Workers’ Compensation: Overview and Issues
Updated February 18, 2020
Workers’ Compensation: Overview and Issues
Introduction
Workers’ compensation is often referred to as a “grand
Nearly all workers and employers in the United States are
bargain” between workers and employers. Under workers’
covered by workers’ compensation. When a covered worker
compensation, workers receive benefits for covered
is injured, becomes sick, or dies as a result of his or her
injuries, illnesses, and deaths without regard to fault or
employment, that worker is entitled to full medical
liability. In exchange for this coverage, employees are
coverage for the injury, cash benefits to replace a portion of
prohibited from suing their employers and workers’
wages lost due to inability to work, and benefits for
compensation is the exclusive remedy for workplace
surviving family members in case of death. Employers are
injuries, illnesses, and deaths. Employers are protected from
responsible for providing workers’ compensation benefits
lawsuits but must pay statutorily defined benefits in all
to their workers and generally purchase insurance to cover
cases. Employers can purchase insurance to mitigate their
these costs. The federal government has only a limited role
financial risk and increase cost predictability.
in the provision of workers’ compensation because most
workers are covered by state law. Federal programs cover
Workers’ Compensation Benefits
federal employees, coal workers with black lung disease,
Workers’ compensation benefits are set by state law, or in
longshore and harbor workers, overseas military and public
the cases of the limited federal programs, by federal law,
works contractors, and former atomic weapons industry
and thus differ among programs. However, all systems
workers. Although every state has a workers’ compensation
provide for complete medical coverage, at no cost to the
system, there is no federal mandate that states have
worker, for any treatment of covered injuries and illnesses.
workers’ compensation, no federal standards for state
Systems differ on the rights of employees to select
programs, and no oversight of state systems.
treatment providers. Approximately 75% of all workers’
compensation cases involve only medical benefits with no
Table 1. Total Workers’ Compensation Costs and
time lost from work due to injury or illness.
Benefits, 2017
In addition, all systems provide for limited wage
Per $100 in
replacement, usually two-thirds of the pre-injury wage, if an
Billions of $
Covered Payroll
injury or illness prevents an employee from working. For
Total Benefits
62.0
0.80
certain permanent partial disabilities, such as the loss of a
limb or an eye, a set amount of benefits are paid regardless
Medical Benefits
of ability to work. Survivors benefits are paid to the family
31.2
0.40
members of workers who die on the job and most systems
Cash Benefits
30.8
0.40
offer vocational rehabilitation to assist employees’ return to
the workplace. Systems differ in the duration of benefit
Employer Costs
97.4
1.25
eligibility, with some systems capping lifetime benefits at a
Source: Elaine Weiss, Griffin Murphy, and Leslie I. Boden, Workers’
certain amount or number of months, and others paying for
Compensation Benefits, Costs, and Coverage-2017 Data, National
the duration of disability or life of the worker.
Academy of Social Insurance, October 2019, p. 2,
https://www.nasi.org/research/2019/report-workers%E2%80%99-
Federal Workers’ Compensation
compensation-benefits-costs-coverage-%E2%80%93-2017.
Programs
Each state operates its own workers’ compensation program
The Grand Bargain of Workers’
and these state programs cover the majority of employees in
Compensation
the United States. The federal government, through the
Before the first workers’ compensation laws were passed by
Department of Labor, administers the following workers’
Congress in 1908 and the states in 1911, workers had no
compensation programs:
alternatives but to sue their employers for reimbursement of
costs associated with medical care and lost work due to job-
Federal Employees’ Compensation Act (FECA) for
related accidents and illnesses. In addition to the costs of
federal civilian employees;
bringing such suits, workers had to demonstrate that their
employers, and not any third parties or the workers
Longshore and Harbor Workers’ Compensation Act
themselves, were responsible for their injuries. Although
(LHWCA) for private-sector longshore workers, and
employers could often avoid being held liable for
through extensions of the LHWCA, overseas
employment-related injuries, illnesses, or deaths, employers
government contractors, non-appropriated fund
faced uncertainty in what their costs would be if they lost a
instrumentality workers, and workers on the Outer
case and a single case could, depending on the damages
Continental Shelf;
awarded by the court, have a catastrophic financial impact
on an employer.
