Saving workers’ comp

Unlike most articles on this web site, “Saving workers’ comp” was written in 2021 specifically as a memorandum for the New Mexico legislature. Readers are invited to copy and share it.

by Merilee Dannemann, for the New Mexico legislature

New Mexico’s workers’ compensation system is suffering from memory loss.

Workers’ compensation involves a delicate balance.  If lawmakers forget how that balance works, a stable and functional system could be chipped away.  It could become harder on injured workers, more costly to employers and damaging to the state’s economy.

This memo provides a very basic overview of the system for legislators so that you will:

  • understand why it is worth saving;
  • understand how to prevent the legislative mistakes that could undermine it.

The workers’ comp system is based on a series of compromises, intended to balance the competing interests of employers and workers while leading to results that are mutually beneficial to both.

Briefest possible summary –

In case you don’t have time to read the rest of this memo –

New Mexico’s workers’ comp law is the result of the sweat and dedication of a hardworking and devoted group of business and labor leaders, who worked together in 1990 to save this system and the economy of New Mexico.

The law was designed to maintain a balance between the rights and responsibilities of employers and workers.  It was based on finding solutions that are mutually beneficial as much as possible, in situations that are often stressful and adversarial.

Every provision, every paragraph, in this law was put there for a purpose, to correct a flaw or injustice that was damaging the system, to keep the system in balance and to improve fairness. This balance is not obvious from a superficial reading.  If one such provision is undone, it could throw the whole system out of balance.

Almost all the people who participated in 1990 are now retired. The people currently working in the system may not know the history because it is not being taught.   That is why I am writing this document (see my bio statement at the end).


Workers sometimes get hurt at work.  The purpose of the workers’ comp system is to have a method of handling work-related injuries that is organized and predictable, so that people know what to do, and that is both efficient and compassionate.

Our New Mexico statute says the mission of our workers’ comp system is “to provide quick and efficient delivery of indemnity and medical benefits to injured workers at a reasonable cost to employers.”

Workers receive prompt medical treatment and, when necessary, money in place of wages.  Most return to work as soon as the doctor approves.

Employers pay all the costs. Workers pay zero — no deductibles or copays.  But the costs are not infinite. They are controlled in a number of ways.

“Quick and efficient” is very important.  Medical care is quick and efficient only if there is no dispute about who is paying for it. Workers’ comp assures medical providers that the bill will be paid.  A work-related injury is covered, period.

“Reasonable cost to employers” is also very important.  Insurance premiums are a drain on employers’ resources  — money that does not pay wages or grow the business.

The statute left out a vital word:  “predictable.”  For employers to stay in business, they MUST be able to predict their costs as much as possible.  The cost of workers’ comp insurance premiums is determined through a science of number-crunching that goes on behind the scenes.

About 20% of New Mexico covered workers are state, local and education public employees.  That is taxpayers’ money budgeted by the legislature.


The fundamental trade-off in the workers’ comp system is that workers get the promise of no-fault and employers get the promise of exclusive remedy. 

No-fault: Workers’ comp guarantees that workers are covered no matter who or what caused the accident.  Most accidents are at least partly caused by the injured worker himself, so this protects the worker. The no-fault principle assures that when an injury occurs, the employer’s insurance will cover it, usually immediately with no dispute.

Exclusive remedy: In return, the system guarantees that when a worker is covered by workers’ comp, the worker does not have the right to sue the employer in tort for that injury. The District Court literally does not have jurisdiction.  The case stays within the workers’ comp system.

Worker advocates who understand the system will continue to defend the no-fault principle because it protects workers. Business leaders who understand the system will fight to preserve exclusive remedy because without it, costs become unpredictable and business becomes impossible. Again, this also applies to government budgets.

If you are a lawyer reading this, you are instantly thinking of exceptions. 

Try this: workers’ comp is a big square. Most cases fit inside that square. There’s also a very large periphery around the square.  Cases that don’t fit inside the square land on or outside the periphery. That’s where litigation happens. Whatever exception you think of, that exception is probably addressed in statute or case law.

If we started by talking about the exceptions, we would get bogged down and never get to what is inside the system, which must be the primary focus.  

Because of the workers’ comp system, the vast majority of cases are handled efficiently, cost-effectively and without dispute.


The doctor is not only the provider of medical care but also the critical decision maker in any workers’ comp claim.  The doctor decides, for example, when the worker is ready to go back to work and what restrictions, if any, are necessary due to the injury. These decisions, in turn, directly affect any indemnity benefits that the worker may receive in future.  

