Another Black Hole in the US Healthcare Model: Workers' Compensation Insurance
By JM Hamilton (3-8-2019)
As part of JMH’s ongoing series on the failed US Healthcare system, this week we tackle an often overlooked, little discussed, corner of the US Healthcare system, Workers’ Compensation insurance (or WC, a fifty-five billion dollar market).
First a little background: WC insurance schemes are designed to protect labor from workplace disease and injury, but in the event of either occurrence, WC provides medical care for injured employees, and compensation for lost wages & even untimely demise. Generally, WC coverage is designed to be no fault, that is to say, provide exclusive remedy (to protect employers from litigation).
WC coverage – both private and public – began with labor movements from the late 19thand early 20th centuries, due to chronic labor abuse by ownership. Reform started in Europe and spread to North America. Two systems, initially, were derived: A German model characterized by considerable centralized control; nonprofit associations administering benefits and claims, which employers contributed to; and a no-fault compulsory system broadly applied to all classes of labor. The British model, initially, was characterized by WC being elective; insurance provided by private carriers; and the administration of benefits was adversarial and litigated in the courts.
Today, in the US, federal workers are covered under a system resembling the German model w/ monopolistic coverage provided by the government… whereas, American non-federal government employees (i.e. private sector employees) fall under the auspices of fifty different state insurance bureaus & regulatory bodies (w/ widely varying benefits and laws). There is no federal control over WC coverage presently, beyond US federal workers and certain classes of employees (i.e. mine workers, maritime workers, et al.).
As the US system today all too often fails in its ability to cover injured workers’ medical expense and indemnification of lost wages (especially for serious disability & injury), the federal government often must step in to provide backstop and support, via Social Security benefits (see SSI and SSDI) and Medicare/Medicaid. Similarly, in Europe, today, many countries have a monopolistic system (sometimes with private insurer involvement, but generally run by the state) that folds WC benefits directly, and indirectly, into relatively generous social programs.
So here again, as mentioned in my recent piece, Storm Clouds Over US Healthcare, we have the American public – more specifically, labor – facing off against a large number of powerful special interests that have little or no desire to see true reform for WC coverage & injured worker care.
Among these special interests:
Doctors;
Big Pharma;
Pharmacies;
Hospital chains;
Lawyers (who make considerable income off WC and employers’ liability litigation);
And US federal & state government politicians (who enjoy campaign, lobbying, and PAC largesse from the aforementioned interests).
No wonder then that there is little in the way of federal level reform of a WC system that has failed American labor and the US economy. The fallout from the lack of sustained and substantive WC reform – by the Federal government - has led to micro and macro repercussions for Americans and the US economy. (None of this should surprise anyone at a time that the US government has consistently sided w/ billionaires & multinationals in labor and labor rights evisceration.)
We’ve seen an opioid epidemic and the US WC system played no small role in the administration of pain killers, like Purdue Pharma’s now infamous & deadly OxyContin. We’ve seen a rise in “deaths of despair” among blue collar workers, left behind by AI, automation, globalization and uncertainty surrounding a Silicon Valley creation, The Gig Economy.
Spiraling US medical costs and the resulting increase in WC costs & premiums (WC insurance is often one of the largest expenses American employers face, outside of labor cost) have played a role in US manufacturing, and employers in general, seeking out labor in emerging market countries. Rising WC premiums - and the lack of reform – have also helped drive the move to the outsourcing of labor, domestically, to the aforementioned Gig Economy and to third parties, Temp Agencies and Professional Employer Organizations (PEO). All of which are designed, in the majority of instances, to sidestep (or significantly mitigate) Workers’ Compensation premium and expense, as well as, the requirement to maintain a safe work environment. Safety can be expensive.
As for the nation – at a macro level - a defective, dysfunctional, and very expensive Healthcare and WC system means US goods and services can be uncompetitive in the global economy, which contributes to escalating trade deficits. (This in turn leads to more automation, globalization, outsourcing of labor… along w/ the attendant hollowing out of the middle class.) Remember, US healthcare now eats away at nearly 20% of US GDP. Of course, not all of this can be laid at Workers’ Compensation insurance’s doorstep … some of the aforementioned economic trends (like outsourcing and globalization) can be directly attributed to greed.
Apple is the classic example of a US multinational exploiting Chinese labor, often supplied by a third-party company, Foxconn. However, Apple could still make an extravagant profit markup on the iPhone, utilizing American labor.
Either way, once again, we see multivariate layers of administrative costs and expense, due to redundant medical care, various insurance schemes, and two healthcare programs: one for Health insurance and a second for Workers’ Compensation medical coverage. In addition, there exists today, in America, private and public versions of each, Healthcare and WC coverage. Tack on WC litigation and it’s a very expensive mess, and a barrier to entry to creating a business.
We can also see a lack of interest or will from the political duopoly, owned by the aforementioned powerful special interests – including Wall St., to do anything about our broken Healthcare and WC systems.
The solution is simple: a consolidated Healthcare plan under the US government, for Healthcare and WC medical coverage, combined. The economies of scale of a Medicare For All model – particularly if the government is finally allowed to negotiate on the behalf of the American people against the aforementioned special interests – should save the economy, employers, investors, and American labor & taxpayer considerable sums (vis a vis the current system). Additionally, American labor would likely become more competitive, versus global competition.
Not to place too fine a point on it, in order for a consolidated Medicare for All program to succeed, inclusive of WC medical coverage, the government must be allowed to negotiate against special interests. And where the private sector refuses to respond, the government must step in to provide competition. Given the arrogance & greed surrounding Big Pharma, at some point the US government may have to get into the medicine manufacturing business, so as to achieve its mandate.
A failed ACA program has clearly demonstrated that costs only escalate higher, if the government allows healthcare monopolies and special interests to run roughshod over the American consumer, labor, and taxpayer.
Copyright JM Hamilton Publishing 2020
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