If a worker is injured on the job, workers’ comp benefits are provided so they can support themselves while unable to work. But do these benefits properly support injured individuals immediately and over long periods of injury? In this episode of Workers Comp Matters, host Alan Pierce talks to Peter Rousmaniere about whether workers’ compensation benefits truly meet the needs of injured workers. In their discussion, they dissect waiting periods, weekly benefit caps, and the sustainability of these benefits for the injured employee. According to Peter’s research weekly benefit caps can be disadvantageous to workers who earn a high income or work overtime. In the conclusion of the episode, Peter offers more resources, including his own study “The Uncompensated Worker.”
Peter Rousmaniere helps organizations and individuals as they negotiate through the troubling waters of hazards, uncertainty, risk, and insurance. He specializes in workers’ compensation, other corporate types of insurance, new risk management product design and implementation, information technology, and risk communication.
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Workers Comp Matters
Are Workers’ Comp Benefits Adequate
Intro: This is ‘Workers Comp Matters’ hosted by attorney Alan S. Pierce; the only Legal Talk Network program that focuses entirely on the people and the law in workers’ compensation cases. Nationally recognized trial attorney, expert, and author, Alan S. Pierce, is a leader committed to making a difference when workers’ comp matters.
Alan S. Pierce: Welcome to ‘Workers Comp Matters’ here on the Legal Talk Network. This is Alan Pierce. I am a practicing attorney in Salem, Massachusetts with a firm of Pierce, Pierce & Napolitano. And I want to welcome you all back to yet another edition of Workers Comp Matters.
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We have a return guest to our show, Peter Rousmaniere. Peter is a noted workers’ compensation authority. He is a 30-year veteran of the workers’ comp system. He has worn many hats. He has been an entrepreneur, a consultant, but he is best known as a writer.
He has written on many topics of national interest and along the way he has interviewed over a thousand individuals ranging from injured workers to CEOs of large corporations. He lives in beautiful town of Woodstock, Vermont. And he is Harvard educated with both his Bachelor’s and MBA.
Peter, welcome once again to ‘Workers Comp Matters.’
Peter Rousmaniere: Thank you very much Alan. I’m very happy to be here.
Alan S. Pierce: Today’s show, what I would like to do is focus on the — and it’s a pretty broad issue, and that is the adequacy of workers’ compensation benefits. Those of you who are familiar with the workers’ comp system understand that benefits in general are limited under most workers’ compensation plans.
They generally fall into three or four broad categories. One is the so-called disability or wage replacement benefits, which can be of total or partial amounts and/or temporary or permanent, and there is also the component of medical coverage for the costs of medical care and treatment.
Those are the two benefits sources that are most commonly accessed by those that are injured, but the other two and perhaps there are others, but the other two major benefits would be vocational rehabilitation and in many states what’s called a scheduled permanency loss of function or a disfigurement benefit.
So Peter, we would like to talk about the adequacy of benefits. I think those of us who have worked in or observed the workers comp system around the country for the last, I am going to say 20 or 30 years, have seen shifts in benefit adequacy, especially since the National Commission’s report finding significant benefit inadequacy in 1972, that’s the National Commission on State workers’ compensation laws.
And then the — I would call the era of enhanced benefits to come up to, what the commission recommended as recommended standards and then beginning probably in the early 90s through the present there have been curtailment of those benefits and questions have arisen regarding whether or not workers’ comp benefits as they exist today in many states are adequate for what they are designed to do.
So with that kind of as a broad introduction I’d asked you to kind of fill us in on how you feel, where we are at this point in terms of the adequacy of benefits for injured workers?
Peter Rousmaniere: I have a pretty crude definition for myself of what the principle of adequacy is and that is that the worker should not incur undo economic burden due to work injury. And as you pointed out Alan, this could be a very complicated area of study. Researchers have done some very dense studies of valuable but lots of judgment calls went in.
What I have decided to do a few years ago was to look at the simplest parts of benefit adequacy, and that is to look at how, when you are on temporary disability, what’s the effect of four rules that calculate what you are getting for your workers’ comp check, and that is the basic deductible, which is like 67% of average weekly wage, tax free, the wait period within which you — if you go back to work you don’t get any indemnity payment benefits, the retrospective period at which point after you pass that period in disability you get your wait period money and then the weekly benefit caps.
And I found that I could not find, very recently, not a single state that has looked at how their rules have impacted the take-home pay of the worker. In other words, Mary Smith has a take-home pay of a week of let’s say $450 after taxes pre-injury and then had a take-home pay of $350 after taxes, of course tax-free in workers’ comp.
