Perhaps most notable was Upton Sinclair, the author of The Jungle , a novel that detailed the hellish conditions faced by slaughterhouse workers in turn-of-the-century Chicago. Thirty-six more states followed suit before the close of the decade. In fact, by , only six states had not authorized compensation for workplace injuries.
These changes reduced benefits to employees and supplied business owners with tools to control medical costs. This evolution has varied by state. Major changes also occurred in January SB and AB , April SB , and January SB introducing utilization review of medical treatment requests, the use of the AMA guides to evaluate permanent impairment, the elimination of vocational rehabilitation, and most recently the addition of independent medical review which put the authority to make medical treatment decisions in the jurisdiction of a private for profit corporation, Maximus.
California's workers' compensation system is highly polarized. It is a multi-billion dollar industry involving a wide variance in special interests.
Recent reforms watered down injured workers' benefits and access to necessary medical treatment to save costs to employers. These reforms have also created the need for an increased bureaucracy that is so complex it produces considerable grief to those who must deal with it on a daily basis.
The late David DePaolo noted in one of his many blogs in Work Comp Central that California workers' compensation is "the single largest privatized social benefit system in the world, second only to Social Security in the delivery of medical and indemnity benefits Another source of growth has been expansions in the coverage of types of injuries and occupational diseases.
By 23 states covered at least some occupational diseases. By the s all states had some form of coverage. More recently, some states have begun to expand coverage to include compensation to persons suffering from work-related disabilities associated with psychological stress. The rise in benefits paid out has occurred even though workplace accident rates have declined since the beginning of the century. Since then, these costs have risen along a strong upward trend to nearly 2.
The rise in compensation costs in Table 2 was driven in part by increased payments for benefits and medical coverage, as well as the introduction of the Black Lung program for coal miners in The rise in benefits can be explained in part by a series of amendments to state laws in the s that sharply increased the weekly maximums that could be paid for benefits.
Sources: , Alfred M. Skolnik and Daniel N. B1, p. Over time, and particularly during the s and early s, rising medical expenditures have been a prime contributor to rising costs. Expenditures on medical and hospital benefits have risen from less than 0. Payments of replacement wages to disabled workers have increased relative to the size of payrolls from 0. In contrast, the percentage of the payrolls spent on paying benefits to the survivors of the victims of fatal accidents has stayed relatively constant at below 0.
The upward surge in the percentage of payroll paid out to survivors between and was driven by the introduction of the federal Black Lung program. The impact of Black Lung was so dramatic because of the accumulation of a number of years of survivors all being added to the system in the span of three years. Data on occupational injury and illness rates for all occupations shows that number of cases of injury and illness per workers in the private sectors has fallen by 32 percent since , while the number of lost workday cases has stayed roughly constant.
Although the states establish the basic rules for compensation, employers can obtain insurance to cover their compensation responsibilities from several sources: private insurance carriers in the majority of states, government-sponsored insurance funds in roughly half of the states, or the employer can self-insure as long as they demonstrate sufficient resources to handle their benefit obligations. Between the end of World War II and , the distribution of benefits paid by these various insurers stayed relatively constant see Table 3.
The percentage of benefits paid by private insurers was roughly 62 percent, by state and federal funds roughly 25 percent and by self-insurers was about 12 to 15 percent. The introduction of the Black Lung benefit program in led to a sharp rise in the state and federal insurance funds, as a large number of workers not previously covered received federal coverage for black lung disease. Since the trend has been to return more of the insurance activity to private insurers, and many employers have increasingly self-insured.
The provision of accident compensation is potentially subject to problems with moral hazard, which is a situation where people reduce their prevention activities because their net losses from the injury are reduced by the presence of compensation. Over the course of the century, there have been two trends that have contributed to the potential for greater moral hazard problems.
First, the character of the most common injuries has changed. In the early s the common workplace injuries were readily identifiable, as the probability of accidents leading to broken bones, lost body parts, and fatalities were far more common. These injuries are not so easy to diagnose effectively, which could lead to excess reporting of this type of injury.
The second trend has been a rise in benefit levels as a share of after-tax income. Through , less than 7 percent of households were subject to the income tax.
Since World War II, however, the income tax rates have been substantially higher. Both the trends toward more soft-tissue injuries and the higher after-tax replacement rates have led to improvements in the compensation of injured workers, although there is evidence that workers pay for these improvements through lower wages Moore and Viscusi On the other hand, the trends increase the risk of problems with moral hazard, which in turn lead to higher insurance costs for employers and insurers.
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