Does Long-Term Strength of the SSDI Trust Fund Depend Upon Changes to State Workers’ Comp Programs?

Part of SSDI’s Fiscal Weakness Tied to Cost Shifting from Workers’ Compensation

In an important recent paper, Professor John Burton and his colleague, Steve Guo, argue that significant fiscal improvements to the Social Security Disability Insurance (SSDI) Trust Fund could be achieved by addressing one of SSDI’s core problems: the way it interacts with state workers’ compensation (WC) programs [see Burton, John F., Jr. and Guo, X. “Improving the Interaction Between the SSDI and Workers’ Compensation Programs,” SSDI Solutions: Ideas to Strengthen the Social Security Disability Insurance Program, The McCrery-Pomeroy SSDI Solutions Initiative, a project of the Committee for a Responsible Federal Budget, 2015].

Building on their own earlier research, and that of others, Burton and Guo argue that significant cost shifting from WC to SSDI adds to the overall difficulties experienced by the SSDI Trust Fund. They allow that some of the cost shifting is due to the various existing offset provisions that are used to coordinate WC and SSDI benefits. They add that additional cost shifting is due to inadequate WC cash benefits—a problem that they contend has become more serious during the past 25 years. Burton and Guo go on to offer four separate proposals that they contend would strengthen the relationship between WC and SSDI and, in the process, provide additional fiscal support for the shrinking SSDI Trust Fund.

“Primer” on SSDI, Medicare and WC Programs

After providing the reader with a short, yet excellent, “primer” on SSDI, Medicare, and WC programs, Burton and Guo observe that many injured workers who sustains a significant level of permanent partial disability face a quandary: that in spite of the WC system’s pegging wage replacement at roughly two-thirds of lost earnings, the practical or actual replacement rates are much lower. Citing earlier studies, the authors indicate replacement rates 10 years after injury were:

• 46 percent in New Mexico
• 41 percent in Washington
• 37 percent in California
• 36 percent in Oregon, and
• 30 percent in Wisconsin

Faced with such a shortfall, it is altogether understandable that many disabled workers have sought federal disability benefits under the SSDI system.

Changes in WC Cash Benefits Since 1980

Burton and Guo observe that the shortfall in WC cash benefits can be clearly seen in the data: WC cash payments per $100 of covered payroll. They note that in 1980, WC cash benefits were approximately $0.68 per $100 of payroll. Payments generally increased until 1991, when WC cash benefits amounted to $0.99 per $100 in payroll. From that point on, cash benefits have trended negatively, declining in most years after 1991 until in 2013, when they reached $0.50 per $100 in payroll, tied for the lowest figure since 1980.

They observe a relative paucity in published studies that have attempted to determine the sources of declining cash benefits for the period between 1990 and 1999. Those note, however, that several such studies showed that while some relatively small share of the decline was due to a drop in the work-related injury rate during the time period, a much larger share was caused by a combination of:

• More stringent administrative practices, rules and decisions by state courts,
• An overall tightening of eligibility rules in the state workers’ compensation acts, and
• The declining share of WC cases that qualified for permanent partial disability

Heightened Standards of Proof Result in Reduced Cash Benefits

Burton and Guo catalog a host of more recent restrictions that result in lower cash benefit payments to injured workers. They note, for example, that the traditional WC causation standard allowed recovery where the work-related injury was a “nontrivial” source of his or her disability. Movement by in a number of states, such as Florida, Missouri, Kansas, Oklahoma, and Tennessee to rules that require the workplace to be the “primary cause” or the “major contributing cause” of the disability have resulted in declining cash benefit payouts. They cite an earlier Burton study that tended to show that Oregon’s restrictive statutory amendments, including a move to the major contributing cause standard, have resulted in cash benefits about 25 percent below the amounts that would have been paid under the “old” rules.

Restrictive Legislation Also to Blame for Reduced Benefits

The authors point to other recent restrictive legislation, such as the controversial opt out provisions in Oklahoma and wonder if those sorts of limitations on compensable injuries will continue the current downward trend in cash benefits paid to injured workers. The authors cite an article I wrote in 2013, [Robinson, Thomas A. “Oklahoma Commentary,” Workers’ Compensation Emerging Issues Analysis, 2013 Edition. Thomas A. Robinson and Robin E. Kobayashi, eds., New Providence, NJ: LexisNexis: 154–164], that expresses concerns that the Oklahoma opt out legislation will result in an entire subclass of injured workers who receive virtually nothing for what earlier would have been compensable injuries or illnesses. Burton and Guo point out that since 2003, 33 state legislatures have passed WC laws that either reduce benefits or make it more difficult to qualify for those benefits.

