Viewing Alternatives to Workers' Compensation From Helpful Historical v. Impeding Ideological Perspectives

by Daryl Davis
January 1, 2016

As legal alternatives to workers’ compensation (WC) grow in number and popularity, employers will save money and employees will—in aggregate—receive better care.1 As this market grows, my income will also grow.

Such forthrightness should seem unnecessary from a proponent of the opt-out movement. But a vocal (and boisterous) contingent of the opposition avoids the necessary logical inversion by hiding behind other, less relevant motives.

As companies move away from WC, our opponents’ income will shrink, though they never acknowledge their own financial well-being as a motive in opposing opt-out. Attorneys, judges, cost containment companies, third-party administrators, industry regulators, the NCCI and a host of other WC stakeholders2 veil their financial motives by redirecting the argument to “what is fair and just for the employee.” They are being disingenuous.

With the passage of time, it is becoming easier to expose financially motivated WC stakeholders. But a second component of the opposition is free from poorly hidden financial agendas. This ideological group—which compels me to write this essay—claims to oppose free market alternatives on altruistic grounds. As discussed below, its members—just like their financially motivated brethren—lean quite heavily on the noble ideas that they hope are conveyed in the two-word, nebulous term Grand Bargain. “The Grand Bargain was a deal between employer and employee—protecting both! We must not touch it.” This unexplained claim is more than convenient for them; they regard it as sacrosanct.3

II

What was that Grand Bargain, anyway?

The US was a little late to the WC party. Pressure had been building on policy makers since the second half of the 19th century, but it was the Pittsburgh Survey by the Russell Sage Foundation that provided the greatest influence in the rapid adoption of WC laws in the US between 1911 and 1920. Anecdotes (e.g., The Jungle) helped, but legislatures needed statistically compelling factual evidence to reform the legal schemes governing workplace accidents. For that purpose, Crystal Eastman stood and delivered. In her seminal study, Work-accidents and the Law (which was part of the Pittsburgh Survey and published in 1910), Eastman gathered and reported on workplace accident data for a 12-month period between 1906 and 1907 from the small but industrially relevant sample of Allegheny County, PA. She rightly and importantly spent the first two hundred pages of her study explaining the devastating effects of workplace accidents on individuals, families, and communities.4 After dozens of case studies concerning widows, orphans and maimed workers, she dove into the problem with aplomb.

The root of the problem was that common law systems couldn’t keep up with the changes stemming from the Industrial Revolution—especially in the US. It’s no coincidence that many countries which eventually committed to industrialization were also relying on English common law to some extent. From the Pittsburgh Survey, Eastman summarizes the problematic common law system on page 206 as follows:

  1. It is wasteful:
    1. The state expends a large amount in fruitless litigation.
    2. Employers expend a large amount, as the result of work-accidents, only a small part of which is actually paid in settlement of accident claims.
    3. The injured employes [sic] spend nearly half of what they get in settlements and damages to pay the cost of fighting for it.
  2. It is slow; recovery is long delayed, while the need is immediate.
  3. It fosters misunderstanding and bitterness between employer and employes.
  4. It encourages both parties to dishonest methods.
  5. The institutions which have been resorted to as an escape from its evils, liability insurance and relief associations based upon a contract of release, are often advantageous to employers, but disadvantageous in important respects to employes.

The irony—over a century later—is too obvious. Her points 1-4 might as well be the outline used for states like Oklahoma, South Carolina and Tennessee when contemplating legal alternatives to their inefficient, caustic and modern WC systems. Granted, there was substantially more urgency for Eastman when she originally created this list as the deaths per 100,000 hours worked were at all-time highs. Today, that statistic is at an all-time low. As significant as our modern occupational accident problems are, they are a different breed from—even if similarly described to—what Eastman studied.