Back in the 1980s, there was a national saying that workers’ comp was a system to determine whose doctor was the bigger liar. This was funny but unfortunately true at that time.  Doctors who treated injured workers were regarded as either “plaintiff doctors” or “company doctors.” Because the system was adversarial and so many cases were litigated, doctors were forced to be biased in favor of one side or the other. (Doctors’ bills were unregulated so they could make a lot of money in that system.)

 An essential part of our reform was changing the rules so that doctors could simply practice good medicine.


The modern history of workers’ compensation begins with Prussian Chancellor Otto von Bismarck in the late 19th century. In the US, states started enacting workers’ comp laws in 1911. New Mexico’s first workers’ comp law was enacted in the 1930s.

The no-fault doctrine has always been at the core of workers’ comp.

For many years in New Mexico workers’ comp was unregulated. In a complex claim the worker would have to have an attorney. Cases were litigated in the district courts.

Major problems with the district courts:

  • Very long delays due to crowded court dockets. Delay in court meant hardship for injured workers as well as expense.
  • Inconsistent results because every district judge interpreted the law differently.

Predictability was impossible and this created a very difficult environment for insurance companies. Difficult equals expensive.

In the 1980s, costs got out of control.  Insurance premiums became so high that thousands of New Mexico businesses could not get insurance. Most insurance companies simply packed up and left the state. The few that remained had to charge unacceptably high premiums.

Between 1986 and 1990 the law was amended every year in attempts to get costs under control. In 1986, the Workers’ Compensation Administration was created.  The administrative law court was part of that law, to take jurisdiction over workers’ comp litigation.

This court was intended to provide speedy access to litigation and to have judges who were specialists, who would give consistent rulings and make the system more fair and predictable. A mediation bureau was created, with mediation a mandatory first step.

New Mexico was the 47th state to create an administrative agency.  (Governor Jack Campbell had tried to do this in the 1960s.)

In 1990, after the previous attempts had not solved the problem, the historic workers’ comp task force was formed. There was a deal:

  • There were only two votes, business and labor. No one else had a vote: not the attorneys, the doctors or the insurance industry.
  • If business and labor could agree on a major rewrite of the law, speaker Raymond Sanchez and president pro tem Manny Aragon promised they would get the bill passed and Governor Garrey Carruthers promised he would sign it.

The task force met intensively through the summer of 1990 and created a reform of the law, which was passed in a special session in September 1990.

A few of the most important features; the law:

  • created a method to authorize healthcare providers who would treat the injured worker, allowing for an orderly change of provider in case either side felt the provider was unfair or unqualified.  It removed the incentive for doctors to be biased and “doctor-shopping.”
  • adopted formulas for the calculation of worker benefits, to replace the subjective decisions of judges.  An old stereotype pictured injured workers walking into the courtroom with crutches, neck braces and so on, to impress the judge with how badly injured they were. This became unnecessary.
  • established penalties for unfair claims practices, including fraud, by any party.
  • set a cap for attorney fees. That cap has been almost doubled since its inception.  The cap is an incentive to limit litigation to what is prudent and reasonable.
  • established a medical fee schedule and other regulations on the cost of medical care.
  • created incentives for both employer and worker for the worker to return to work. The law recognizes that return to work is beneficial for the physical and mental health of the worker as well as for its financial benefits.
  • authorized a number of regulatory activities of the Workers’ Compensation Administration.

New Mexico Mutual was created so the state would have a homegrown insurance company. Initially New Mexico Mutual had some obligations to the state, including sharing data, but those are mostly concluded.


In the 1991 law (enacted in 1990, taking effect in 1991), every provision was intended to contribute to the goal of mutual benefit and fairness to both worker and employer.  Many provisions addressed specific genuine problems that directly affected injured workers and employers.

The reasons for these provisions and the problems they were intended to eliminate are not necessarily documented. But lawmakers must recognize that these provisions exist for a reason and that in many cases, changing or eliminating them would bring those problems right back into the system, making the system more expensive for employers and more difficult for injured workers.

Some of the solutions were less than perfect and the system could be improved if they were amended. However, amendment should only be made with an understanding of what the provision was designed to achieve, so the intent is preserved.

If you don’t know the history, you don’t know what those problems were. That is one reason for this document.


Workers’ comp is filled with incentives, intended to encourage  employers and workers to behave in ways that are mutually beneficial.

The incentives are not written into the statute.  They are built into the structure.

