump-sum payments for certain kinds of disabilities. In Florida, lawmakers cut the rehabilitation/recovery period in half. As a result, injured workers could not get all the medical care they needed to return to work, which is the entire purpose of workers’ compensation. Furthermore, at the end of this abbreviated period, no doctor would declare these victims to be totally disabled, so they were ineligible for future benefits. Effectively, their only option was to pay for their own treatment out of their own pockets.
The Florida Supreme Court eventually overturned this regulation as well, so workers can now get the physical and rehabilitative therapy that they sorely need.
Workers’ Compensation Costs
Essentially, many lawmakers oppose pro-victim workers’ compensation reform because they claim the high costs will inhibit job growth. One way to limit such costs without affecting worker benefits is to crack down on employer fraud, which costs an estimated $1 million per employer; in contrast, worker fraud costs amount to a mere $2,500 per employer. Some common employer fraud schemes include:
- Unofficial Payments: Some employers make vague promises of cash under-the-table payments to cover medical costs if victims do not file comp claims, and when the employers almost inevitably renege on their promises, it is too late to file a claim.
- Misclassification: Other employers classify their workers as “independent contractors” instead of “employees” to avoid paying premiums, which reduces the amount of money in the system.
Employer fraud is rampant in most states because even if cheating employers are caught, the penalty is normally only a fine that may not exceed the cost savings realized from the misbehavior.
Lawmakers and employers may not be on your side, but at Barnett, Lerner, Karsen & Frankel, we fight for you.