understand some of the problems that we found in Florida. To tell you the truth, we did not know what the problems were, we only knew it was expensive. Therefore, we did a study of closed claims for a 1-year period in 1978, to find out why Florida's system was so expensive.

What the permanent partial injury statistics in Florida showed us was that during 1978, there were 412,000 workers' compensation claims filed. Of those 412,000 claims, 3 percent represented injuries that resulted in some compensable lost time from work. Of that 3 percent, 2 percent represented the permanent partial area. In that 2 percent, 89 percent of those permanent partial injuries had disability ratings of 10 percent or less. This 2 percent represented over 60 percent of the benefit dollars that were paid out of the system in Florida.

When you start talking about 2 percent representing 60 percent of the benefits paid to injured workers, and when you are nearing the $1 billion mark in premium checks signed by 117,000 Florida employers, you know you have a problem. Additionally, when your weekly benefit amount was approximately 37th in the Nation and the insurance department advises you that you are paying out the second highest benefits in the Nation, you know you have a problem.

The following statistics should shed more light on the reasons for such an expensive system.

Florida identified one of its major problems as the ability to "lump sum" or "washout" a permanent partial case when an injured worker reached maximum medical improvement. Over 58 percent of the claimants reached maximum medical improvement within 6 months; 78 percent of those claimants reached maximum medical improvement within 1 year. Maximum medical improvement is a term of art and it is imperative in Florida's wage loss law, that is why I am emphasizing the MMI dates.

The problem with the washout of these cases, and 76 percent were washed out, was the ability of a claimant to receive a "pot of gold at the end of the rainbow" which the drafters of the Florida law had never contemplated. This "gold" came about for the following reasons: In 1974, the Florida Legislature-and I was the staff person that drafted the major rewrite, based on the National Commission's report-increased benefits and liberalized eligibility for benefits as posed by the President's Commission on Worker's Compensation Insurance without addressing the real problem, the permanent partial disability

area.

Loopholes in the law which caused increased benefits, over and above benefits due claimants, based on a schedule of injury. High attorney involvement in the permanent partial area. Doctor shopping to find the best "impairment rating" you could find.

Insurance carriers' seeming willingness to pay benefits with little justification.

Payments for "future medical" in lump-sum awards to sweeten the pot, that were never used for medical treatment.

The employer's absolute inability to appear and give testimony at any "washout" hearing.

The guessing into the future as to the "diminution of wage-earning capacity" with little, if any wage loss or physical impairment.

Florida's Legislature boldly addressed each of these issues and resolved them based on the labor-management proposal.

The problem, in my opinion, began in Florida in 1974, when major changes were made to the workers' compensation statute which followed the dictates of the report of the National Commission on State Workmen's Compensation Laws and the report's failure to address any of the problems in the permanent partial area. Legislation proposed in Congress today still sets forth a study of this area without attempting to resolve the issue. H.R. 5482 would be expensive to implement and would not resolve one of the problems we found in Florida.

Many injuries can move from one scheduled injury to another scheduled injury without any difficulty under the old system in Florida. All a carrier had to do was agree to settle a case based on a different scheduled injury than the actual injury. However, Florida eliminated that ability. There are no more scheduled injuries in Florida.

Briefly, let me give you an example of what was happening in Florida on permanent partial injuries. If a person loses 100 percent of the motion of a finger, they would be entitled, under Florida's law, to receive 30 weeks of compensation if they lost the total use of any finger, or had an amputation of that finger. They would have gotten 30 weeks of compensation or the maximum at that time, $119, times 30.

Let's say the loss of motion of a finger amounted to 10 percent. You got 10 percent of 30 weeks, or you got 3 weeks, which was three times $119 at the time that we were drafting the new law in Florida. What happened to that finger injury, though, in the washout settlement was that it moved into the hand. When you are injured in the hand, if you have total loss of use or total loss of the hand, you get 175 weeks of compensation. That 10-percent finger would be 10-percent loss of use of the hand, and you get 10 percent of 175 weeks, or 17.5 weeks of compensation. This moving through the schedule was never contemplated by the Florida law.

