The Gongwer Blog

Major Workers' Comp Bills In The Works, Biz Calls Proposal Extreme

By Nick Smith
Staff Writer
Posted: February 5, 2024 12:21 PM

A battle over the state's workers' compensation law could take place this year between supporters of changes who say there are too many hurdles to obtaining benefits and the business community contending the proposed changes would upend the law and create significant cost increases.

Labor groups and lawyers who specialize in workers' compensation cases have been working on draft legislation for several months. They said the changes would reverse 2011 laws based on Supreme Court decisions in favor of employers that made it more difficult for claimants to obtain benefits.

The business community has countered that the proposed changes go too far and would instead upend the existing system while sharply increasing costs for businesses and lead to more costly litigation. They would also make Michigan an outlier nationally, with one business group labeling the draft language as extremely anti-business.

Robert MacDonald, a Flint attorney specializing in workers' compensation and disability cases, said the state's workers' compensation law passed in 1912 worked well for decades, with its highwater mark being changes signed by Governor George Romney in the 1960s.

Beginning in the 1980s, he said, the law has been changed in favor of employers.

Generally, injured Michigan workers receive 80 percent of the after-tax value of their average weekly wage, defined as the highest 39 of the previous 52 weeks of earnings prior to the date of their injury.

Benefits are capped at 90 percent of the state average weekly wage, currently $1,259, making the current cap $1,134 per week.

The law also considers post-injury earning capacity. If someone is injured at work and has the ability to do a lesser paying job, even if they cannot find that job, their compensation can be reduced by 80 percent of the average earnings for that position.

Supporters of proposed changes refer to the provision as the "phantom wage" and say it undermines the benefits for many claimants.

"This is not the safety net … that workers deserve to have," MacDonald said.

Workers' compensation as created was intended to strike a balance between employers and employees in finding a solution to cases, he said. For employers, this means preventing jury trials, having insurable risk, and providing for cost-contained medical benefits. Employees have a no-fault burden of proof for obtaining benefits.

Under the system, injured workers are eligible to receive weekly wage loss compensation, vocational rehabilitation and reasonable and necessary medical care, subject to cost containment rules.

Those who are injured on the job are not entitled to benefits for pain and suffering, loss of consortium by the worker or their spouse, or scarring or disfigurement.

MacDonald said with a Democratic Legislature and governor, there is a rare chance to address concerns he and others have with the existing workers compensation system.

"This is a historic opportunity to return fairness to the system," MacDonald said.

Wendy Block, senior vice president of business advocacy with the Michigan Chamber of Commerce, said the business community is very concerned about what could be in store under possible legislation.

"We've seen early drafts of the bills, and they are not only extremely costly … but also extremely anti-business," Block said.

Block said, at least in early drafts the Chamber has seen, there are three key concerns for the business community.

She said the proposed changes in the early drafts would expand who would qualify for workers' compensation benefits, increase benefits and create new opportunities for litigation.

These proposed changes, she said, would not just be a rollback of the 2011 codification of Supreme Court decisions, but would upend the balance that was struck in the original law a century ago.

"What we saw was, frankly, jaw-dropping," Block said. "They're swinging for the fences."

Block said Chamber members who have seen the early drafts have said the proposed changes could also sharply increase payouts per claim and would have significant negative effects on businesses.

"This is a significant part of doing business," Block said of workers' compensation insurance.

She added the changes would increase litigation and increase premiums for workers' compensation insurance, which all businesses are required by law to purchase.

Block said she would expect significant pushback from the business community if any legislation is put forward.

"Our message would be to tread carefully," Block said.

Todd Tennis, president of Capitol Services, Incorporated, in Lansing, a multiclient lobbying firm that represents some of the groups working on the draft legislation, said there has been a sharp increase in the number of injured workers who either cannot obtain benefit payments or have to jump through significant hoops under the current law to obtain and maintain them.

"We're trying to get it back to some balance," Tennis said.

