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Federal Issues Challenging The Existence Of State Workers’ Compensation
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Federal Issues Challenging The Existence Of State Workers’ Compensation

Workers' Compensation

Federal Issues Challenging The Existence Of State Workers’ Compensation Systems

By Stephen Embry1, Jon L. Gelman2, and N.Michael Rucka3

1. Will the Federal Victims Compensation Fund be the Model National Workers’ Compensation Act replacing State Systems?

  1.  Limiting the perimeter of liability by restricting “in the course of employment”
  2.  Reducing compensable medical conditions
  3. Setting minimum treatment requirements to participate in the system
  4.  Establish a Federal compensation schedule
  5.  Elimination of the right to a trial and appeal
  6.  Encouraging participation without legal representation

2. What conditions will be imposed in a Federal bailout of the insurance industry?

  1.  Many factors, including terrorist activity, a failing economy, and insurance company mismanagement and greed, have caused major increases in premiums. The insurance industry is lobbying for a Federal bailout.
  2.  Insurance carrier insolvencies are rising at a rapid rate, ie. Legion and Reliance.
  3.  Carrier ratings are falling at an ever-increasing frequency.
  4.  Premiums are doubling across all product lines.
  5.  Reinsurance carriers do not want to write policies for fear of another terrorist attack.

3. How does the erosion of the privacy of medical records impact your clients?

  1.  Whatsoever things I see or hear concerning the life of men, in my attendance on the sick or even apart therefrom, which ought not be noised abroad, I will keep silence thereon, counting such things to be as sacred secrets. - Oath of Hippocrates, 4th Century, B.C.E.
  2. "20s & 30s it was the role of government. In the 50s & 60s, it was civil rights. The next 20 years will be about privacy. The Internet. Cell phones. Health records. And who's gay and who's not? Besides, in a country born on the will to be free, what could be more fundamental than this?" Samuel Norman Seaborn, Deputy Communications Director, The West Wing, Episode 9, NBC-TV.
  3. Bush Administration Backs Down on Privacy. On March 21, the Bush administration proposed changing federal rules designed to protect medical records privacy. Proposed Modifications to Privacy Rule, 67 FR 14775
  4. Will the Federal regulations be expanded to preempt State laws?

4. Who was asleep at the switch when the Federal Government decided to use the Medicare Secondary Payment Act to Strangulate the State Compensation Programs?

  1.  The origins of the Social Security / Medicare Program
  2.  The Great Depression 1929 to 1933
  3.  The nation’s economy declined by 9% per year
  4.  Per capita personal income fell from $705 to $374 (1970 dollars)
  5.  “A New Deal for the American people,” President Franklin Roosevelt
    1.  Francis Perkins, Labor Secretary, heads the Committee on Economic Security, which recommended the creation of the old-age social insurance program…Social Security.
    2. January 1935, President Roosevelt presented a social welfare plan to Congress that became the Social Security Act of 1935.
    3. An Unsuccessful Decade
      1. During the following decade, liberals sought unsuccessfully to enact national health insurance.
      2. President Harry Truman repeatedly advocated for national health insurance funded through payroll deductions.
      3. In 1951, planners at the Federal Security Agency, the predecessor of the Department of Health & Human Services, explored the idea of extending health insurance to retired persons who could not obtain it in the private sector.
    4. Senator John Kennedy’s 1960 presidential campaign
      1.  Raises national health care as a campaign issue
    5. The “Great Society”
      1.  President Lyndon Johnson spoke of moving “not only toward the rich society and the powerful society but upward to the Great Society.”
      2. July 1965, Congress enacted Medicare into law in the Health Insurance for the Aged Act.
    6. Social Security and Medicare were enacted as social insurance programs intended to operate as earned benefits, not as welfare. Dauster, W.G., “Protecting Social Security and Medicare”, 33 Harv.J. on Legis. 462 (1996)
      1. Omnibus Budget Reconciliation Act of 1981 made Medicare secondary to employer-group health plans for persons with end-stage renal disease.
      2. The Tax Equity and Fiscal Responsibility Act of 1982 made medicare secondary to employer-group health plans for employed individuals and their spouses aged 65 to 69, also amending the Age Discrimination in Employment Act 29 U.S.C.A. §623 (g), later moved to the Social Security Act in 42 U.S.C.A. §1395y (b) to require that employers offer the same coverage to such aged employees as was offered to younger employees.
      3. The Deficit Reduction Act of 1984 carried those amendments further by making Medicare secondary to spouses aged 65 to 69 of employed individuals covered under an employer group health plans. The government was also given the right to recover Medicare overpayments from any entity that would be responsible for making a primary payment and for providing a remedy of double damages.
      4. The Consolidation Omnibus Budget Reconciliation Act of 1985 extended the secondary payer requirements for individuals aged 70 and over.
      5. The Omnibus Budget Reconciliation Act of 1986 brought the working disabled into the secondary payment program.
      6. In 1989 the amendments were reorganized and clarified the government’s right of recovery of conditional Medicare payments. “Validity, Construction, and Application of