Shifting of Costs from WC to SSDI

A major portion of the Burton/Guo paper details the authors’ strong argument that significant cost shifting has occurred from the WC arena to the federal SSDI program during the past 25 years. They observe that in the years when WC cash benefits were generally rising—1980 to 1991—SSDI benefits actually declined. As WC cash benefits began to decline after 1991, however, SSDI payments increased.

They identify two important factors behind the cost shifting:

• Ineffective coordination of WC and SSDI payments (the battle of the competing offsets)
• Inadequate WC cash benefits paid under the state WC systems

Coordination of SSDI and WC Benefits

Burton and Guo point out that some cost shifting is the result of the “coordination” of SSDI and WC benefits. Since 1965, the Social Security Act has sought to limit SSDI benefits in such a fashion that, when combined with WC cash benefits, do not exceed 80 percent of the worker’s pre-injury earnings. They provide an example of an injured worker whose average current earnings (ACE) prior to qualifying for SSDI benefits is $4,000 per month. The applicable limit would, therefore, be $3,200. Assuming, for purposes of the illustration, that the WC cash benefits are $2,800 per month, and that the SSDI benefits would ordinarily have been $1,800 without the offset provision, the application of the SSDI offset would reduce the SSDI payment to $400 per month.

Of course, 15 states have reverse-offset laws of their own. In those states, the WC cash benefits are reduced to achieve the 80 percent limitation. In those states, using the same pre-injury earnings, WC benefit would be reduced to $1,400 and the SSDI benefits would be $1,800. In essence, in those reverse-offset states, the state WC program has shifted $1,400 per month to the SSDI Trust Fund.

Additional Strong Evidence of Cost Shifting

The authors point to a number of studies that support their contention that cost shifting from WC programs to the SSDI Trust Fund has increased during the past two and one-half decades. One national study, for example, showed that among those in the study group who reported that their health condition was caused by their work, some 29 percent were enrolled in the federal SSDI program, while just 12.3 percent of them had ever received WC benefits.

Drawing on their own prior research, the authors posit that additional cost shifting occurs because, as briefly noted above, many states have enacted restrictive legislation, rules, and procedures that limit WC cash benefits. Where state WC cash benefits are less than adequate, or non-existent (e.g., where a claimant could show a causal connection between the workplace and the condition or illness, but is unable to establish the claim because he or she cannot show that the workplace was the major contributing cause), cost shifting to SSDI is the natural result.

Four Proposals to Reduce Extent of Cost Shifting Between WC and SSDI

The final major portion of the authors’ paper offers four suggestions, any of which would reduce the level of cost shifting from WC to SSDI. The first would jettison the reverse-offset provision for WC and SSDI that exists in 15 states. The authors point out that, among other things, the reverse-offset provisions have a perverse effect on workplace safety. There is less incentive to beef up safety programs where SSDI is picking up a larger portion of the overall disability bill. Proposal one would also implement additional data gathering from the states in order to judge the overall coordination aspects of SSDI and WC.

The second recommendation would be to require WC settlements to cover future cash benefits for the permanently injured worker. Here the model is the current system utilized by Medicare to require a set-aside in any WC settlement to take care of future medical expenses. If, relative to long-term disability benefits, the SSDI Trust Fund were seen as a secondary program—like Medicare is seen for medical care—the WC system would bear a more appropriate share of the long-term disability that results from workplace injuries and illnesses.

The third recommendation is more radical. It would require the SSDI program to be experience rated. For example, if an employer’s contribution to the SSDI Trust Fund took into account SSDI payments made to former employees, there would be an incentive to provide safer workplaces. The authors point out that currently WC programs and unemployment insurance are experience rated. The same could be done for SSDI. Burton and Guo argue such a change would not only reduce SSDI expenditures, it would also indirectly result in reduced cost shifting from WC to SSDI.

The authors indicate their last proposal is the most radical and, in fact, isn’t currently feasible. That proposal: establish federal standards for state workers’ compensation programs. As a backdrop for the proposal, they note the work of the National Commission on State Workmen’s Compensation Laws (National Commission) created by the Occupational Safety and Health Act of 1970. The National Commission (incidentally, chaired by Burton) was directed, inter alia, to determine if state WC laws provided adequate compensation.

The National Commission’s findings were that the state systems’ benefits were neither adequate nor equitable. The National Commission offered 84 recommendations. At the time, state legislators recognized that if the states didn’t act, Congress might well do so.

