Can workers' comp work?

• Author: Trolin, Brenda
• Position: Workers' compensation systems - Includes related article

Weakened by soaring medical costs, litigation and fraud, workers' compensation systems are in need of repair. Maybe it's time to marshall all the forces for a major overhaul.

Workers' compensation, the 80-year-old pact between employers and their workers, is critically ill. It's been sick since the mid-'80s, and there's very little evidence of immediate recovery despite diligent attempts at treatment by the 47 states that subscribe to the system.

Legislature have been doctoring workers' comp for more than a decade now, prescribing one kind of reform or another. What ails the workers' compensation system--excessive cost, fraud, waste, expanding definitions of eligibility for compensation and an outdated, understaffed and underfunded administration system--only gets worse every year.

The philosophy behind the workers' compensation system is sound: It is an agreement between an employer and his workers that the boss will pay medical costs and wages for lost time if injured workers agree not to take their case to court.

The objectives of most workers' comp legislation are sound, too: to provide immediate and sufficient income to victims of work accidents and their families without expensive, time-consuming litigation, to encourage maximum employer interest in safety and rehabilitation and to promote studying the causes of accidents.

For many years, the system was a small, cheap program costing employers less than 1 percent of payroll. Through the 1970s, after a congressional commission found serious deficiencies in the program, states acted to adopt recommendations for improving coverage, income benefits, medical care and rehabilitation, and safety and delivery systems. These changes, especially the increase in benefits and coverage (which the commission found extremely low), certainly enlarged the program.

The real cost drivers in the '80s, however, were increased medical care costs, increased litigation (especially cases to recover loss of income), expansion of the kinds of injuries covered, such as mental stress, and growth of other occupational diseases (carpal tunnel syndrome and asbestos-related disorders).

All this has steadily driven up costs. In 1972 it cost an average of $93 to cover a worker. By 1987 employers were paying $430 per worker; by 1990, $500. Similarly, the average medical claim on lost-time cases was $2,100 in 1981. In 1989 it had jumped to $5,400--a 157 percent increase.

The latest treatment for the ailing workers' compensation program calls for a comprehensive examination of the entire system. There've been a growing number of special sessions in recent years--Texas, Oregon, Alabama, Maine, New Mexico; a growing number of special task forces and study groups--virtually all states have one or the other; and a growing number of comprehensive bills--introduced in California, Oregon, Texas and Colorado. California Senator Bill Greene believes workers' compensation cannot be saved until legislators figure out its relationship to other social insurance programs and employer-sponsored benefits.

The biggest hindrance to a thorough analysis of the problem is that states have not had the data necessary to make decisions. Information is missing on litigation rates and the effectiveness of cost-containment measures. "Even if it costs money, this is a very important and necessary step. We have to have objective data to make the decisions that need to be made," says Peter Barth, a workers' compensation expert at the University of Connecticut.

The massive amount of data currently collected by the insurance industry is used to analyze rates, but does not necessarily answer questions about system performance or do kinds of cost-benefit analysis useful to public policy-makers. These databases do not provide information on self-insurers, significant players in the market.

Before legislators can formulate sound public policy for long-term reform of the system, independent databases must be established. Until then, they are relying only on anecdotal information and data provided by interest groups concerned with preserving or increasing their piece of the pie.

But who's going to collect the data? Workers' comp agencies, like insurance commissioners' offices, are very much as they were 20 years ago. Low-budget, understaffed, many not yet computerized, they are administering and monitoring a sophisticated and complex activity, and they are simply overwhelmed by the charge.

The specific information that state legislators need--where the money actually...