Increases in the cost of living, or inflation, are taken for granted by most people — except for seemingly in the world of workers compensation. I’ve written two posts recently ( here and here ) about how courts fail to take inflation into account when determining permanent disability benefits.
But in fairness, increases in the cost of living aren’t factored directly into workers’ compensation laws in Nebraska. Some states don’t even increase maximum benefit rates like Nebraska.
So why is it that states like Nebraska don’t include cost of living into permanent disability benefits? I think economic history provides the answer.
The economic world of those who created workers’ compensation
Workers’ compensation laws were enacted in the early 20th century in response to industrialization in the late 19th century. In a very readable section of “Capital in the Twenty-First Century” economist Thomas Piketty pointed out that prices and the value of money stayed stable from the end of the Napoleonic Wars until World War I (1815-1914)
Since World War I, prices have increased, so today we assume some inflation. But the drafters of workers’ compensation laws didn’t share that assumption. Their experience was that prices stayed consistent, so it wouldn’t be necessary to link lifetime or long-term benefits to increases in the cost of living.
Other states do have cost of living increases factored into permanent disability payments. Illinois created their rate adjustment fund in 1975. Social Security also has a cost of living increase factored into benefits. But these are policies enacted in periods when lawmakers assumed some increase in the cost of living was inevitable.
Permanent disability awards as a debt owed to injured workers
I hope Nebraska lawmakers will one day enact cost of living increases into Nebraska workers’ compensation laws. Permanent disability benefits should be thought of a debt owed by employers and insurers to injured workers. As it stands now, employers and insurers in this are allowed a partial debt jubilee in Nebraska on permanent and long-term benefits because those benefits don’t account for a cost of living. (This is a separate issue from the overly generous discount rate which give employers even more relief on lump sum payments of permanent disability claims).
I see posts on social media about why shouldn’t forgive the student debt for the modern day welfare queen who borrowed $80,000 for a philosophy degree. After the housing bubble crashed in 2008, I saw all sorts of posts about why irresponsible borrowers shouldn’t be bailed out. I’ve never seen a meme about insurers being able to legally shirk their debts to injured workers.