Statement on the Longshore and Harbor Workers' Compensation Act

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					                                        Statement on the
                      Longshore and Harbor Workers’ Compensation Act:
                                     Time for Reform?

                                        Submitted to the
                    Subcommittee on Employment and Workplace Safety
                                          of the
                 Senate Committee on Health, Education, Labor and Pensions
                                          on behalf of
                         UWC --- Strategic Services on Unemployment
                                 & Workers' Compensation
                                               by
                                 Eric J. Oxfeld, President
       UWC – Strategic Services on Unemployment & Workers’ Compensation (UWC)
                                         May 19, 2006
    UWC commends the Subcommittee on Employment and Workplace Safety for holding the
May 9 hearing on the need for reform of the Longshore and Harbor Workers’ Compensation Act
(Longshore Act) and providing us the opportunity to submit comments. Senator Isakson stated at
the hearing that the Longshore program is “long overdue for attention from Congress.” We
couldn’t agree more, and in this statement we detail the major areas where remedial action by
Congress is needed.

    UWC supports the workers’ compensation system, which is intended to provide partial wage
replacement and medical benefits for workers injured on the job, without regard to fault, and at
an affordable and predictable cost for employers. The Longshore Act serves as the workers’
compensation program for the stevedoring, shipbuilding, and marine construction industries, and
many others. The Longshore program, like state workers’ compensation programs, must strike a
careful balance between the interests of workers and employers. However, the Longshore Act is
now badly out of balance. The Longshore program is the most costly workers’ compensation
program in the nation, and its high costs are having a significant detrimental impact on the
affected industries and their workforce – costs ultimately paid by consumers and taxpayers.

    We urge Congress to take prompt action to restore the needed balance. Congress has
amended the Longshore Act only at extremely lengthy intervals; the most recent changes were
enacted in 1972 and 1984. In contrast, since 1984, most states have enacted significant,
comprehensive reforms (some of them several times). These reforms include many innovations
which address waste, fraud and abuse while preserving protections for injured workers – and
offer lessons which would be beneficially applied to the Longshore program. Furthermore, since
1984, many problems have arisen as the result of administrative and judicial decisions
misinterpreting and misapplying the Longshore Act. And finally, there remain problems which
were not addressed (or were not satisfactorily addressed) in the 1984 amendments.
                  The Voice of Business on Unemployment & Workers’ Compensation
          UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
                   1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
                   Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org
                                                2



UWC – The Voice Of Business On Unemployment And Workers’ Compensation
    UWC is the only national association exclusively devoted to providing legislative/regulatory
representation for the business community in connection with national workers' compensation
(WC) and unemployment insurance (UI) public policy. UWC's members include employers,
national and state business associations, workers’ compensation insurers, third party
administrators, law and accounting firms, and other service providers, all of whom support and
advocate sound, cost-effective WC and UI programs. UWC members, and their policyholders,
clients, and members collectively represent a major share of the business community in the
United States.

    UWC leads an informal coalition of industries which are stakeholders in the Longshore
program. Changes in the Longshore Act are needed to promote a healthy economy, strengthen
employment in businesses covered by the Longshore Act, and make Longshore costs more
affordable, while preserving job injury protections for Longshore-covered workers. These goals
can only be accomplished through comprehensive reform legislation restoring balance to the
Longshore Act.

Major Problem Areas in Longshore Program
   UWC has closely reviewed the Longshore program in concert with affected industries, and
found that it is out of balance in 7 critical areas:
   1)   Delivery of medical care
   2)   Exclusivity of remedy
   3)   Special Fund – second injuries
   4)   Return to work incentives
   5)   Fraud and abuse
   6)   Litigation
   7)   Compensability

Delivery of Medical Care
    Workers' compensation covers all reasonable and necessary medical care, at no cost to the
injured worker, for either treatment or insurance. Coverage is extremely broad and includes
doctors, hospitals, prescription drugs, medical rehabilitation and long term care. Consequently,
an injured worker has no monetary incentive to be a prudent health care purchaser, and in fact
there are powerful economic incentives for workers to seek, and for medical providers to
prescribe, unnecessary medical services. The current Longshore Act provides for virtually
unlimited employee choice of physician, a policy choice which actively facilitates abuse through
doctor shopping. Not surprisingly, workers' compensation medical costs have soared as a
percentage of the total compensation dollar.

