Compensation's negative side effects

Anna Kelsey-Sugg

We don't talk enough about the poor outcomes associated with workers' compensation.

Evidence suggests that injured workers who receive compensation have poorer outcomes than people with similar injuries who don't receive compensation.

Compensation's poor outcomes aren't talked about nearly enough - perhaps because the statement is too often misinterpreted as compensation is a bad thing.

Compensation is not a bad thing, but the compensation system - in which an injured worker must become entangled to reap compensation - can lead to negative side effects.

RTW Matters has looked at Australian research on this topic before, (see When compensation impedes recovery); here we look at some of the specific causes of the personal costs of compensation.

Gordon Waddell, A Kim Burton, Nicholas AS Kendall, authors of Vocational Rehabilitation: What Works, for Whom and When? write that the many medical examinations a compensated injured worker is subjected to, in order to satisfy bureaucratic requirements, has a negative and two-fold effect: “to entrench illness behaviours and to prejudice the claimant further against the insurance company.”

Neither augers well for a speedy recovery.

The authors outlined other factors that might contribute to poorer outcomes when an injured person enters the compensation system, including:         

  • a workplace not prepared to adapt to a RTW program, or family members unsupportive of the program
  • the individual's psychological vulnerability
  • the individual being pushed into a defensive position whereby they feel the need to prove how sick they really are to disbelieving insurers
  • initial treatment mismanagement, resumption of RTW not being encouraged, or not being encouraged fast enough

“Unemployment is, in itself, a risk factor for poor health,” write the authors. “There are multiple and interrelating effects of being away from work, including loss of sense of identity, loss of social networks, loss of economic control and independence, loss of social status, loss of financial security (such as loss of the family home), and so on. Long-term unemployment is notoriously hard to break.   

The authors list other anecdotally recognised factors contributing to poorer outcomes, such as:

  • the adversarial nature of compensation whereby focus can be shifted from rehabilitation to ‘winning' a case; some lawyers can encourage individual claimants to remain inactive to ensure the highest possible settlement
  • the time between injury and case settlement
  • the sense of powerlessness that an individual feels at being caught up in a system in which they have no control.

Evidence that suggests outcomes are worse for the compensable injured individual is not evidence that should undermine the value of injury compensation; rather it is evidence that points towards the need to improve the compensation system so that outcomes are better, not worse, for those who receive it.

Published 09 October, 2008 | Updated 02 February, 2016