Part 1 of 5: Work Comp and the Grand Bargain- A Primer

Reducing workers’ compensation program costs requires all interested stakeholders to understand its origins, benefits to American industry, and how it improves the lives of all. Once this is accomplished, parties can have better interactions with the workers’ compensation system, and members of the claim management team can make better decisions with the ultimate goal of reducing program costs.

This five-part series will explore the origins of workers’ compensation in the United States, allow interested stakeholders to understand the benefit structure, provide tips for reducing workers’ compensation program costs and premiums, and identify the unexpected with concrete solutions in overcoming the challenges of the system.

The Ancient Origins of Work Comp

Workers’ compensation does not have its roots in the Industrial Revolution. Instead, historians have traced its origins to ancient Mesopotamia and the Code of Hammurabi.

This post is one in a 5-part series:

Hammurabi was an Amorite king of the Old Babylonian Empire who resigned in what is now modern Iraq from 1792 to 1750 B.C. He is credited with developing a system of laws that promoted fairness and respect for the rule of law. Contained within the Code was the first system of benefits that were to be paid to someone injured while working. Other ancient cultures either took from or developed similar systems of employee compensation:

Early Greek culture;

The Roman Empire; and

Ancient Chinese law.

While these systems were not as defined as modern workers’ compensation laws, they share the common principles of fairness and a streamlined benefits system for people injured at work.

The Grand Bargain – Developments of Modern Work Comp Laws

The first steps toward the modern workers’ compensation system have their origins in Europe under the rule of Otto von Bismark and the creation of the Employers’ Liability Law of 1871. Journalists and authors in the United States took note and were inspired to write about the perils of industrialized workplaces. This “muckraking” journalism caught the attention of lawmakers and eventually took hold when Wisconsin passed the first workers’ compensation law in 1911. Not until 1948, when Mississippi adopted its law, did all 50 states have a workers’ compensation law.

Common features of American workers’ compensation laws include a system of benefits driven by the employee’s Average Weekly Wage (AWW), generally a fair approximation of the individual’s earning ability at the time of injury. Benefits can generally be broken down as follows:

Indemnity Benefits:

Temporary Total Disability (TTD): The employee is off work, but expected to return to work. Most states cap the number of weeks an employee is eligible to receive this benefit, and is paid generally at 66.6% of the AWW.

Temporary Partial Disability (TPD): The employee works at a wage loss (reduced hours or wages). Most states cap the number of weeks an employee is eligible to receive this benefit and is paid at a percentage of the calculated wage loss.

Permanent Partial Disability (PPD): This is a benefit generally paid at the time the employee reaches Maximum Medical Improvement (MMI, sometimes referred to as “end of healing period). States vary on how this is paid. It is paid based on the employee’s compensation rate multiplied by the number assigned to the part of the body injured. The product is then multiplied by your percentage of disability or via a schedule outlined in statute or administrative rule.

Permanent Total Disability (PTD): The employee is permanently precluded from returning to work based on their physical condition, including age, training, experience, and work available in his community. Many states have statutory presumptions of retirement. This benefit is paid generally at 66.6% of the AWW.

Medical Benefits: The general rule is that medical care covered under workers’ compensation must be reasonable, necessary, and causally related to the work injury to be compensable. Several states have adopted medical fee schedules at which health care providers are reimbursed. Most states have defined treatment parameters, which can limit the length or duration of post-injury medical care.

Vocational Rehabilitation: The goal of this benefit is to return injured employees to suitable employment with the assistance of a vocational counselor. This can include the counselor attending medical appointments and assisting with job search activities. Other forms of this benefit can include retraining.

Workers’ compensation is the grand bargain – a system of benefits available to the injured employee that vary in each jurisdiction. Be sure to confirm benefit entitlement through the assistance of an attorney.

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Conclusions

The concept of workers’ compensation is not new. While the laws have changed since the first inception of written laws, there has been an underlying recognition that employees injured at work deserve a system of guaranteed benefits in a streamlined manner. This should also include respect and dignity.

Michael Stack, CEO of Amaxx LLC, is an expert in workers’ compensation cost containment systems and provides education, training, and consulting to help employers reduce their workers’ compensation costs by 20% to 50%. He is co-author of the #1 selling comprehensive training guide “Your Ultimate Guide to Mastering Workers’ Comp Costs: Reduce Costs 20% to 50%.” Stack is the creator of Injury Management Results (IMR) software and founder of Amaxx Workers’ Comp Training Center. WC Mastery Training teaching injury management best practices such as return to work, communication, claims best practices, medical management, and working with vendors. IMR software simplifies the implementation of these best practices for employers and ties results to a Critical Metrics Dashboard.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/

Injury Management Results (IMR) Software: https://imrsoftware.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.