Friday, April 6, 2018

Workers’ Compensation Futurism: Bedlam, Bargaining, and Boundaries

Upton Sinclair once remarked, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” I have that quote in my mind as I marvel at the onslaught of Gig laws that morphed, right before our eyes, from devices required to relax employment status in aid of “new” employers in a “new” economy to excuses to mandate independent contractor status be applied to obvious employees who have been dispatched to a job site “online” by some supervisor sitting back at the office. This deregulatory episode, like the Oklahoma opt-out fiasco that preceded it, is simply a species of bedlam propagated by those who have a financial interest in tearing things apart but, in the end, have little actual “skin in the game.” (Just look for the shadows in the background).   

There have been some interesting articles over the last couple of weeks on the future of workers’ compensation. I was especially struck by Andrew Simpson’s piece, in the Insurance Journal of March 26, reporting on remarks by Richard Victor, Senior Fellow at Sedgewick Institute, made at the Workers’ Compensation Research Institute Annual Meeting in Boston last month. I assume for purposes of this discussion that those remarks were accurately recounted. I understand Mr. Victor to have argued that the magnitude of current external pressures is such that the internal workers’ compensation “system” may not have the resiliency to endure. He mentioned the meta-issues as being centered on labor shortages, immigration policy, and health care policy. Because labor shortages may prompt employers to hire less than their ideal candidates as employees, injury rates may go up (although the mechanism is not entirely clear); we could alleviate labor shortages with a sensible immigration policy that replenishes our work force in historically familiar ways, but may lack the political will to do so; because our health care policy appears to be increasing, rather than reducing, costs for many in vulnerable populations, we may have created a moral hazard: those who cannot obtain health care in the general market may attempt to (expensively) use workers’ compensation for that purpose. The upshot, according to Mr. Victor, is:

The effects of all these trends, including the labor shortage, an aging workforce, more case-shifting, growing cost-sharing, a larger uninsured population will introduce a doubling of what the number of injuries would have been had none of these things happened into a world where injury frequency has been dropping every year . . . Then he adds to those factors the growth in the average cost per claim that just happens normally because prices and wages go up, throws in the likely growing duration of disability, and accounts for a few other forces at play, to arrive at his scenario for 2030: “You end up with a 300 percent increase in workers’ compensation costs without increasing benefits to injured workers.”

To this tension I feel compelled to add, as a teacher of ERISA, the rather startling fact “that 66 percent of working Millennials have nothing saved for retirement, and the situation is far worse for working Millennial Latinos. Some 83 percent of Latinos in this generation have nothing saved for retirement.” The original policy justification for an all-preempting pension and benefits ERISA regime was that it would ensure employers continued to voluntarily provide retirement plans. With the spread of 401(k) plans, to which millennials (and others) cannot afford to contribute, I suspect the political appetite for preemption (and the brake that it places on state-level health care innovation) may wane. Perhaps we were once willing to trade a weak health care regime for a strong pension regime, but that is no longer the contemporary choice offered. Bear in mind that in 2016 17.5 trillion dollars of benefit assets from employer-sponsored plans were under management. Now imagine that money shifting elsewhere. That prospect explains resistance to structural change. But the resistance cannot go on forever. And once states are fully free to innovate in health care, it is inconceivable that the workers’ compensation regime would continue to look as it does today.

The ancient Greek philosopher Heraclitus is reputed to have said that nothing endures but change, and certainly Mr. Victor’s remarks persuade that change is coming. But what I have always loved about the story of workers’ compensation—some history, some no doubt lore—was that during the stupefying change occasioned by the industrial revolution, adaptation was bargained, not imposed. I do not fear change so much as I fear loss of social negotiation to cram-down techniques. Thus, I was heartened to hear recently of Kansas’s proposed increase to workers’ compensation death benefits and Wisconsin’s against-the-present-current enforcement of appropriate worker classification. These developments bespeak remembrance of rights’ boundaries set a century ago by those who believed in fairness and in a society where all stakeholders had skin in the game. Evasion simply won’t do.     

Michael C. Duff

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