Workers’ Compensation: A Brief History of Workers’ Compensation in America.
Formation of the Workers’ Compensation System
The workers compensation system was started in the United States during the first half of the 20th century. The first state that enacted a system was in the early teens and the last state to develop a system was in the late forties. This system came out of the problems resulting during the robber baron and depression era of the United States. During these time periods industry became big business for the first time in our nations’ history. Especially in the industrial northeast and across the rust belt of the upper midwest. At this time in our nations’ history wages were low and working conditions were very poor. Several industries began to unionize as a way to get better pay and more humane working conditions. The workers’ compensation system came out of these conflicts between industry and employment as somewhat of a compromise. Many people refer to this compromise as the ‘exclusive remedy’.
The workers’ compensation system is referred to as the ‘exclusive remedy’ because it is bars employees injured on the job from sueing their employers for injuries that occur as a part of normal business operations. The injured employees can the fact that they will be compensated for medical costs and some lost wages in return for giving up their ability to sue. The benefits provided under workers compensation are the sole remedy available to injured employees.
Each State has their own System
Additionally, each state has their own system for how they provide a workers compensation for employers and employees within their state. For the most part, the workers’ compensation was set up this way because each state has industries and ways of doing business that are unique, For instance, Louisiana has a lot of industry related to commercial fishing and deep sea oil exploration. There is not much of a market for this industry in Iowa or South Dakota. Also, there is a lot of industry for snow removal in the northern portion of the country where in a southern state like Arizona or Alabama there is no need for this industry. Because of these differences, it would have been difficult for the federal government to create a system of workers comp that would make sense for the entire country.
National Council on Compensation Insurance (NCCI)
The National Council on Compensation Insurance (NCCI) is the main organization that determines rates on different class codes for workers’ compensation purposes. NCCI colelcts data from more than four million workers compensation claims annually. They use this information to analyze industry trends in workers compensation costs, they recommend workers comp rate losses and they regularly do a cost analysis of proposed legislation to help the legislatures in each individual state make changes to their current system. Thirty Five states use NCCI to determine rates on classification codes. There are 4 states that are monopolistic states (North Dakota, Ohio, Washington and Wyoming), which means these states do not recognize workers’ comp policies from other states. This means if your business operates in multiple states and the monopolistic state is one of them, you must purchase a second policy from that state. NCCI typically can determine the rates for a state cheaper and more efficiently than they can do it themselves. Some of the largest states, with the largest economies, have a separate department within their government that does this task. In most cases these are the states with the highest rates on premium for workers’ compensation premium. Typically states that use NCCI enjoy more competitive rates on premium.
Most states offer reciprocity meaning if the business is operated in one state but an occurrence happens in another state the home states laws would have precedence over the claim. There is actually an acronym in the legal field that deals with such situations. That acronym is called the Walsh Test. The Walsh Test stands for the acronym:
The weight of each part of the jurisdiction depends on the position of the term in the acronym W.A.L.S.H. Worked carries more importance than The weight of each part of the jurisdiction depends on the position of the term in the acronym W.A.L.S.H. Worked carries the most importance and Hired has the least importance when considering jurisdiction. The higher on the list the higher the relevance in relation to jurisdiction.
Many states have been toying with the idea of allowing some businesses to opt out of the traditional workers’ compensation system for their particular state. There are two states who have gone through with legislation to make this happen. Texas has been allowing some companies to opt out for several years. They require businesses to apply and if they meet certain criteria they can opt-out of purchasing workers’ compensation coverage. In this state they are required to provide a bare minimum amount of coverage that is similar to what would be provided by the workers’ compensation system. The theory for this way of opting out is that safety conscious businesses that do not have a lot of claims can opt-out of paying premium and save over all. Now on the other end of the spectrum is the state of Oklahoma, who implemented an opt-out provision in 2013. Opponents of this law claimed it was biased in favor of the employer. A few provisions within this law are that all injuries must be reported within 24 hours or the claim is not covered. In this instance if someone hurts their back lifting something heavy at 4:30 PM on Friday and the pain doe snot set in until Sunday afternoon and they report it first thing Monday morning, the claim is not covered because it was not reported within the first 24 hours. Another provision that opponents have for this law is that the employer determines the amount of coverage and the way in which it is provided where the Texas Law has certain provisions that are a base minimum of coverage. Two other states that are thinking about proposing similar opt-out laws are South Carolina and Tennessee. Texas and Oklahoma are two good blue prints for ways in which other states can set up an opt-out provision. Texas has had this policy in place for more then a decade and employers in this state enjoy some of these best rates on premium in the country. Oklahoma conversely has some of the most expensive rates on premium in the country and the supreme court of Oklahoma recently ruled the opt-out law unconstitutional.