By Peter Rousmaniere
What if your pay was suddenly reduced by 60%, just for a week? Or unexpectedly cut by 15% for months on end?
Your employer might say to you, “We’re going through a bad spot. We’re cutting everyone’s salary.”
But what if the pay cut was the result of a work injury you suffered on the on the job? Pay cuts due to work injuries happen to close to a million people a year, thanks to the way the workers comp system doles out benefits.
If you incur a brief work disability of two weeks or less, chances are that you will incur a 60% cut in take home pay during your short recovery time. The pay cut results from rarely analyzed, rarely justified deductions. The deductions differ among states. You will incur a 87% cut in Arkansas, but a 28% cut in New Jersey.
These estimates are one of many summed up in the latest report from Work Comp Central entitled, The Uncompensated Worker: The Financial Impact of Workers’ Comp on Injured Workers and Their Families.
The report analyzes the impact for a worker earning an electrician’s median wage in each state. The median for the entire country in 2014 was $49,320. The median take-home pay cut for a brief work disability was $535, about the cost of a low-end kitchen appliance or the deductible on your auto insurance.
You could say, what’s the problem? A worker with an annual wage of some $50,000 should be able to take this one time hit.
Fine, but deductibles in insurance policies are presumably there for a purpose. These brief disability deductibles turn out to be financial accidents from physical injuries, blind in their impact and pretty much unexplained.
It’s as if Hilton dings every 20th customer with a $35 “bed sheet adjustment” fee and, when challenged, the check out person leans over and whispers, “We’re helping you to appreciate that life is unfair.”
But if you ask, workers’ comp professionals will try to explain them. “The deductibles are there to account for the fact the disabled workers’ personal expenses are lower.” “The deductibles are there as a financial incentive to return to work.”
And you hear, “Well, the worker can use her sick or vacation leave benefits, and the employer can voluntarily extend pay over the short lost time period.” This argument is like your washing machine warranty saying that you pay for a repair by stiffing the electric company.
How much would it cost to eliminate the most confusing deductibles, which are the waiting period, the retrospective period, and the maximum weekly benefit cap, for injuries lasting two weeks or less? My back of the envelope estimate is less than $250 million a year, compared to total annual spending on benefits of some $60 billion.
I’m not proposing they be eliminated (but I do believe they can be greatly improved). Insurance deductibles make sense when they may sense. They are insulting when no one bothers to seriously defend them, and when they are set arbitrarily.
The more serious problem addressed in The Uncompensated Worker report is the take home pay shortfall when a worker is on extended disability while recovering. That’s “temporary total disability” in the argot of the industry. It’s before the worker goes on permanent disability benefits. TTD benefits are a very large element in any work injury benefit system.
The report estimates that many workers sustain a pay cut of at least 15% when on disability. For people on electrician’s wages, the median pay cut for a month is $511. Think of that going on for months.
Again, it is fair to say that a financially responsible household, especially one with two wage earners, could handle a cut of this size. But is that the end to it?
To understand the impact of this pay cut, one needs to create and analyze some scenarios in which the disabled worker’s household copes with living expenses. The Washington, DC based Economic Policy Institute has compiled basic monthly budgets for hundreds of regions in the country.
The report estimates that households of two wage earners both at the median wage for the state, and living in the largest city of the state, cannot afford the basic budget when one is on work disability. And, among households with higher income, the uninjured partner pretty much has to work full time to meet the basic budget.
Workers’ comp is supposed to pay for itself, which to me includes taking care of its own. There is an unstated assumption that politicians set wage replacement benefits in a way that does not cause hardship. This is a completely unwarranted assumption. Nobody appears to be driving this bus.
About Peter Rousmaniere
Peter Rousmaniere is a journalist and consultant in the field of risk, with a special focus on work injuries. Peter is an award-winning author of some 200 articles on many aspects of workers compensation. He is a columnist for WorkCompCentral. Holding an MBA from Harvard Business School, Peter has been in the workers’ compensation field for 25 years. He resides in Woodstock, VT, a picturesque New England village. Email: firstname.lastname@example.org.