Three million work injuries occur a year, some 900,000 of them (according to the Bureau of Labor Statistics) involving at least one work day of lost time. We know hardly anything in a systematic way of the experience of these workers with their injuries, including what they think of the workers' compensation system. They are experiencing a system that in key elements is rarely rethought, including the so-called waiting period for indemnity benefits.

To be sure, there have been some surveys, such as by the Workers Compensation Research Institute, which recently highlighted the importance of “trust” felt by the injured worker. Some state agencies do surveys, and I am sure that some claims payers do so as well among their claimants.

Among the ways to explore the claimant experience, one is to look at the financial impact to the household of being on workers’ comp. Let’s start with the first impressions. For lost-time injuries lasting no more than two weeks (about half of all lost-time injuries), how much is the injured workers’ indemnity benefit compared to what she or he would have earned on the job?

A fully employed, five-day-a-week electrician earning the median income of electricians with the state is disabled on Monday. On Tuesday morning, she or he is told by a wise occupational medicine doctor that most likely she or he will return to work full duty within two weeks but that the date of full recovery is uncertain.

Using several sources for data, and making reasonable assumptions about the alternative durations of the worker’s disability, I found the following:

First, if the electrician remains out of work for three days, and then returns on Friday, regardless of the state, he will not receive any indemnity benefits at all. Every state has introduced a provision that delays eligibility for indemnity benefits by at least three days. That’s the waiting period.

Second, if the worker returns to work at two weeks after the date of injury, in the median state she or he would be paid indemnity benefits about 35% lower than home pay without injury, a loss in the order of $700. And, in 19 states, indemnity benefits would be half or less of take-home pay.  

Most workers’ compensation professionals know that indemnity benefits are designed by law to be less than what the worker would have taken home without injury. Most states set indemnity benefits, tax free, at between 60% and 70% of gross wages. Using the example of the electrician, simple arithmetic using reasonable estimates of the income and payroll taxes of the electrician results in indemnity benefits being around 80% of pre-injury take home. (Michigan is the only state where indemnity benefits are expressly tied to after-tax take home, with an 80% formula.)

But the indemnity math is not so simple, because of waiting periods and retrospective periods. All states impose a waiting period, between three and seven calendar days. Almost all states have a retrospective period, at the end of which, if the worker remains disabled, indemnity benefits are paid for the waiting period.

Some states are more generous than others – a lot more. To compare the states, I took what I think is a reasonable step, which to is blend the results for disability durations lasting three, six and 10 workdays for that electrician’s Monday injury

The results for 50 states plus the District of Columbia are below:

The “shortfall” is the percentage by which the indemnity benefits are expected to be lower than the worker's take home without the injury. While the median shortfall is 65%, in many states the shortfall will be much greater. 

Shortfalls get much greater when the waiting and the retrospective periods are stingy, as in Indiana and California. I mention these because the former is a notoriously low-cost state regarding workers’ comp insurance costs; the latter is a notoriously high-cost state.

There is a good reason why the generous–stingy scale for short disability benefits would not mirror a high–low insurance cost scale: premiums are driven by losses, and losses are heavily influenced by the pattern of the minority of claims that become long duration.

When waiting periods were introduced generations ago, medical examination took longer. Processing of information took a long time. Return-to-work practices were primitive.  NCCI’s policies probably did not strongly incent fast return to work/stay at work. Today, medical examination is faster. Information processing is extremely fast. Return-to-work practices are advanced. The NCCI has put in strong incentives for very fast response to injuries. Why do we have waiting periods as long as seven days?

Many people assume that the worker will use paid sick leave to cover the waiting period. That assumes that paid sick leave is in fact available. About 40% of the entire workforce does not have this benefit, and coverage is less for low-paid jobs. And, the worker may have used up her or his sick leave before the accident.

After conversing with smart people on this subject, I conclude the waiting period concept needs to be completely rethought in light of the world of today.