If you moved from the hand into the arm, you automatically got 200 weeks of total compensation if you had total loss of use of your arm; but if you had only a 10-percent loss of use of, say, your hand and the alleged injury moved into the arm, you got 10 percent of 200 weeks, or 20 weeks. So, you can see, starting out from an injury to the hand or arm, you could move into higher compensation rates that the law did not intend. This moving through the scheduled injury to a worse injury was brought about by liberal interpretations by the deputy commissioners in Florida.

If you had an injury to your arm, you could easily move into what we call the body as a whole. The maximum you could get at that time was up to 350 weeks. But if you had 10 percent of your body, then you got 10 percent of 350 weeks, or 35 weeks at $119 a week.

Well, what happens in the body as a whole injury was that emplovees, when they moved into that area-we had what we called a little paragraph "U" that said you got diminution of your wage earning capacity, or you got your disability rating, whichever was greater. In almost every instance they found that the diminution of wage earning capacity was greater. What that meant was that we were

looking at someone's ability to return to work or not return to work. We would pay them a lump-sum amount of money. The person would probably be back on the job-in 70 percent of the cases they did return to work. The person was back on the job, and we had given them a washout when there was really no injury; or we did not have doctors that could testify there was an injury; or if there was an injury, it had been cured and there was no impairment left.

The physical impairment rate, we found when tied to the washout practice, was another problem that we had in Florida. The closed files study by Associated Industries of Florida found that the reason there were so many disability ratings for 10 percent or less was not because a doctor had found that there were disability ratings, most ratings were higher than found by any doctor. The rule of thumb in Florida to wash out a case was to just settle the case for 5 percent of a disability or impairment rating found by any doctor. That way you got rid of the case. You did not have to worry about future medical, you did not have to worry about rehabilitation, and you could close your file if you were the insurance carrier.

Sometimes the doctors found absolutely no impairment ratings, and we still paid out a lump sum of money. A washout for a higher award than the highest doctor's rating occurred in 68 percent of the cases. In those cases attorneys represented 75 percent of those cases. Cases studied by Associated Industries of Florida showed that where no impairment had been found by any doctor, the case washed out for a disability rating of 1 percent or more in 28 percent of the cases. Of that 28 percent, 98 percent were represented by counsel. In 37 percent of the cases surveyed, the carrier had already accepted the permanent partial disability rating as found by the doctor, and had begun to pay, as required by law. However, in the washout when the carrier wanted to get rid of the file, the carrier paid an additional percentage of disability, higher than any doctor. Of this 37 percent, counsel represented claimants in 88 percent of the cases.

The ease with which claimants moved around the scheduled injury, the ease to doctor-shop, and carriers' payment of a higher impairment or disability rating, and liberal judicial interpretations were the major expenses of the system and a cancer that we had to eliminate. We could no longer afford to pay these awards based on impairment ratings.

Prior to discussing Florida's approach to the wage-loss concept it is important to note that there are many misunderstandings of what "wage loss" really is. Wage loss affects only the permanent partial area. We increased all the benefits to the permanent total persons: we increased the amounts of money paid to the temporary total disability injuries. When a person is first injured all the medical benefits are paid without any limitation of the amount that can be paid, or if a person loses more than 7 days of work, that person is entitled to receive temporary total disability benefits.

One of the compromises that management made with labor was to increase this benefit from 662% percent of the average weekly wage, or $130. to 100 percent of the statewide average weekly wage, or $211. Temporay total disability benefits are available for 350 weeks. Rehabilitation benefits were liberalized to insure that all persons in need of

rehabilitation received same prior to reaching maximum medical improvement.

At the point that an injured worker reaches MMI, that is the point they are as well as they are going to get medically, and they are not going to get any better, if that person is not a permanent total, they may be eligible for wage-loss benefits. Under the old system, at the point of MMI, we were paying claimants some money, regardless of the lack of physical problems, and this occurred in over 68 percent of the cases, to get rid of the files; to not worry about the future medicals of the injured worker.

Under wage loss, when a person reaches maximum medical improvement, if there is no physical impairment, there is no wage-loss benefit due and you drop out of the system. However, if there is at least 1 degree of physical impairment and the person is unable to work because of the injury, the worker may be eligible to collect benefits up to 525 weeks. The burden has been shifted to the claimant to prove that he or she is unable to work because of the injury. The criticism of the wage loss comes because there is no longer a "pot of gold” after maximum medical improvement. Only those injured workers that have some degree of physical impairment and cannot work due to an injury, can collect as a permanent partial.