Eastman’s study was so powerful that many of our state legislatures used it in outlining their original WC laws. Stakeholders were generally agreeable to this Grand Bargain, which 1) prevented employees from suing employers for common law negligence; 2) required employers to pay medical and lost income benefits for employees injured on the job; and 3) removed negligence from the conversation by making the entire WC scheme “no fault” in nature.

But there are some important contextual factors that contemporary WC stakeholders forget to mention regarding the Grand Bargain that gave us WC to begin with. First, most states made these new-fangled WC systems optional. That’s right; of the forty-five states that passed WC legislation between 1911 and 1920, thirty-six allowed employers to choose which system they wished to participate in. The original Texas law—which still stands iconoclastically today—was perfectly ordinary when originally enacted in 1913 (as it gave private employers the opportunity to subscribe to WC or stick with common law—albeit without three powerful common law defenses). When the Grand Bargain was being born, options were the norm.

A second forgotten characteristic of the Grand Bargain is how disputes—though rare—were handled. By design, attorney involvement was minimal. One of the primary goals of the Grand Bargain was to decrease the amount of litigation—not recategorize and grow it. Eastman’s suggested mechanism (pp. 211-220) for dispute resolution was arbitration, which was embraced by a number of states.5 Never count attorneys out, though. Primal due process ideals eventually compelled them to increase their involvement—and compensation—all in the name of giving clients the day in court to which they are constitutionally entitled. This aberration—attorney involvement—is now sold to the public as part and parcel of the Grand Bargain.

Our opponents will accuse me of misinterpreting Eastman’s time and message. All interested parties are welcome to read her study6 and draw their own conclusions.

If we were to gather details from a random sampling of 10,000 modern WC cases and go back in time to show them to Eastman as well as describe the problems of our current WC systems, she would be confused. She would explain that our problems—which in outline form might appear similar to her list above—were not hers. She might even suggest we acknowledge the obsolescence of some of her ideas.

III

We invite interested parties to tour the facilities of our opt-out employers and interview employees. They can even search for hidden torture chambers filled with injured workers, but they won’t find them, since they don’t exist. Employees are happy, and our employers are delivering top-notch care to them at a fraction of the cost of WC.

But our opponents won’t accept this reality. “Facts be damned!” they cry. “The employer needs to pay full fare for WC.” That reasoning, again, is understandable from those WC stakeholders who fear they will starve if they can’t slurp from the trough of WC. Inexplicably, however, this attitude is even more pronounced among the opposition’s altruistic contingent, which maintains that employers must continue covering the inflated costs of employee welfare under WC whether that financial burden improves the situation of injured employees or not.

Medicare presents an interesting litmus test for this ideological perspective. It is obvious to anyone paying attention that our entitlement healthcare program for seniors could and should deliver better outcomes at substantially lower costs. This is self-evident to Americans of all political stripes in large part because we all pay for those costs via taxes. We would all like to see outcomes improve and our tax burden decrease.

In both Texas nonsubscription and the Oklahoma option, we eliminate the vast majority of legal overhead, which allows us to focus on medical outcomes. The same sorts of inefficiencies and abuses that go on in Medicare also infect WC, so it shouldn’t be hard to believe that the free market (given the legal opportunity to do so) can economize them.7

Yet our vocal, altruistic opponents won’t allow their own criticisms of Medicare to influence their opinion about opt-out saving money and improving outcomes. It’s perfectly obvious that Medicare (a healthcare system rife with bureaucratic inefficiencies) could deliver better results at lower costs if it were redesigned. However, when we demonstrate that WC (a healthcare system equally rife with bureaucratic inefficiencies) could and should deliver better results at lower costs, they close their eyes and cover their ears. “It can’t be done!”

Somehow, from this perverse perspective, the solution to the problem of workplace injuries doesn’t need to make the little guys (the employees) any better off so long as it does a sufficient job of making the big guys (the employers) pay.

Ah, the joys of spending other people’s money.