    Research shows that the medical delivery system which works best to provide high-quality,
cost-effective care under workers’ compensation, without requiring patients to share the cost of
treatment, is one that applies a combination of controls, as follows:
   1) Permit injured workers to select a treating doctor from within a medical network
      furnished by the workers' compensation insurance carrier (or self-insured employer), or
             The Voice of Business on Unemployment & Workers’ Compensation
    UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
             1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
             Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org
                                                 3


      from a panel of providers furnished by the employer in geographic areas where networks
      are not available.
   2) Require treatment to be consistent with nationally recognized evidence-based guidelines
      developed and maintained by the American College of Occupational and Environmental
      Medicine (ACOEM).
   3) Provide for review of medical necessity (utilization review) using the workers’
      compensation guidelines developed by the Utilization Review Accreditation
      Commission, in conjunction with an expedited system to resolve disputes regarding
      medical treatment.
   4) Control unit costs through a comprehensive medical fee schedule based on Medicare
      reimbursement rates.

The Longshore program lacks all of these essential tools except for the fourth.

Exclusivity of remedy
    Workers' compensation is a no-fault system, which requires that employers pay the benefits
as set forth in the workers' compensation act, even when the worker, a co-worker, or a third party
is at fault. Benefits include all reasonable and necessary medical care as described above, as well
as substantial wage replacement (cash) benefits when an injury results in lost time from work or
the injury is fatal. Longshore cash benefits are among the most generous in the nation, with a
high maximum weekly benefit and minimum benefit and open-ended, lifetime benefits for
permanent partial disability. As a quid pro quo for assuming this obligation, employers are
protected against any other financial obligation to their workers for a work-related injury or
illness – a policy known in workers' compensation jurisprudence as the “exclusive remedy”
principle. The exclusive remedy is the foundational cornerstone of the no-fault workers'
compensation system. It makes workers' compensation coverage and costs affordable and
predictable for employers.

   However, there are significant gaps in the exclusive remedy protection for Longshore
employers, creating substantial costs above and beyond the statutory Longshore benefits. These
gaps include the following:
   1) Dual jurisdiction, imposed by case law, allows simultaneous claims for the same injury,
      against the same employer, under both the Longshore Act and state workers’
      compensation law. Longshore employers must comply with two separate and different
      legal systems and in some cases workers can receive a double recovery. Dual jurisdiction
      is burdensome and inequitable. Some maritime states have withdrawn their jurisdiction
      over injuries covered by the Longshore Act, including Florida, New Jersey, and Texas,
      but dual jurisdiction remains a significant problem in other states, including California,
      Connecticut, Georgia, South Carolina, and Virginia. The Longshore Act should be
      amended to clearly eliminate concurrent jurisdiction with state workers’ compensation.
   2) When an injured individual’s status as an employee covered by the Longshore Act is not
      clear, current law allows simultaneous consideration of the Longshore claim as well as
      the cause of action under state tort law or the Jones Act. A determination that the
      Longshore Act applies will bar the tort or Jones Act claim, but federal district courts do
      not have jurisdiction to stay the state or Jones Act action or order it removed to federal
      court while Longshore eligibility is resolved. This “Catch-22” situation arises because
      Longshore claims by design are administrative in nature, and thus the Labor Department,
             The Voice of Business on Unemployment & Workers’ Compensation
    UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
             1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
             Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org
                                                  4