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link to page 1 Workers’ Compensation: Overview and Issues
Energy Employees Occupational Illness Compensation
1970s to set minimum standards for state workers’
Program Act (EEOICPA) for former public and private-
compensation systems.
sector workers in the atomic weapons and related
industries; and
Congressional Activity
Activity in the past few years has focused on proposed
Black Lung Benefits Act for coal miners with coal
changes to FECA designed to reduce program costs and
workers’ pneumoconiosis (black lung disease).
bring benefit levels more in line with state programs. These
changes would, among other things, eliminate augmented
In addition, the federal government administers limited
compensation, which brings benefits to 75% of a worker’s
benefit programs for certain other workers, including
pre-disability wage if there are dependents, and adjust
former atomic testing workers and September 11th
benefits at retirement age to encourage federal workers to
responders.
switch from the FECA program to federal retirement
benefits. In addition, because United States Postal Service
Employer Costs
makes up more than 45% of all FECA cases, Congress has
As shown in Table 1, in 2017, workers’ compensation costs
framed FECA reforms in the context of larger legislation to
for employers were $97.4 billion or $1.25 for every $100 in
make changes to the Postal Service.
covered payroll. Although there has been some growth in
employer costs since 2009, employer costs per $100 in
Legislation (H.R. 2425 in the 116th Congress) has also
covered payroll for workers’ compensation in 2017 are
focused on whether aquaculture workers should be exempt
significantly lower than they were in 1980 ($1.76), which
from workers’ compensation as seamen under the Merchant
ended a period of cost and benefit expansion as states
Marine Act (Jones Act).
voluntarily adopted many of the recommendations of the
National Commission on State Workmen’s Compensation
Issues
Laws.
Policymakers have raised the following issues regarding
federal and state workers’ compensation programs:
State Insurance Systems
In all states, except Texas, which allows employers to opt
The wide variance in state benefit levels, especially for
out of coverage, workers’ compensation is mandatory for
permanent-partial disability benefits and the concern
nearly all employers. States workers’ compensation laws
that some states may be engaged in a “race to the
differ in how employers may provide for benefits. In four
bottom” on workers’ compensation;
states, employers must purchase insurance from state-
administered funds rather than the open market. In 17
The role of prescription drugs, especially opioid pain
states, employers may elect to purchase insurance from
killers, compounded drugs, and physician-dispensed
state funds or private insurers. Thirty states do not offer
drugs, in workers’ compensation treatment;
state funds and in all but two states, qualified employers
may self-insure for workers’ compensation.
The persistence of litigation, through appeals and suits
for deliberate torts, in workers’ compensation systems
Past Congressional Involvement in
despite the grand bargain and the role of settlements
Workers’ Compensation
between insurers and workers in long-term cases;
Congress has historically left it up to the states to decide
whether to have workers’ compensation programs and to
The interaction of workers’ compensation with other
regulate the make-up and administration of these programs.
public systems, such as Social Security Disability
In addition to creating federal programs for federal
Insurance (SSDI) and Medicare, including issues related
employees and other workers, the most significant
to employers and insurers shifting costs from workers’
congressional involvement in workers’ compensation came
compensation to these federal benefit programs;
in 1970 with the Occupational Safety and Health Act (OSH
Act). In addition to requiring employers to comply with
The integration of workers’ compensation into the larger
federal worker-safety standards, the OSH Act created a
issue of occupational safety and health; and
national commission to study state workers’ compensation
laws to see if these laws needed reform. The commission
How workers’ compensation systems designed in the
issued its final report in 1973 and called on states to reduce
early 20th century can best provide for workers and
the number and types of workers excluded from coverage
employers in the changing workplaces of today.
and provide a minimum level of benefits of two-thirds of a
worker’s pre-disability wage.
For Additional Information
CRS Report R44580, Workers’ Compensation: Overview
After publication of the national commission’s report,
and Issues, by Scott D. Szymendera
legislation was introduced in Congress to require states to
comply with minimum standards of workers’ compensation
based on the commission’s recommendations or have the
federal government take over their workers’ compensation
Scott D. Szymendera, Analyst in Disability Policy
systems. This legislation was not enacted into law and
Congress has made no significant attempt since the early
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Workers’ Compensation: Overview and Issues
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