Labor leaders, labor groups and workers' compensation attorneys have been working on the issue for more than a year with lawmakers, Tennis said, adding there have been conversations with carriers to see what feedback could be incorporated based on their concerns.

The Democratic chairs of the labor committees in each legislative chamber support proposed changes .

Rep. Jim Haadsma (D-Battle Creek), chair of the House Labor Committee , said his hope would be to see movement on the hypothetical wage issue legislatively this year.

Haadsma, a plaintiff-side workers' compensation attorney, said since the 2011 law changes, the workers' compensation law "has not fairly treated employees" and he would support changes when they are introduced.

"Right now, the system is out of whack," Haadsma said.

He said current law provides potential for significant reductions in benefits to injured workers .

Sen. John Cherry (D-Flint), chair of the Senate Labor Committee , said he has only become involved in the stakeholder conversations recently.

"I think some of the stuff that happened in 2011, I think probably the most egregious piece, like the 'phantom wage' issue, really has deviated from the general idea of having a workers' compensation insurance system," Cherry said. "It's particularly unfair, and we want to make sure that people have an incentive to work if they're physically able to, but I think the phantom wage piece even punishes people who are working, and it's not based in reality. So that's a huge, huge issue."

Workers' Disability Compensation Agency Director Jack Nolish said the law has a complex burden of proof. He said any proposed changes would amount to "a movement ultimately of money, and it goes from one side to the other," to either the employee or employer side of the equation.

Nolish said due to provisions in the law such as the post-injury wage earning capacity provision, "the net result of that is Michigan workers' compensation are paid less than the average injured worker in most of the states."

Another problem, Nolish said, is the compensation a person receives when they are injured becomes their compensation for the duration of their injury, which may be for life.

"With Michigan leading the pack and being among the lowest comp cost states, that's very important to businesses," Nolish said. "At the same time, that same piece of information is a problem to injured workers. We've had this decline over the last several years, and I think there's room for improvement."

Over time, workers' compensation cases have become more complex and expensive to litigate, Nolish said, and the outcomes are not as certain as they once were for workers.

Of the 18 states that report yearly to the Workers' Compensation Research Institute, Nolish said Michigan has the lowest costs per claim. Michigan also ranks among the lowest in medical payments per claim and in indemnity, or the weekly wage losses.

Michigan is also among the lowest in cost for benefit delivery, which includes litigation and attorney fees.

"However, the payment of medical care over the last 10 years has gone down substantially," Nolish said.

In 2012, there was about $1.2 billion in medical payments. As of 2021, this had dropped to less than $400 million, he said. The 2012 figure adjusted for inflation would be more than $1.5 billion in 2021.

Total claims reported per year have largely been consistent, Nolish said. Between 2012 and 2020, total claims peaked at 23,306 in 2014 and hit a low of 19,933 in 2016.

For 2021, with the coronavirus pandemic, there was a spike to 29,229, with more than 11,300 being COVID claims. Nolish said the numbers will likely return to the historical trend after the pandemic.

The number of contested cases has been trending downward since the 12,923 recorded in 2012 after the law changed. In 2021, there were 9,018 contested cases, up from a low of 7,953 in 2018.

"We're seeing people continuing to getting hurt, fewer and fewer cases being handled in a trial docket, which in some respects is a good thing, but it's also indicative of some of the difficulties in proceeding with litigation," Nolish said.

The ratio between workers winning contested cases and receiving full benefits in open awards has declined sharply since 2012, Nolish said.

"More recent numbers are suggesting there's three times as many denials as there are open awards," Nolish said.

The number of workers' compensation cases resolved by magistrates has also sharply fallen, from 10,058 in 2012 to 3,806 in 2021.

Workers are also less likely to receive lump-sum payments. The average settlement payment has remained steady over the past decade. In 2012, it was $61,961 over 7,446 settlements. In 2021, there were 2,845 settlements averaging $63,314.

The average 2012 settlement, adjusted for inflation, would be $75,238 in December 2021 dollars.

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