That’s a difference of a $100. I don’t think I have seen a single study except very recently I came across one in Texas. So let’s go through pretty quickly what I found. Let’s go to the simplest one, would seem to be the simplest one which is weekly benefit caps and that is that the law says nobody’s going to receive more than a 100% let’s say of the average weekly wage in the state. They will not receive that in workers’ comp benefits.
One of the things I found is that nobody could explain to me why that benefit cap is there. A brilliant researcher from British Columbia, Terry Bargio, explained to me why it’s so and the way to describe why it’s there today is that the workers’ comp system is not meant to be a friend to the hedge fund manager who stumbles going into the Yale Club in New York City to have a big lunch, that the workers’ comp system is designed for the 90% of us for the or the 75% of us who do not get huge wages and income. So the benefit cap is there but it’s never been explained and it’s never been explained why it’s calculating the way it is.
Let’s then go to wait period. Well typical wait period in the country is seven calendar days. In other words, you have to be disabled for at least seven calendar days before you start receiving indemnity benefits. Some states have three days. Now, the classic argument for this is moral hazard. In other words, if you give payment on the first day, some people are going to claim an injury when they really don’t have an injury.
So that would mean though that a state that has a seven-day wait period as opposed to a three-day wait period that people are more concerned about the moral hazard, but they are less ethical workers there, because they have to be out more longer. The whole thing doesn’t make any sense and the whole thing doesn’t make any sense today because you don’t have any lags in information about who your workers are, you get medical care immediately and you get immediate response from medical care, medical doctors as to whether the person was injured or whether the person should be disabled for a while. The whole wait period to me is a myth as to where I stand.
Alan S. Pierce: Yeah. We’ve had experience of that in Massachusetts because I think it’s been typical of many states around the country, one doesn’t begin to collect an indemnity or a wage replacement check until they’ve been out of work more than five work days which oftentimes is seven calendar days. And further, they don’t get those five workdays back unless they’re out of work 21 days or more.
So that the way the system is designed here, there’s an incentive to stay out to pick up five extra days of benefits or seven extra days of benefits as opposed to if you look at it in another way, if you incentivize a worker to return to work earlier by giving that worker maybe an extra few days of comp you may be saving money in the long run.
So yeah, this whole idea of waiting period sometimes is counterintuitive. I think the other thought behind it is it is an effort of controlling the cost of the system figuring most injured workers aren’t going to go to the courthouse over three or four or five missed work days or they can use accrued vacation or sick leave which really isn’t fair to have the resources available to a worker subsidizing the employers workers’ comp system, but I think that was it and your worker doesn’t get hurt too much and if you add up all those five days aren’t paid across an employer’s experience, it could be tens if not hundreds of thousands of dollars.
Peter Rousmaniere: So that’s well said. I did an analysis. I sort of did a model of across the country depending on whether your have an injury that is three workdays, six work days or 10 work days and then computer did all the math and said that on average there was about a 65% reduction in take-home pay and that’s it. It cost both about $500.
In other words if you think of it, short-term injury, typical short-term injury in which the person goes back to work within or at 12th of the two-week period that they are incurring a burden that’s the equivalent of a relatively inexpensive washing machine.
Alan S. Pierce: Yeah, yeah, if you have to look at in terms of dollars –
Peter Rousmaniere: We can argue Alan, that well everyone should be able to handle that hit, okay.
The problem comes when you get into longer periods when you’re on disability for a period of time. I did some modeling of what would happen, the basic deductible, that 65%, 70% detectable or whatever it is, basically comes down to a 15% percent reduction in your take-home pay.
Alan S. Pierce: You’re comparing the 66% tax free to the net pay after taxes which would be around 80%, so the shortfall within that 10 to15% window where workers work paycheck-to-paycheck –
Peter Rousmaniere: You did that very well, yeah. As a rule of thumb, rule of thumb, is that your take home pay while you’re working is around 80% of what your gross salary is and it’s 67%, it’s maybe a little bit more than that. If you have a 67% basic deductible, you are short around 13%/15%.
Now the problem comes when you look at whether people can afford that kind of hit. Now I would ask your listeners now to judge whether they could sustain, easily sustain a 15% hit on their take-home income for an uncertain amount of time. It could be a month, it could be six months and it isn’t simply one time hit, but you can go on for several months.
Now, you can say well, Rousmaniere that’s not the right way to calculate because most people have a partner and you have to take into account the fact that partners own income is not being interrupted. So it’s really not a 15% reduction in income. So I might say maybe like an 8% or 9%, 8% reduction income if you group both wages together.
Well when I did this I took a median income in each state which right now is about $37.000 per worker and I have a couple both of whom who had the median income and they lived in the largest city in the state and I had basic, a basic budget for that state. And i found that if one of those workers is on temporary total disability, that couple could not afford the basic budget in that city, could not afford it, the basic budget.
