Workers' Compensation, Social Security Disability Insurance, and the Offset: A Fact Sheet

Article excerpt

This article offers a brief summary of the workers compensation and Social Security Disability Insurance programs. Information highlighted includes the differences between the two programs' types and terms of coverage. It compares the differing patterns in workers' compensation and Social Security disability benefits as a percentage of wages over the past few decades and considers the potential causes for such trends. The article also explains the offset provision included in the 1965 Social Security Amendments, the intention behind the offset, and how and when offsets are applied.

This fact sheet provides an overview of workers' compensation, Social security Disability Insurance, and the interaction of these two programs. The information is based on presentations given at the policy research seminar, Interaction of Workers ' Compensation and Social security Disability Insurance, cosponsored by the National Academy of Social Insurance and the Social security Administration. Coordination of disability benefits is recognized as a desirable public policy to ensure that disability payments come from the appropriate program and that the total amount of disability benefits paid does not become a deterrent to return to work.

Workers ' Compensation

Workers' compensation provides benefits to workers who are injured on the job or have a work-related illness. Benefits include medical treatment for workrelated conditions and cash payments that partially replace lost wages. Temporary total disability benefits are paid while the worker recuperates away from work. If the condition has lasting consequences after the worker heals, permanent disability benefits may be paid. In the case of a fatality, the worker's dependents receive survivor benefits.

Before workers' compensation laws were enacted, an injured worker's only legal remedy for a work-related injury was to bring a tort suit against the employer and prove that the employer's negligence caused the injury. Under the tort system, workers often did not recover damages; those who did recover damages sometimes experienced delays or high costs in doing so. Although employers generally prevailed in court, they nonetheless were at risk for substantial and unpredictable losses if the workers' suits were successful. Ultimately, both employers and employees favored legislation to ensure that a worker who sustained an occupational injury or disease arising out of and in the course of employment would receive predictable compensation without delay, irrespective of who was at fault. As a quid pro quo, the employer's liability was limited. Under the exclusive remedy concept, the worker accepted workers' compensation as payment in full and gave up the right to sue the employer.

Workers' compensation programs are designed and administered by the states. The programs vary across states in terms of who is allowed to provide insurance, which injuries or illnesses are compensable, and the level of benefits. Generally, state laws require employers to obtain insurance or prove they have the financial ability to carry their own risk (that is, to self-insure).

Workers' compensation is financed almost exclusively by employers, although economists point out that workers pay for a substantial portion of the costs of the program in the form of lower wages (Leigh and others 2000). The premiums paid by employers are based in part on the industry classifications of the employers and the occupational classifications of their workers. Many employers are also experience rated, which results in higher (or lower) premiums for employers whose past experience demonstrates that their workers are paid more (or fewer) benefits than workers for similar employers in the same insurance classification.

In 2002, workers' compensation covered 125.6 million workers (Thompson Williams, Reno, and Burton 2004). Total wages of covered workers were $4.6 trillion and total workers' compensation benefit payments were $53. …