Workers' Compensation System

Updated: Sep 23, 2020
  • Author: Elizabeth Knight, MD; Chief Editor: Consuelo T Lorenzo, MD  more...
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The workers' compensation system provides injured workers with medical care, income (or a percentage of income), and survivor benefits in cases of fatalities. The worker, in turn, waives the right to sue his or her employer.

In 1908, the United States enacted the Federal Employees' Compensation Act (FECA). Individual states followed soon after, including New York in 1910 and New Jersey in 1911. In 1948, Mississippi became the last state to develop workers' compensation legislation. Many European countries had addressed the need for a no-fault workers' compensation program prior to the United States. Occupational claims and legislation regarding such claims did not come into favor in the United States until approximately 1917.

Prior to workers' compensation legislation, the employee and the employer could be significantly affected by a claim. The employee could potentially lose his or her job, income, and ability to receive medical treatment. The employee would often have to fund his or her own legal defense (which could potentially become quite expensive) and prove in court that the employer was negligent. The employer was also at a significant risk, because lawsuits were costly (even with a favorable outcome), and the results were unpredictable.


Workers' Compensation Systems in the United States

Federal workers' compensation programs

These programs include the following:

  • FECA - Covers all federal civilian employees and their dependents [1]

  • Longshore and Harbor Workers' Compensation Act (LSA) - Covers any person engaged in maritime employment, with the exception of seamen (see Jones Act, below)

  • Jones Act provides protection for seamen

  • Federal Coal Mine Health and Safety Act - Provides coverage for coal miners who develop black lung or pneumoconiosis (or, in the case of miners who die from black lung, for their survivors)

  • Veterans Administration - Provides compensation for service-related and non–service-related disabilities

  • Federal Employers' Liability Act (FELA) - Covers railroad workers

State workers' compensation programs

State workers' compensation statutes provide guidelines for most, if not all, injured workers not covered by the above-mentioned federal programs. The differences in legislation from state to state include, but are not limited to, issues related to the following [2] :

  • Benefits

  • Waiting periods

  • Choice of physicians

  • Physician fee schedules

  • Occupational exposures

  • Schedules of awards

  • Administration of the system (ie, court vs special state agency)

Many states also have legislation protecting employers from liability and medical expenses related to hiring a prospective worker who has a preexisting disability. These programs are often referred to as the Second Injury Fund or the Special Disability Trust Fund.

Many states develop their own medical treatment guidelines. Based on the results of a RAND/University of California, Los Angeles project to aid in selecting California's workers' compensation guidelines for clinical care and utilization management, Harber et al developed a list of choices and processes for determining and evaluating such guidelines. [3] These included the following, among others:

  • Define the purpose of the guidelines

  • Assign authority for making decisions

  • Decide whether or not to use any existing guidelines

  • Specify clinical topics to which the guidelines will apply

  • Evaluate the long-term effectiveness of the guidelines


The Injured Worker

Work-related injuries are classified as either accidental traumas or occupational diseases. Generally, the injured worker has a responsibility to report the injury in a timely fashion. The reporting of injuries or occupational exposures usually has a statute of limitations. This may vary from state to state and within the federal systems. [4, 5, 6]

Compensable injuries or diseases

All injuries or occupational diseases deemed compensable must "arise out of" or occur "in the course of" employment. This confirms the idea that the work-related injury or occupational exposure would not have occurred but for the employee's occupational activity. For example, if an employee slips and falls while in the course of his or her employment and sustains a scalp laceration, this would be compensable. Alternatively, if an employee with a balance disorder simply falls while standing at work and sustains a scalp laceration, this may not be considered compensable. Most often, the situations are not so clear-cut. [7, 8, 9]

Treatment and compensation

Once an injury or occupational disease is determined to be compensable, most systems require the employer to provide medical treatment, rehabilitation, and a percentage of prior earnings (usually two thirds of the employee's salary, up to a maximum value amount). The choice of medical providers is either employee or employer directed, depending on individual state or federal statutes.

Treatment is usually continued until the worker has reached maximum medical improvement (MMI) or maximum medical benefit (MMB), after which no further diagnostic testing is indicated and no additional therapeutic interventions will improve the worker's level of function. This is typically determined by the treating physician, but it also may be a question addressed in an independent medical evaluation (IME). In some cases, maintenance medical care may continue beyond a point of MMI or MMB. [10, 11]

An injured worker in a state-mandated worker's compensation system will often suffer financial loss as a result of a work-related injury. A study by Seabury et al estimated that workers in New Mexico with lost-time injuries suffered an average 15% earnings loss over the initial 10-year post-injury period, with workers’ compensation benefits replacing only an average of 16% of the lost wages. The study combined state data from workers’ compensation claims in New Mexico (for injuries between 1994 and 2000) with federal earnings data (1987-2007). [12]


An employee with a preexisting condition can be compensated if there is an aggravation or acceleration of the preexisting disorder. For example, if an employee with a long history of back pain, including a prior surgical procedure, reinjures his or her back in the course of employment, the additional degree of functional loss may result in compensation.  

This can become very complicated, particularly when no diagnostic studies preexist the injury to provide a baseline for a particular condition. The term "apportionment" refers to the determination of which portion of an impairment preexisted the injury in question versus what portion of the impairment was causally related to the injury. This can be very difficult to determine and may also be an indication for an IME.


Independent Medical Examinations

A physician who has not previously treated the employee usually performs the IME. Normally, no doctor-patient relationship exists between the examiner and the employee. Occasionally, physicians may be asked to take over treatment. Numerous indications exist for IMEs within workers' compensation systems. These include, but are not limited to, the following:

  • Need for treatment

  • Determining need for past or proposed treatment

  • Diagnosis/prognosis

  • Determining causality (ie, whether the injury is related to work)

  • Determining MMI

  • Determining MMB

  • Determining impairment

  • Determining disability

  • Apportionment

  • Fit-for-duty evaluations

  • Defining work-related restrictions


Impairment/Disability Ratings

Impairment is defined by the World Health Organization (WHO) as any loss or abnormality of psychological, physiologic, or anatomic structure or function. The American Medical Association (AMA) defines impairment as loss, loss of use, or derangement of any body part, system, or function. Disability is defined by WHO as any restriction or lack of ability (resulting from an impairment) to perform an activity in the manner or within the range considered normal for a human being. [13]

The terms impairment and disability are often interchangeable in workers' compensation systems. However, the AMA has determined that the terms impairment and impairment rating are most appropriate. Most states require examiners to use the AMA guidelines (Guides to the Evaluation of Permanent Impairment) to determine accurate impairment ratings. The AMA guidelines were developed to limit the wide range of impairment values reported by different examiners. The AMA guidelines stress a limited amount of interrater discrepancy (no more than 2.5%) when determining impairment ratings on the same individual. In reality, this does not always occur.


Role of the Physiatrist

Physiatrists are in a unique position to evaluate impairment and disability. They are trained in musculoskeletal medicine, orthopedic rehabilitation, neurologic rehabilitation, rheumatologic rehabilitation, spinal cord injury, brain injury, and amputation. In addition, they are trained in electrodiagnostic medicine, which is particularly useful when dealing with neurologic injuries. Physiatrists are experts in disability and long-term management. Ergonomics and biomechanics are also stressed in training; these are helpful in determining work restrictions and preventive measures.