      not the court, has original jurisdiction. The employer must therefore incur the cost of
      defending the same case simultaneously in two different forums, contrary to the intent
      that the Longshore Act is the exclusive remedy where it applies. Federal law should bar
      simultaneous Longshore claims and actions under state law or the Jones Act, and
      empower the Secretary of Labor to issue a stay and seek an injunction in federal district
      court if such actions are initiated.
   3) Employers often lose their exclusive remedy protection when a worker performs services
      for multiple employers collaborating on a common worksite, especially when the worker
      is loaned by one employer to another. In these circumstances, it is very difficult to
      ascertain who was the claimant’s actual employer at the moment of injury. It makes little
      sense to create tort rights in these circumstances. Federal law should clearly make any
      employer on a common worksite a “statutory employer” and thus extend the certainty of
      the exclusivity principle to all employers.

Special Fund – Second Injuries
    The Longshore Special Fund relieves the employer of a significant portion of claim costs for
“second injuries,” when it is determined that the injured worker had a prior disability qualifying
for Special Fund coverage. Second injury funds including the Special Fund were originally
established to counter fears that there may be employment discrimination against workers with
disabilities. In practice these funds do not influence employment decisions. However, they do
shift claim costs from the employer responsible for the injury to all employers and make claims
resolution more complicated. Special Fund coverage of second injuries serves no valid purpose,
especially now that there are direct legal remedies against discrimination, such as the Americans
with Disabilities Act.

     The Special Fund is financed through an annual assessment on self-insured employers and
insurance carriers. The assessment is distributed among employers and insurers in proportion to
the Longshore cash benefits each paid in the prior year. This assessment has been growing and is
a significant cost. Furthermore, because the assessment is on a pay-as-you-go basis, it does not
cover the ultimate cost of claims already in the Fund. The total unfunded liability of the Special
Fund for its existing inventory of claims is estimated at more than $2 billion. This unfunded
liability is a financial cloud over the employers who are covered by the Act and could ultimately
fall on federal taxpayers.

    A related problem is that the use of an assessment mechanism based on losses, rather than
insurance premiums, to distribute the assessment. Accounting rules require that any payer
subject to loss-based assessments to estimate and report its proportionate share of the unfunded
liability on its financial statements. Because of the size of the Longshore unfunded liability, this
requirement reduces the amount of capital available to underwrite insurance policies.

    Many states have abolished workers' compensation second injury funds whose problems
mirror those of the Longshore Special Fund. Many states which used loss-based assessments
have also changed their assessment to a percentage of premiums, collected from insured
employers. A premium-based method of assessment does not require a change in financial
statements because an insurer who ceases to sell coverage will no longer have any obligation for
future assessments. Congress should amend the Longshore Act by freezing new second injury


             The Voice of Business on Unemployment & Workers’ Compensation
    UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
             1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
             Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org
                                                5


fund claims for the Special Fund and by changing the assessment base for insured employers to a
percentage of insurance premiums.

Return to work incentives
    Workers’ compensation cash benefits are intended to provide partial wage replacement at a
level that maintains substantial income support while also providing substantial economic
incentive for the worker to return to work as soon as physically able. The Longshore Act falls far
short of this objective in many respects, directly inflating costs:
   1) Periods of disability are prolonged and there is great disparity in the effective wage
      replacement rate for workers at different income levels, because the Longshore wage
      replacement rate is 2/3 of pre-injury gross pay. Workers’ compensation benefits are not
      (and should not be) taxable under income and employment taxes. Consequently, 2/3 of
      gross pay is often close to or even in excess of the worker’s pre-injury net pay, directly
      diminishing incentives to return to work, and also resulting in varying levels of effective
      wage replacement for different individuals, depending on the tax bracket and the amount
      of taxable income received by other members of the worker’s household. The Act should
      be revised, consistent with the law in a number of states, so that cash benefits are based
      on 75 percent of “spendable earnings” rather than gross pay. “Spendable earnings” is a
      standardized method of calculating take-home pay which more accurately and
      consistently reflects the worker’s real loss of income.
   2) Benefits are inflated because the term “wages” has been construed to sweep in payments
      that are not reflective of the worker’s actual wage loss due to the injury. “Wages” should
      be redefined to exclude payments such as severance pay, one-time payments and
      bonuses. Furthermore, the formula for calculating pre-injury earnings assumes that the
      worker would have continued to steadily receive weekly wages at the same amount
      payable for the period immediately prior to the injury – but that is often not the case for
      dock workers, who typically have irregular work schedules, with periods of unpaid down
      time in the course of the year. For workers who have irregular employment, wages
      should be based on a formula that more accurately reflects the worker’s expected
      earnings from Longshore employment.
   3) Awards for multiple injuries can be “stacked” so that combined benefits actually exceed
      the maximum weekly benefit, thereby defeating return to work incentives and making
      Longshore coverage more costly.