The authors posit that as time moved on, the threat of federal intervention diminished and so also—not coincidentally—did core disability benefits to injured workers. Establishing federal standards would allow for greater cohesion, not only among the states, but it would reduce the load that is currently being born by the SSDI Trust Fund. Alas, the authors indicate, this proposal is not possible in the current environment.

Where Do We Go From Here?

As the authors point out, SSDI currently provides more than four times the cash benefits for disabled workers (and their families) as provided by the WC system. Some, perhaps even a majority, of that difference is due to the fact that SSDI pays benefits regardless of the source of the disability. It is, however, indisputable that the SSDI Trust Fund is running out of money and something will be done to shore it up. The issue is, of course, what the solution or solutions will look like. Burton and Guo provide an excellent paper to help frame that discussion.

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Oklahoma Supreme Court Lands Yet Another Body Blow to State’s Controversial Opt Out Law

The 2013 Oklahoma workers’ compensation “reforms” 2013 Senate Bill 1062 which, among other things, created the state’s uber-controversial “Opt Out” arrangement, in which employers can jettison the entire state-run system if they substitute their own “separate, but equal” employee benefit plans, continues to take it on the chin. Yesterday (April 19, 2016), the Supreme Court of Oklahoma, in a per curiam decision, Robinson v. Fairview Fellowship Home, 2016 OK 42 concluded that the state’s Workers’ Compensation Commission had the power to determine whether a provision of the state’s workers’ compensation law was being unconstitutionally applied to a particular party in a proceeding before the Commission. The decision has huge implications for other cases currently before the Court, including Vasquez v. Dillards, Inc., in which the Commission earlier held two core provisions of the state’s Opt Out law were unconstitutional.  Continue reading

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Leahy Bill in U.S. Senate Could Kill Key Provision in Texas Nonsubscriber ERISA Plans

A bill [S. 2506] introduced on February 4, 2016, by Senator Patrick Leahy (D-VT), would, if passed into law, appear to invalidate a core provision found in most Texas workers’ compensation “employee benefit plans.” The Leahy bill, known as “Restoring Statutory Rights Act,” would amend the Federal Arbitration Act so as to invalidate arbitration agreements between parties in many contracts or transactions unless the written agreement to arbitrate is entered into by both parties after the claim has arisen. The Texas comp plans, put in place by some large Texas employers, usually contain binding arbitration clauses that prohibit an injured worker from litigating his or her negligence claim in state court (recall that a Texas “nonsubscribing employer” does not enjoy the exclusive remedy defense). At least from my first reading of the bill, compulsory arbitration provisions contained in Texas comp plans would come under the ax. Continue reading

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Virginia Legislature Instructs Appellate Court: Deceased Employees Really Are “Physically Unable to Testify”

On March 11, 2016, Virginia governor McAuliffe signed into law a bill extending the state’s narrow presumption of compensability [Va. Code Ann. § 65.2–105] to cover most claims where the employee dies in an unwitnessed work-related accident. Prior to the amendment, Virginia provided such a presumption in unwitnessed accident cases [for a complete discussion of the issue, see Larson’s Workers’ Compensation Law, § 7.04] where the injured worker was “physically unable to testify.” One would have thought that an employee killed in an unexplained workplace accident would be “physically unable to testify,” but last year the state’s Court of Appeals, in an opinion not designated for publication [Estate of Arroyo v. Ramirez, 2015 Va. App. LEXIS 30 (Feb. 3, 2015)], essentially said otherwise. The 2016 statutory amendment makes it clear to the Court: if a Virginia employee dies in a work-related accident, he or she is physically unable to testify.

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Does Torres Signal How OK High Court Will Decide Constitutionality of Opt Out?

As I reported on Wednesday, in Torres v. Seaboard Foods, LLC, the Supreme Court of Oklahoma struck down a provision in the state’s workers’ compensation law that disqualifies a claimant from recovering for a cumulative trauma (CT) injury unless the claimant has completed at least 180 days of “continuous active employment with the employer.” It did so, in relevant part, on the basis that Okla. Stat. tit. 85A, § 2(14) creates two classes of employees that have been similarly injured and, without appropriate justification, treats them differently. Last Friday, I noted that in Vasquez v. Dillard’s, Inc., a panel of the state’s Workers’ Compensation Commission found two core sections of the Oklahoma Opt Out law unconstitutional.  I noted that the case would almost certainly be reviewed by the state’s high court. The obvious question: Does Torres offer any clues as to how the Court will decide the appeal in Vasquez? Continue reading

