Masonry Magazine August 1986 Page. 25
California is quite different from Arizona, even though they are neighbors.
Until the early 70s, workers compensation had been a rather quiet area of insurance. Rates very much lower than they are today and, for the most part, amounted to an incidental part of the overall cost of doing business. The trouble was that benefits to the injured workers were inadequate. A National Commission in State Workmen's Compensation reviewed the situation in 1972 and reported that major changes in statutory benefit levels would have to be made if workers compensation was to survive as a state, as opposed to federal, system.
Given the implied threat of federal legislation, the states responded by increasing benefit levels throughout the next decade. In 1972, the average weekly maximum benefit for a temporary total disability was $72. By mid-1985, it had grown to $315. When the Commission made its report, only 14 states had automatic escalation provisions to keep benefit levels aligned with wage levels. Today, 42 states have such escalation clauses. Additionally, all states now provide full coverage of occupational diseases and provide unlimited medical benefits.
Even if nothing else had happened over the past ten years, workers compensation rates would have risen substantially, simply to meet the increased costs of the upgraded benefit levels. But that wasn't the only thing that happened. We saw above that the average weekly maximum benefit jumped more than fourfold in 12 years. The Commission's benefit recommendations were generous, but they were not that generous. What also happened was inflation.
Inflation hit workers compensation particularly hard because the rates are heavily influenced by wage levels and medical costs. Benefits are based on a percentage of the employee's wage, depending on the severity of the injury, and subject to a maximum amount. Wage escalation, which ran about even with inflation throughout the past decade, will obviously increase the benefits, even if everything else is equal. In many industries, wages tended to run ahead of price increases, with the unhappy results observed in the two recessions of the past five years. At the same time, medical costs increased at rates well above that of the general inflation and, while wage levels have flattened out in the past few years, medical costs have continued their steep ascent.
As these increases took place, the states were also reforming their laws. To some degree the two factors fed upon each other. As workers compensation came to pay all the medical costs of the injured worker, there was little or no incentive to keep those costs under control. At the same time, benefit increases also tend to increase the use of the system, especially in stressful times.
There is a tendency for claims to be filed, for example, when layoffs are imminent and, conversely, recovery periods tend to increase during periods of large-scale layoffs. This should not necessarily be attributed to a sophisticated form of malingering.
Just as football players will often "play with their pain," workers with chronic ailments will often prefer to put up with them and work, perhaps in hope that they will get better, perhaps in fear of getting still worse news during a hospital stay. In any event, this resolution obviously crumbles during a period of large-scale layoffs, when the work itself disappears. There can be no doubt that the industrial dislocations of recent years have taken their toll, not only in the morale of the work force, but in the workers compensation system as well.
So how high should workers compensation rates be?
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