Workers' compensation is a type of insurance that compensates employees for injuries and occupational diseases that occur on the job. The most common type of workers' compensation claim is one for permanent partial disability (PPD). PPD benefits are paid to people who are not totally disabled but who have some type of lasting impairment or who are only capable of returning to modified or lower-paying work. Findings regarding PPD are not usually made until a person has reached "maximum medical improvement" (MMI) as determined by a medical professional.
Because workers' compensation, unlike federal disability programs such as Social Security disability and SSI, is administered at the state level, the amount you'll receive in benefits depends on which state's laws govern your claim. There are a number of approaches that states use to decide how much you'll receive in PPD benefits, some focusing on the nature and extent of your impairments and others concentrating on your lost earnings.
The Schedule of Losses
For permanent injuries to particular body parts, like the hands, arms, and legs, most states calculate compensation according to a statutory "schedule" of losses. The schedule (sometimes called a body part list) lists the number of weeks of compensation payable to a worker with a particular injury. For example, in Missouri, a worker who loses his hand or all use of his hand at the wrist joint is eligible for 175 weeks of compensation. A "week of compensation" is calculated as an amount equal to two-thirds of the worker's average weekly earnings as of the injury date. A statutory maximum provides that this amount cannot be more than 55% of the average weekly wage in the state, and most states have similar caps.
In cases where an employee's impairment involves a less-than-total loss of use of a particular body part, that person will receive a percentage of benefits corresponding to the extent of his or her injury. In the above example, if use of the hand was found to be 20% lost, many states would award the person 35 weeks of compensation (175 weeks X 20%). There is some variation among the states in exactly how scheduled losses are calculated, but this general framework applies to the overwhelming majority of jurisdictions that use a schedule of losses.
Unfortunately, some of the most common workplace injuries and diseases cannot be calculated using the relatively straightforward schedule method. Injuries to the back, head, spine, and internal organs are generally not listed on schedules, nor are occupational diseases like carpal tunnel syndrome. Instead, each state crafts its own policies to reflect its particular preferences and goals. These approaches fall into four main categories.
The Impairment-Based Approach
The impairment-based approach is the most common way for states to calculate PPD benefits. It uses the extent of your impairment to determine how many weeks of benefits your injury is worth, and your prior wages to calculate how much you'll receive for each week. The degree of your impairment is assessed as a percentage by a physician using a rating guide, but this determination is often more of an art than a science. It is not uncommon for two doctors to give the patients two different disability ratings, and this is a frequent source of friction among injured workers, employers, and insurance companies.
Note that the impairment-based approach ignores whatever effect, if any, your impairment has on your future earnings. It is possible for a workplace injury to have little or no impact on an individual's ability to work, but still result in a successful workers' compensation claim. On the other hand, if a relatively minor injury significantly hampers a person's capacity to earn money (think of a piano player who can no longer perform after losing the tip of a finger), the impairment-based approach will generally leave such an individual under-compensated.
The Loss-of-Earning-Capacity Approach
Used in about a dozen states, this approach involves a prediction about the injured employee's ability to earn money in the future. Obviously, the most important factor in assessing future earning capacity is the extent of the disease or injury, but this approach also considers the worker's individual circumstances, including age, education, training, and vocational history.
The Wage-Loss Approach
This method, employed by about 10 states, calculates benefits based on the actual lost (or decreased) wages that occur due to the illness or injury. The goal of this approach is to make the claimant financially whole. One unintended but probably unavoidable consequence of this approach is that it discourages some employees from returning to work as quickly as impossible. Moreover, this approach is notoriously difficult to administer because it is often hard to pinpoint whether a person's injury in fact caused a reduction in wages upon returning to work, or whether it was some other factor.
The Bifurcated Approach
A handful of jurisdictions use a bifurcated process to calculate PPD benefits. If an employee has reached MMI but has not seen a reduction in wages, the impairment-based approach is used. If a person's illness has left him unable to work, or has caused a substantial decrease in earnings, the loss-of-earning-capacity approach is used.
To learn more about how various state workers' comp systems rate PPD claims, see our article on the permanent disability rating system.
There is no consensus about the best or fairest way to calculate benefits, and each approach has its share of flaws, unintended consequences, and administrative headaches. Regardless of which state's laws govern your case, you are more likely to obtain the maximum amount of permanent partial disability benefits if you hire an experienced workers' comp attorney to handle your claim.