This litmus test provided by Medicare shows our altruistic opponents with an unexpected hidden agenda: politics. Is such a desire—to have the employer pay more than necessary—relevant to the welfare of employees? No, it is not.

It is political. It is an impediment. It is stupid.8

The Grand Bargain was about rationalizing what had become out-of-control non-solutions for workplace injuries. Throughout the past century, many WC systems have become burdensome for employees and employers alike. They are now, ironically, non-solutions. The Grand Bargain wasn’t fundamentally about WC; it was about protecting employees and employers as sensibly and pragmatically as possible. It accomplished that objective with only minimal use of attorneys while generally allowing employers to elect (or subscribe) to a statutory scheme that took the name workmen’s compensation. It was optional.

With slightly different jargon, that all sounds eerily similar to what Oklahoma did in 2013. The Sooner State took a critical look at its non-solution for workplace injuries and created an alternative to more efficiently protect employer and employee alike. This statutory scheme has taken the popular name of the Oklahoma option.

IV

What’s next for opt-out proponents? First and foremost, Oklahoma must tend to its new creation. After that, we’ll just have to wait and see what other states do—if anything.

What’s next for our opponents? I suspect they will not advertise their fear of losing income. They will continue to tout the Grand Bargain as sacrosanct—without examining the historical context in which it emerged. They will try to hide behind arguments that appear noble.

We at WorkersCompensationOptions.com will remain at the cutting edge of this movement and provide whatever legal occupational accident programs our clients wish to implement. Our results already speak for themselves—and will continue to do so.

 


1 If the reader is determined to think of “care” in only post-injury terms, so be it; my claim still stands. However, our idea of “care” starts with motivating employers to create the safest workplaces possible and employees to avoid injuries in the first place. Because “no fault” is a cornerstone of the WC structure, our emphasis on safety is far easier to convey to our opt-out clients than to our WC clients.

2 The panoply of stakeholders in WC (ranging from payroll auditors to WC Medicare Set Aside reporters and from private investigators to coding specialists tasked with maximizing reimbursements) is quite a spectacle. To avoid overwhelming my audience, I generally categorize this excessive cast of characters into the five communities of WC: insurance, medical, legal, employer and employee. Watch the first seven minutes of this video for an explanation of how perverse the incentives are for most of these stakeholders. Regrettably, the employer and employee have become afterthoughts in a system ostensibly designed to meet their needs.

3 In both form and content, this essay borrows heavily from the first twelve pages of John Kenneth Galbraith’s The Affluent Society. In particular, I have modeled my discussion on his examination of “the obsolescence of ideas,” in which he explains the danger of leaving “sacrosanct” concepts unexamined as a matter of convenience.

4 Sensitive readers beware; aching neck stories are completely ignored by Eastman in favor of gruesome accounts of deaths and dismemberments.

5 Arbitration was much less formal a century ago. Typically, a disinterested but experienced third party would simply perform a records review and make a determination. Testimony could be heard. For a glimpse of how WC disputes were resolved in the 1920s, see pages 88-194 of Bureau of Labor Statistics Bulletin 301, April 1922. Authored by Carl Hookstadt, the report details the various methods of dispute resolution for 21 states and two Canadian provinces. Voluntary resolution between employer and employee was universally sought. In its broadest sense, “arbitration”—in varying layers—successfully prevented litigation in the vast majority of cases (with the California sample offering the singular, glaring exception).

6 I urge all industry insiders to read Eastman’s survey, as it’s fascinating, historically significant, and accessible for free via the link above.

7 While this argument is esoteric, I remind the reader that we have physical/actual results. Texas nonsubscription and the Oklahoma option are not theoretical; they are real.

8 Reza Aslan delivered one of the greatest uses of the term “stupid” in September, 2014, when interviewed on CNN. This linked nine-minute video is certainly worth watching in its entirety, but for his thoughtful and appropriate deployment of a term many of us are too cowardly to invoke, simply watch from 6:20 to 7:00.