Alan S. Pierce: We are going to take a break, we’re going to pick up on that when we come right back, but after the short break we will resume our conversation with Peter Rousmaniere.
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Alan S. Pierce: Welcome back to workers’ comp matters where we are discussing with Peter Rousmaniere benefit adequacy. Peter was just talking about studies where the impact on our injured worker and family, the longer somebody is on workers’ comp getting less per week whether it’s combined with a spouse or not is hard to be sustained.
There is one point I wanted to make as you were giving those statistics and I am going to ask you where our listeners might be able to read your article or articles on this, but don’t forget in addition to getting 66% or 60%, even though it’s tax-free, injured workers oftentimes if they are contributing to their health insurance still have to have those contributions made or they might lose their health insurance.
They’re also oftentimes not contributing for other fringe benefits while they’re out, so that while some might look at well, you’re getting two thirds of you pay tax free, it isn’t that big an impact when you have to factor in the fact that these people are living paycheck to paycheck initially and just dealing with as you say a 13% or 15% loss makes it very difficult.
So, where you have studied this and others, where could somebody who wanted to access more information and look at the actual figures are very difficult to discuss in our podcast, where could they find that?
Peter Rousmaniere: Sure. The study I did which was published by Work Comp Central in early 2016 is called the Uncompensated Worker. So if you Google the uncompensated worker, you will probably find the report in PDF form which is free and you can collect it. That should be easy to get. I’ll give you my email address too right now which is HYPERLINK “mailto:[email protected]” [email protected] and invite people to look at that study, try to do it, challenge it, see if you come up with more interesting figures.
This is a very unexplored area and Alan I’m also glad you brought up this issue of these other benefits, the other paying deductibles and if you don’t pay them you are disallowed because of all kinds breach, there is no systematic information on this available and if a number of attorneys could sit down and systematically collect that information on a random sample of their clients over the last five years or so and we have a good set of representation of several hundred or up to a 1000 cases in which we understand all the deductibles that we think being taken out and the consequences of not paying those deductibles, we will have a much clearer picture of this.
Alan S. Pierce: I agree. I agree. Before we close, and I want to thank you for that and i have read your Uncompensated Worker piece as well as most or maybe, as much of Peter Rousmaniere’s writings that I can – that have crossed my desk. I want to get back to something you mentioned earlier and that is you sort of likened it to the hedge fund manager going to the Yale Club but I would call it the higher-end, a higher paid worker doesn’t have to be a seven-figure a year hedge fund manager. It could be somebody whose average weekly wage is over the state average weekly wage or over the cap in most states.
Massachusetts, maximum an injured worker can collect is the state average wage which right now is hovering around $1,200 a week. So that somebody who makes $1,000 a week, they get hurt, they get 60% or $600 a week, but somebody who makes $3,000 a week which is not unheard of, a 140,000 or $150,000 a year, they get 60%, but 60% of $3,000 is $1,800, our cap is $1,200.
So that that worker is perhaps only getting 40% or 30% of his pre-injury wage and that’s a worker who probably, while it’s obviously nice to have that level of income also has a lifestyle and level expense somewhat commensurate with that income. So taking a hit to 60% is not viable for that worker. He’s taking a hit down to 35% or 40% of his income. So I wanted you to perhaps — you can call it a deductible, you could call it a cap but it is the reality for higher wage earners, correct?
Peter Rousmaniere: I wonder how often that takes place. I had some discussions with the workers’ comp research institute which had done a study of caps and we were comparing the frequency in which a cap is hit, i think in the State of New Jersey for example and we came up with different estimates and I’d be very interested in how often caps are hit and also who are they? Are these plumbers who are working triple time and make their $120,000 a year?
Alan S. Pierce: Yeah, for the most part I’ve got a lot of union workers here with overtime. They have an average wage of yearly well over a $100,000, yet if they have an injury on the job and they are caped at 60% of their wage but to a cap, their actual earnings on workers’ comp are via percentage.
Peter Rousmaniere: And we do not want to discourage those workers. Those are good workers, right? I mean not that any bad workers, those are particularly good workers in terms of society.
Alan S. Pierce: I like to think about our workers out there, exactly. Peter, once again I want to thank you for being a guest on workers’ comp matters. You’ve given us your contact information and keep up the good work and keep us, those of us who are attorneys informed because we need it. We’re not skilled in data collection and analytics and statistics, but they are eye-opening and especially when you’re able to put it into context so that we can all understand.
So for those of you who are listening, thank you for listening and go out and make the day that matters.
Outro: Thanks for listening to Workers Comp Matters today on the Legal Talk Network, hosted by attorney Alan Pierce where we try to make a difference in workers’ comp legal cases for people injured at work. Be sure to listen to other Workers Comp Matters shows on the Legal Talk Network; your only choice for legal talk.