Fraud and abuse
    Fraud and abuse are significant problems. Although many changes in benefit design
suggested in these comments will reduce the opportunities for abuse, additional changes to
provide stronger tools to prevent and recover improper payments are needed, including the
following:
   1) Provide a mechanism to recoup benefits procured through fraud and provide authority to
      obtain restitution for improper payments.
   2) Permit a stay of payment for disputed amounts at any stage of the administrative or
      judicial adjudication process until the determination is final, to prevent improper
      payments from occurring in the first place.
   3) Allow a complete defense when the claimant makes material false statements and allow
      the use of false statements as evidence of a witness’s credibility.
             The Voice of Business on Unemployment & Workers’ Compensation
    UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
             1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
             Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org
                                                6


   4) Allow an employer to require a claimant to report wages regardless of whether the
      employee is receiving compensation payments. This change is needed to overturn case
      law holding that the claimant is not required to make such reports in disputed cases
      where payment has not been initiated. If the claimant ultimately prevails, the employer
      has no information on whether there was wage loss in the interim.

Litigation
   Workers' compensation is an administrative remedy, intended to provide fast and efficient
benefits, delivered informally. While the overwhelming majority of claims are handled that way,
and in some cases litigation is unavoidable because the law or facts are simply unclear, the
Longshore Act and its administration unfortunately facilitate litigation over some claims that
should not require litigation. Claims that get into litigation typically become more complicated
and much more expensive, and they can take a long time to resolve. Amendments to Act are
needed to reduce reasons for litigation and streamline dispute resolution:
   1) Protect Longshore employers against claims by workers diagnosed with an occupational
      disease or cumulative trauma after entering subsequent non-Longshore-covered
      employment where such workers are exposed to injurious stimuli capable of causing the
      harm. The Longshore program, like most state workers’ compensation laws, applies the
      “last employer doctrine” when a worker is exposed to injurious conditions in successive
      employment. Under this doctrine, the last employer is responsible for the entire claim.
      This policy is intended to avoid the “friction costs” and associated problems inherent in
      attempting to allocate responsibility among multiple prior employers. But the last
      employer rule creates a significant disadvantage for Longshore employers when the last
      injurious exposure occurred in employment that is not subject to Longshore coverage,
      because the courts still allow a claim against the last Longshore employer. This “Catch-
      22” situation means a Longshore employer is considered the last employer when the prior
      injurious exposure was not covered by the Longshore Act, but does not get the benefit of
      the last employer doctrine when the last injurious exposure was in subsequent non-
      Longshore employment.
   2) Repeal liberal construction and require neutral interpretation of the statute and facts.
      Although the claimant has and should have the burden of proof, administrative and
      judicial adjudicators have misapplied the liberal construction doctrine to find in favor of
      claimants who have not proven their claims. Fairness requires that the claimant meet the
      burden of proof and that adjudicators be neutral and not favor either side.
   3) Adopt a more equitable statute of limitations. Under current law, a claim can be
      successfully pursued long after the injury has occurred, making it extremely difficult for
      the employer to investigate and defend against the claim. There is no sound reason that
      notice of traumatic injury or death should not be provided within a year after the injury or
      death. For non-traumatic injury or death resulting from non-traumatic injury, notice
      should be given within a year after discovery, provided that the notice is given no more
      than 1 year after diagnosis or death. And notice should not be considered timely unless
      the claimant is reasonably available for examination by employer.
   4) Eliminate deference to DOL litigation positions. Deference is owed to DOL policy
      positions established in statute and regulations, which have undergone review after
      opportunity for input by affected parties, but it is unfair to give deference to DOL policy
      first promulgated as a litigating posture on issues which are before the courts.