5. Medicare Secondary Payer Provisions of Social Security Act (42 U.S.C.A. §1385Y(B) and Regulations Promulgated There under,” 126 A.L.R.Fed. 553 The History-series of amendments

  1. Medicare is a system of federally funded health insurance for the aged, the disabled, and people suffering from end-stage renal disease. Many people covered by Medicare are also eligible for benefits under group health plans provided by employers. For its first fifteen years, Medicare paid for services without regard to whether they were also covered by an employer group health plan. As a cost-cutting measure, however, Congress eventually enacted a series of amendments designed to make Medicare a "secondary" payer with respect to such plans. These amendments have been codified at 42 U.S.C. § 1395y(b), which is referred to as the "Medicare as Secondary Payer" ("MSP") statute. Health Insurance Association Of America, Inc. vs. Donna E. Shalala, Secretary, Health And Human Services, et al.,23 F.3d 412, 306 U.S.App.D.C.104 (DC 1994).
    1. “Paragraph (2) then makes Medicare the "secondary" payer with respect to coverage required under paragraph (1), and spells out the means by which that purpose is to be realized. Subparagraph (A) prohibits Medicare from making any payment, other than a conditional one, for any item or service to the extent that "payment has been made [under a group plan], or can reasonably be expected to be made [under a group plan], with respect to the item or service as required under paragraph (1)". Id. § 1395y(b)(2)(A)(i). Subparagraph (B) then explains what it means for a payment to be conditional; in a clause headed "Primary Plans", it declares that any Medicare payment under the circumstances described in subparagraph (A) "shall be conditioned on reimbursement to the appropriate Trust Fund ... when notice or other information is received that payment for such item or service has been or could be made under such subparagraph." Id. § 1395y(b)(2)(B)(i). In order to recover conditional payments, the next clause continues, "the United States may bring an action against any entity which is required or responsible under this subsection to pay with respect to such item or service (or any portion thereof) under a primary plan...." Id. § 1395y(b)(2)(B)(ii). Indeed, when an employer group health plan "fails to provide for primary payment (or appropriate reimbursement) in accordance with ... paragraphs (1) and (2)(A)", a private party or the federal government can sue for double damages. Id. § 1395y(b)(3)(A). In addition, the federal government is subrogated (to the extent of any payment for an item or service to which subparagraph (2)(A) applies) "to any right under this subsection of an individual or any other entity to payment with respect to such item or service under a primary plan." Id. § 1395y(b)(2)(B)(iii).”
    2. Purpose of Medicare as Secondary Payer (MSP) statute is to prevent group health plans from providing that plan will be secondary payer if Medicare coverage exists. Blue Cross and Blue Shield of Texas, Inc. v. Shalala, 995 F.2d 70 (C.A.5 Tex. 1993)
    3. Purpose of provisional medicare payment sections of this subchapter is to leave the account open to allow for subsequent contingent events which bear on liability, such as by authorizing provisional payment and also authorizing recoupment from workmen's compensation benefits if compensation is later determined to cover the matter. Mount Sinai Hospital of Greater Miami, Inc. v. Weinberger, 517 F.2d 329 (C.A.5 Fla. 1975), modified 522 F.2d 179, certiorari denied 96 S.Ct. 1665, 425 U.S. 935, 48 L.Ed.2d 176, on remand 425 F.Supp. 5.
    4. The intent of the Medicare secondary payer statute is to cut costs of the Medicare program by requiring that Medicare pay "secondary" to alternate sources. U.S. v. Travelers Ins. Co., 815 F.Supp. 521 (D.Conn.1992).
    5. Purpose of the federal Medicare Secondary Payer Act is to reduce federal spending and protect the financial well-being of the Medicare program by requiring that Medicare payments be secondary to other sources of compensation. Lamb v. Quincy, 636 N.E.2d 412, 92 Ohio App.3d 592 (Ohio App. 3 Dist.1993), motion overruled 632 N.E.2d 522, 69 Ohio St.3d 1439, certiorari denied 115 S.Ct. 322, 513 U.S. 930, 130 L.Ed.2d 283.
        1. Between 1991 and 1998, $43 billion was paid in cash by the Federal government for medical benefits for WC related claims.

6. GAO revealed that “significant errors” existed in the WC offset process through overpayments and underpayments. The study discloses that the Federal government is unintentionally subsidizing WC insurance companies nationwide on a massive scale.

