Measuring the Adequacy of Workers’ Compensation Benefits in Michigan, 2004-2008

By James J. Ranta, Esq.

The recent study by Mr. Bogdan Savych and Mr. H. Alan Hunt, Adequacy of Workers’ Compensation Income Benefits in Michigan, sought to determine how total income received by workers after an injury compared with the total income workers could have received had they not experienced an injury.  The authors of this study compared data over an average length of 4.5 years after an injury from 2004 through 2008.  There have been similar studies in other jurisdictions, but this was the first attempt to provide information on the adequacy of workers’ compensation benefits in a wage-loss system.

After defining “total income” as inclusive of earnings from post-injury employment and workers’ compensation weekly benefits, the study concluded that the average worker’s total income equaled 97% of what the comparable worker would have earned without an injury (they projected the difference at 88% after ten years).

Interesting, the study found significant difference when comparing the adequacy of workers’ compensation income benefits among various subgroups.  The 97% earnings replacement rate (ERR) was a calculations encompassing workers who experienced an injury that led to more than one month of weekly workers’ compensation benefits.  The authors noted that there was a much larger loss of earnings among individuals who received more than one month of weekly workers’ compensation benefits, particularly when compared to the comparison group of workers who experienced a “medical only” injury that resulted in no lost time from work.  This particular difference was not insignificant; the authors found that that those injured workers who received more than one month of weekly workers’ compensation benefits had a four percentage point higher likelihood of experiencing a decrease in annual earnings of greater than $10,000.00 (these estimates were for 4.5 years after an injury as opposed to the ten-year projection).

The anticipated use of this data by the authors was for potential review and/or action by policymakers in Michigan in reviewing whether weekly workers’ compensation benefits provide adequate financial support for the majority of injured workers.  In conclusion, they arrive at several policy implications from their data that may be of future use.  First, due to the fact that there was a fairly significant difference in the adequacy of workers’ compensation income benefits among the subgroups that were studied, they suggested that any action by policymakers should focus on those subgroups and differences among them.  Specifically, perhaps they could strengthen policies that encourage sustained post-injury employment and return to work programs since there were much larger earnings losses among those individuals who received more than one month of weekly workers’ compensation benefits.  Additionally, they suggested changes that focus on a faster and more-efficient administrative system for resolving disputes to the extent possible.

There are some limitations in the potential use of this data as acknowledged by the authors.  First, this particular period of time showed a dramatic change in Michigan’s general economic climate as a whole.  The recession that the country experienced during this time was particularly severe in Michigan, and therefore the data could potentially change if the analysis were conducted during a more normal or robust economic period.  Additionally, there was a significant statutory overhaul that occurred in Michigan (effective December 19, 2011) following this time period.  Although the statutory overhaul included codification of case law holdings that were in effect already by 2004, there were some cases and legislative changes that occurred after 2004 that were specifically concerned with the issue of post-injury employment/earnings (for example, see Stokes v Chrysler, LLC, 481 Mich 266 (2008)).

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