             The Voice of Business on Unemployment & Workers’ Compensation
    UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
             1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
             Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org
                                                 7


   5) End abuse of independent medical examinations (IME’s). IME’s are paid for by the
      insurer. Under current law, a claimant is entitled to an IME unless the Secretary finds it is
      “clearly unwarranted” – a standard that opens the door to excessive use. Furthermore,
      employers who may want an IME are severely restricted in the availability of qualified
      physicians who can provide IME’s because current law prohibits an IME by any
      physician who was involved in a claim in prior 2 years on behalf of any employer or
      insurer.
   6) Provide a more reasonable time for insurers to deliver payment. The Act now allows 10
      days to deliver benefits. Some courts have interpreted this time period as 10 calendar
      days, even though federal rules of civil procedures provide that “10 days” means 10
      business days. Furthermore, courts have interpreted the Act as requiring late payment
      penalties even when the claimant was responsible for the late delivery, e.g., by furnishing
      the wrong address.
   7) Eliminate subjective complaints as evidence of causation, injury and medical disability.
      These complaints make the Act easy to abuse. By design, pain and suffering are not
      compensable under workers' compensation, and pain cannot be objectively verified. In
      the absence of objective medical findings, subjective complaints should not be allowed as
      evidence.

Compensability
    Workers' compensation benefits are payable for injury, illness or death which is work-
related. Workers' compensation is not intended to make employers responsible for the health of
their workforce off the job. The legal test for compensability is that the condition must arise out
of and in the course of employment. For most traumatic injuries which result from an accident at
work, causation is seldom at issue. However, hearing loss, cumulative trauma, cardiovascular
conditions, mental disabilities and some occupational diseases can be and often are non-work-
related. Nevertheless, administrative and judicial interpretations now require payment of
Longshore benefits for many claims without medical proof of work causation. Such claims are
often contested and contribute to making the Longshore Act expensive for employers. The Act
should be revised to draw a brighter line between compensable, work-related injury and illness
and conditions which are not compensable. We recommend, based on experience with the
Longshore Act and state workers' compensation jurisprudence, the following changes:
   1) Make clear that benefits are not payable for the portion of disability resulting from aging,
      and require clear proof that work is the major contributing cause when a condition results
      from a combination of occupational and non-occupational causes.
   2) Deduct from hearing loss the extent of loss that occurred prior to employment, loss
      naturally occurring due to aging (presbycusis), and loss resulting from other non-
      employment causes. Give greater legal weight to audiograms performed by a qualified
      hearing practitioner, and require notice of hearing loss within 1 year after leaving
      employment.
   3) Exclude “junk science” by requiring expert testimony to meet Federal Rules of Evidence
      and by requiring medical opinion based on peer-reviewed studies.
   4) Cover dentures, eyeglasses, and hearing aids or prosthetics only when provided in
      connection with medical treatment for a compensable injury or they are damaged in
      connection with a traumatic injury. Replacing eyeglasses or dentures that drop into the
      water should not be an expense for which employers are legally responsible under the
      Longshore Act.
             The Voice of Business on Unemployment & Workers’ Compensation
    UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
             1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
             Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org
                                                8


   5) Enact a meaningful intoxication defense by (i) eliminating the requirement that
      intoxication was the “sole” cause of injury and (ii) allowing rebuttal of the presumption
      that an injury was not due to intoxication through a positive drug test or alcohol test
      exceeding state driving under the influence (DUI) limits or when the claimant refuses or
      is unavailable for a drug or alcohol test.
   6) Make explicit that personnel decisions cannot be the basis for stress claims.