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Oklahoma High Court Strikes Down State’s 180-Day Cumulative Trauma Employment Rule

In Recent “Comp” Decisions (the other from Commission), Oklahoma Legislature Is “0 for 2”

A provision in Okla. Stat. tit. 85A, § 2(14) that disqualifies a claimant from recovering for a “cumulative trauma” injury unless the claimant has completed at least 180 days of “continuous active employment with the employer” is unconstitutional as violative of the Due Process Section of Oklahoma’s Constitution [Art. 2, § 7], held the state’s Supreme Court yesterday in Torres v. Seaboard Foods, LLC, 2016 OK 20 (Mar. 1, 2016). It was the second time in 3 business days that Oklahoma City attorney, Bob Burke, had successfully challenged the 2013 overhaul of the Oklahoma’s workers’ compensation laws. As I earlier noted, last Friday, at Burke’s behest, a panel of the state’s Workers’ Compensation Commission struck down key provisions of Oklahoma’s controversial Opt Out legislation. Yesterday, Burke’s bullseye was a provision that employers argued was necessary to prevent fraud and make them more competitive in today’s economy.

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Oklahoma Commission Strikes Down State’s Opt Out Law

Equal Treatment Under the State’s Dual System is “a Water Mirage”

This afternoon (Feb. 26, 2016), in a lengthy Commission Order, the Oklahoma Workers’ Compensation Commission found that Sections 203 and 209 of the Oklahoma Employee Injury Benefit Act—the state’s Opt Out law—unconstitutional because they:

  1. Unconstitutionally deprive injured workers of equal protection;
  2. Make the law an impermissible “special law”; and
  3. Deprive injured workers of access to the Court.

The Order was rendered in Vasquez v. Dillard’s, Inc., Commission File No. CM–2014–11060L. Continue reading

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Facebook® Plays Role in Indiana $400,000 Verdict for Retaliatory Discharge

An Indiana jury was within its province as factfinder in returning a verdict for more than $400,000 in compensatory and punitive damages against a former employer in a retaliatory discharge action filed by a terminated employee, held a state appellate court recently in Best Formed Plastics, LLC v. Shoun, 2016 Ind. App. LEXIS 41 (Feb. 16, 2016). The former employer contended that the trial court erred as a matter of law in allowing the retaliatory discharge action to go to the jury since, it contended, the worker was not physically capable of returning to work at his pre-injury position. The appellate court held that under the facts of the case, which included a Facebook® post accusing the injured employee of malingering, it would be contrary to public policy to say that while an employer could not fire an employee in retaliation for filing a worker’s compensation claim, and at the same time say it could fire the employee for the inability to return to his job due to the injuries that were the basis for the worker’s compensation claim.

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Georgia Mother May Sue Deceased Son’s Employer and Staffing Company Where Co-Worker Murderer May Have been Negligently Hired

A mother’s wrongful death action against her son’s employer was not barred by the exclusive remedy provisions of the Georgia Workers’ Compensation Act (“Act”) where the undisputed facts clearly showed that her son’s death did not arise out of the employment, held a state appellate court [Sturgess v. OA Logistics Servs., Inc., 2016 Ga. App. LEXIS 67 (Feb. 15, 2016)]. The facts were as bizarre as they were tragic. The deceased was shot and killed by a temporary employee for no apparent reason. The murderer turned out to be a convicted felon who had used an alias and fake ID in applying for work. The appellate court held the risk of a random attack was no more heightened at the deceased’s workplace than at any other place.

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Wyoming Father May Sue Employer For Anguish Related to Co-employee Son’s Death

Where a father and son were co-employees working at an excavation site and the son was struck in the head with the bucket of a track hoe—the blow causing serious injury—and the father was summoned to the scene, where he unsuccessfully attempted to render aid to his son, the father has a cause of action against the employer for negligent infliction of emotional distress, held the Supreme Court of Wyoming [Collins v. COP Wyoming, LLC, 2016 WY 18, 2016 Wyo. LEXIS 18 (Feb. 10, 2016)]. The father’s claim was not derivative of his son’s fatal injuries. The Court said that it was based on an alleged injury that was separate and distinct from his son’s death. Moreover, since the Wyoming Workers’ Compensation Act (“Act”) does not provide benefits for a “mental-mental” injury, as described in Larson’s Workers’ Compensation Law (“Larson”), § 56.04, the father’s claim could not be barred by the exclusive remedy provisions of the Act.

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