The ability to wash out a claim has been severely limited. If washouts were allowed under the wage-loss system, we would again. be guessing into the future what someone's real wage loss was and the system would be reduced to the "diminution of wage earning capacity" which nearly caused the old system to collapse.

Medical benefits cannot be washed out. The claim must remain open for 2 years and medical benefits used for medical treatment, and not a payment to ante up the amount to close the file.

The permanent partial area had to be changed.

We have found numerous cases of abuse in our closed claims study, some are documented in the full testimony. Some may feel that Florida legislation went too far, but based on the Florida system of paying workers' claims, the legislature took the best alternative approach it had. Dr. Arthur Larson, a well known authority on workers' compensation, testified recently before the Florida Legislature House Insurance Committee that he often must appear before a legislative committee and advise them if their actions taken were wrong. He testified to the house insurance committee that the legislature had "done good," and that anyone who thought the wage-loss concept to be a new idea did not understand the original purpose of workers' compensation. He said, "Far from being an innovation, it is a restoration of the basic mechanisms for workers' compensation."

He additionally testified that if there was ever an impetus to help stop Federal encroachment in State workers' compensation laws, it would be Florida's new law which exemplifies how States can solve their own problems.

I thank you, and I am available for any questions you might have. Mr. BEARD. Thank you very much for your testimony, it was very interesting.

What about a situation where a man or a woman works in a shop, making a couple of hundred dollars a week, and loses his or her legs!

How do you feel about that as far as compensation?

Ms. STILES. Well, in Florida they would be automatically on permanent total disability, and they would not come under our wage loss approach, if they lost both legs. So, they would receive $211 for as long as the situation exists, and that could exist for the rest of their lives. Mr. BEARD. Well, Florida, I am told by counsel, has certainly improved its workman's compensation benefits. Do you recognize the fact that there are some States that have benefits that are not adequate? MS. STILES. Yes, we do. But I can assure you that hearings like this and the National Council work on workers' compensation has led many States to study what their laws and what their problems are.

I have to explain to you that as long as you increase benefits, no matter which State it is in, even if they are paying low benefits—and it may sound low in some States-when you say that Florida's benefits are $211, that is the maximum that you can collect, that sounds awfully low when you compare it to the Federal law. But that is the average weekly wages in Florida.

Now, Florida benefits were low, and we increased our benefits by 63 percent. But I think that States, if the 19 essentials were increased or adopted, States would not have the ability to compromise, to get rid of all the abuses in the system. Many States would stop right at the level where you say the benefits have to be, and they would never solve any of the problems in their States. There would be no impetus to. Mr. BEARD. Do you think that people can survive on the compensation they receive in Florida in today's inflation?

MS. STILES. That is a very astute question. In Florida, I think they do. The problem becomes, of course, more acute to those persons making a lot of money. If they are making $500 a week and the maximum they are going to get is $211

Mr. BEARD. Assume somebody is making $500 a week, and now he gets how much?

MS. STILES. They get $211.

Mr. BEARD. Do you think, visualizing managing a household, they can drop from $500 to $211 and make it?

MS. STILES. No, but we do not have that many injuries that occur in those high-income levels. From what I understand, most persons who are injured have an income averaging about $130 in Florida. We have some in that income bracket, but in many instances they have labor contracts, et cetera, to protect them as far as disability insurance, or other agreements to pay their full wage.

Mr. BEARD. What about occupational diseases?

MS. STILES. In Florida we do not have a real problem yet. It is starting, but we do not know enough about it to know what to do, I do not think anyone does. I would have to refer NAM staff on the occupational disease, as far as the national problem.

Mr. BEARD. Do you have brown lung victims in Florida?

Ms. STILES. No, not to my knowledge. Is that not where you work in textile factories?

Mr. BEARD. Yes. Thank you very much.

MS. STILES. Thank you.

Mr. BEARD. Mr. Michael Callas, Callas Contractors, Inc., representing the Associated Builders and Contractors.

[The statement of Michael Callas follows:]

64-918 0 80-13