What's Happening to Workers' Compensation?
Fernberg, Patricia M., Occupational Hazards
(Occupational Hazards asked Ed Welch, director of the Workers' Compensation Center at Michigan State University, for his observations on the forces shaping workers' compensation.)
Beginning in the late 1980s and through most of the 1990s, a series of state law changes or "reforms" have propelled workers' compensation in a path clearly different from its roots. Two recent articles [1,2] have argued that the primary result of these reforms has been to restrict the benefits available to injured workers. Some of the reforms admittedly have increased the efficiency of the system, improving it for both workers and employers; however, the net result appears to have strongly favored the reduction in employers' costs at the expense of benefits to workers.
Some of these changes actually reduced the rate of benefits; others restricted eligibility for benefits in certain cases, such as mental health claims or repetitive trauma disorders, while others reduced benefits by redefining how permanent disabilities are compensated. The result was a reduction in the benefits to workers.
These law changes and the publicity surrounding them have also changed attitudes about workers' compensation. In the early 1990s innumerable local and national news stories reported on claimant fraud in workers' compensation and the cheats who apply for workers' compensation benefits. This widespread adverse publicity clearly influenced managers, doctors and judges who make decisions about workers' compensation cases: When the facts in a given case are borderline or unclear, society's attitude affects how judgments are made.
This publicity also affects workers. Those who previously saw workers' compensation as an entitlement may now stop and think, "Do I want to be one of 'those' people?" A recent study conducted at Michigan State University  found that a surprising number of people who appear to be eligible for workers' compensation benefits don't apply.
The results of legal changes have been seen in the benefits paid to workers and the costs to employers. As individual benefit rates and eligibility for benefits increased, the total benefits paid and the costs to employers also increased. In fact, it was in response to increasing costs that many of the reforms of the early '90s were enacted, followed by decreases in losses and costs.
To what extent are the decreased benefits and losses attributable to the legal changes? There is no empirical evidence that answers this question, but since reducing costs was the goal of many of these reforms, it seems logical that, to some extent, changes in the law deserve the credit or blame for the reduced costs and the reduction in benefits.
There are other factors, as well. One of these is the reduction in the rate at which medical costs increase and more aggressive efforts by insurers and employers to control workers' compensation medical costs.
The frequency of injuries also has declined. We would all like to think that this is partly because of increased efforts by employers to prevent workplace injuries and illnesses. I believe that it is, although we have no way of measuring the extent of this effect. In this regard, remember that legal changes strictly limiting those disabilities that are considered compensable will result in an apparent reduction in the frequency of compensable disabilities without changing the number of actual disabilities.
There has also been a trend toward increased return-to-work efforts and other forms of disability management by employers, which have contributed somewhat to the reduction in costs and benefits.
Another important trend has been a growing awareness by employers that they have substantial control over their own workers' compensation experience. In the late 1980s, a group of us at Michigan State conducted a study  that compared the differences in workers' compensation costs between states to the differences experienced by employers within the same industries, within the same state. …