Conclusion
    Industries covered by the Longshore Act play a vital role in the U.S. economy and national
defense. Exports and imports, as well as agricultural products, raw materials and manufactured
goods, are handled by stevedoring firms at coastal and inland ports. Navy and Coast Guard
vessels are built and maintained by American shipyards. Highway bridges and tunnels that cross
navigable water and marine construction are built and maintained by contractors covered by the
Act. Employees of marinas, and hotels, restaurants and retail outlets located on the docks, are
covered by the Longshore Act. Through various legislative extensions, the Act also covers
workers on off-shore oil drilling rigs, overseas employees of federal contractors, and even
civilian workers at PX’s on military bases.

    Workers and employers covered by the Longshore program need a workers' compensation
system that protects workers injured on the job and is affordable for employers. Last amended in
1984, the Longshore Act is now badly out of balance, resulting in inflated costs which jeopardize
the economic health of covered industries and indirectly harm industries that depend on them.
The Longshore Act also adversely affects the cost of building vessels needed by the Navy and
Coast Guard. These costs are ultimately borne by consumers and taxpayers.

    The Longshore program, with the highest level of workers' compensation benefits in the
nation, needs to be modernized. Since 1984, public policy on workers’ compensation has
evolved. States have adopted many innovations and reforms to restore balance to their workers’
compensation programs. Lessons from the states should be applied to the Longshore program.
Furthermore, administrative and judicial decisions construing the Longshore Act over the past 22
years have resulted in many adverse policy shifts that only Congress can fix. And problems not
addressed in 1984 have not gone away, including the Special Fund, whose enormous unfunded
liability is a dark cloud over covered industries and may ultimately become a taxpayer
obligation.

    The problems in the Longshore program involve many aspects of the Act. The assurance to
employers that Longshore benefits are the exclusive remedy must be fully restored. What is a
compensable injury needs clarification. Modern methods of delivering cost-effective medical
care are essential. Return to work incentives must be strengthened. Procedures to stop fraud and
abuse and recover improper payments are needed. Practices that encourage litigation and delay
dispute resolution must be revised. The Special Fund must be frozen, and the assessment
mechanism changed to a premium basis for insured employers consistent with sound accounting
requirements.

   In short, it is long past time for Congress to restore balance to the Longshore program. We
urge that comprehensive reform be swiftly enacted. UWC stands ready to work with the Health,


             The Voice of Business on Unemployment & Workers’ Compensation
    UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
             1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
             Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org
                                                9


Education, Labor and Pensions Committee to develop and enact appropriate and effective
remedial legislation.

    We appreciate your inclusion of these comments in the hearings record. We would be
pleased to answer any questions or provide additional information. Please feel free to contact me
by telephone at 202-637-3463 or by email at oxfelde@uwcstrategy.org.


STATEMENT OF CLIENTS, PERSONS, OR ORGANIZATIONS ON WHOSE BEHALF
THE STATEMENT IS SUBMITTED
This statement is submitted on behalf of UWC – Strategic Services on Unemployment &
Workers’ Compensation (UWC). UWC is a 501(c)(6) association incorporated under the laws of
Wisconsin. UWC offices are located in the District of Columbia.




             The Voice of Business on Unemployment & Workers’ Compensation
    UWC -- STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS’ COMPENSATION
             1331 Pennsylvania Avenue, N.W., Suite 600, Washington, D.C. 20004
             Phone (202) 637-3463 Fax (202) 783-1616 www.UWCstrategy.org