  1. The GOA report recognized that the Federal program was undermined by the lack of reliable information identifying the recipients of State WC benefits. No national reporting system presently identifies WC beneficiaries. As a result, some beneficiaries are overpaid, and others to be
  2. Errors
    1. GAO reported that 50% of the beneficiaries of disability benefits, subject to offset, have been paid inaccurately.
    2. Over $1.5 billion in payment errors relating to the WC offset have been identified.
    3. Eighty-five percent of the errors occur when disability insurance beneficiaries do not report a reduction in the WC benefits.
  3. Recommendations
    1. The report suggested that the workers’ compensation carriers furnish the data to SSA. The difficulty recognized with that proposal is the reluctance of insurance carriers to incur additional reporting costs.
    2. Revisits the issue of lump-sum WC benefits and the interpretation of data that they represent 62 FR 51923-51926 (1997)
        1. That report concluded that the federal government erroneously paid $28.5 billion (18.3% of total cost).
        2. Medicare secondary payment provisions grant the government independent right of recovery against the claimant's health care provider separate from its right of subrogation. U.S. v. Travelers Ins. Co., 815 F.Supp. 521 (D.Conn.1992).
          1. The US General Accounting Office (GAO) Report May 2001
        3. 1992 study by J. Leigh, S. Markowitz, M. Fahs, and P. Landrigan, “Costs of Occupational Injuries and Illnesses”, University of Michigan Press (2000)
        4. Right of Action
        5. The Federal Dilemma of Cost Shifting in Workers’ Compensation Claims
    3. The Federal government is compelled to raise revenue through taxes, and the injured worker suffers an increased tax burden.
    4. Injured workers are already paying $68.6 billion (44.2% of all medical costs) directly through out-of-pocket expenditures.
  4. The OIG (Office of Inspector General) recently published two reports concerning issues from the failure to integrate data between workers’ compensation and SSA.
    1. Incorrectly paid attorneys (March 2000)
    2. It reported that the SSA incorrectly paid attorneys on disability income cases when workers’ compensation payments were involved. It was estimated that for the 183,881 compensation cases in the national population, the total dollar error was $19.3 million. (A-04-98-62001, March 2000). The OIG recommended that the SSA verify that State compensation payment information is current and accurate when past-due benefits are paid to claimants, and attorney fees are calculated.
    3. WC Benefits Underreported (November 1999)
    4. The OIG in another report, found that workers’ compensation benefits were grossly underreported by social security beneficiaries. It was estimated that for the population of 183,881 compensation offset cases, the SSA trust fund lost $214.4 million due to disability insurance overpayments, and beneficiaries were underpaid $111.4 million in disability insurance payments. It recognized that reliance on WC beneficiaries to voluntarily report changes was not a viable control.
      1. The OIG recommended that in those States where SSA has on-line access to WC data, the SSA should perform a periodic match of the disability insurance beneficiary workers’ compensation benefit rate used for offset against the WC rates paid and make adjustment for any discrepancies. Additionally, in those States where on-line matching of WC data is not a viable option, the SSA should negotiate agreements with State officials to periodically obtain computer extracts of State compensation information and benefit payments. (A-04-98-64002, November 1999).
      2. Inspector General’s Reports
        1. Lump Sum Compromises
          1. July, 2001 HCFA issued a memorandum concerning the computation of future benefits in workers’ compensation matters in order to be in conformance with federal regulations, 42 CFR 411.46


1 Stephen Embry is a partner in the firm of Embry & Neusner of Groton, CT 06340 and is a past President-Elect of the Workplace Injury Litigation Group. 

2  Jon L. Gelman, practices law in Wayne, NJ. He is the author of NJ Workers’ Compensation Law (Thomson-Reuters) and co-author of the national treatise Modern Workers’ Compensation Law (Thomson-Reuters). For over five decades, the Law Offices of Jon L Gelman  1.973.696.7900 have represented injured workers and their families who have suffered occupational accidents and illnesses.

3 N. Michael Rucka, was a partner in Rucka, O’Boyle, Lombardo & McKenna, PC in Salinas California, and was Chairman-Emeritus of the Workplace Injury Litigation Group, ATLA Former Chair of the Workers’ Compensation Section, Past President of the California Applicants’ Attorneys Association and recipient of the Eugene Maria Lifetime Achievement Award CAAA.

© 2002-2023 Jon L Gelman. All rights reserved.

Recommended Citation: Gelman, Jon L.,  Federal Issues Challenging The Existence Of State Workers’ Compensation, (2002),

Presented at California Applicants’ Attorneys Association 2002 Summer Convention

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