The incentives to employers are mostly not in the workers’ comp statute but in the structure of insurance premiums, which is an industry standard practice.

Incentives to workers are built in to the benefit structure, to reward the injured worker for recovering and returning to work, getting a paycheck instead of workers’ comp benefits.

Incentives only work if people know what those incentives are. For example, if employers understand that workplace safety will save them money, they are much more likely to maintain safe practices.

Incentive — Prevent accidents

The employer’s incentive is in the cost of insurance. If you don’t have accidents, your insurance is much cheaper.

The premium for a workers’ comp insurance policy is set to match the risk of claims against that policy and the likely cost of those claims, based upon vast amounts of actuarial analysis, also called number-crunching.

The premium is determined by:

  • the type of work done and how hazardous that work is, according to national averages (job classifications); for example, a lumber mill or an oil field operation costs many times more than office work;
  • the number of employees and how much the employees are paid, as expressed by actual payroll; and
  • the claims history of the company, expressed as an “experience modifier.”

The experience modifier is essential to the system. A company with a history of more accidents, compared to its own industry, has a higher experience modifier than one with fewer accidents. Experience modifiers can make or break a business. Philosophically and ethically that is regarded as correct, because a business with lots of accidents is endangering its workers — again, compared to its own industry.

This creates a powerful incentive to employers to engage in safety practices, whatever that requires for the particular industry.

The incentive to workers is, first of all, getting injured hurts. That should be obvious.

When a worker is injured, the worker may receive indemnity benefits, a partial substitute for lost pay. Indemnity benefits are never as much as wages. That is an incentive to recover and return to work.

The great majority of cases are “medical only,” which means the case is resolved quickly and the worker goes quickly back to work.

Incentive  — Return to work

Another incentive to employers is to bring injured workers back to work when feasible and medically approved.

 The incentive for the employer is in the structure of worker benefits. A worker who returns to work is paid wages rather than comp benefits. That reduces the cost of the claim, which reduces the experience modifier and the employer’s future premiums.

There are also incentives outside of workers’ comp, such as reduced disruption of the workplace and retaining the worker’s knowledge and experience.

The incentive to workers is to recover and go back to work. For workers who must take time off work, workers’ comp pays less than their wages. The system recognizes that many workers would have no incentive to recover if they were paid the same as their wages for staying home and doing nothing. Data gathered over many years demonstrates that workers who go back to work, even if not fully recovered, are able to resume normal life, while workers who stay home living on benefit checks develop all kinds of social dysfunctions and are much more likely to be miserable.

In some cases a worker who returns to work may be paid a combination of wages and benefits. To keep it simple, I will not explain the formulas here.

The coverage requirement

The workers’ comp law specifies who is required to be covered. It includes almost all employers with the exception of certain very small businesses. The coverage requirement was recently expanded by court decision to include farms and ranches.

I mention this briefly so legislators are aware of it and also aware that there are some issues affecting those very small businesses. In my opinion, small businesses would be helped by some improvement in statutory definitions.


The governance of the system is primarily divided between two agencies, the Workers’ Compensation Administration (WCA) and the Office of the Superintendent of Insurance (OSI).

Part of the governance is in Chapter 52 of the statute.   The other part is in the state’s insurance code, Chapter 59A, and the rules of OSI.

The WCA is led by a director appointed by the governor and confirmed by the Senate. The statute says the director shall be appointed for a term of five years, with the intention of making the director a nonpolitical position, but that provision has been ignored since 1995. 

OSI is headed by a superintendent appointed by commission dedicated to that purpose. OSI is responsible for most aspects of the regulation of insurance companies. Many features of workers’ comp, such as the method of calculating premiums, are nationally standardized and come from the manual of the National Council on Compensation Insurance or NCCI, which has been adopted by OSI.

A few common questions

Near the beginning of this document, I mentioned exceptions. Here are a few.  

Drug and alcohol: what if the worker was drunk or using drugs?

That question has been debated for decades.  The current provision, which is unsatisfactory, replaced a more unsatisfactory provision which replaced an even worse provision. There are no fully satisfactory answers on this one.

Why would a claim be denied?  A couple of common reasons:

  1. There’s a dispute about whether it happened at work or outside of work.
  2. It was deliberately self-inflicted. This occasionally happens when a worker wants the money. I once received a phone call in which the caller asked, “How much can I get for a finger?“

What if the employer was negligent?

This is a no-fault system. The no-fault principle works both ways. The employer is protected by no-fault just as the worker is protected.

The employer’s incentive is that if the employer is careless and ignores safety, premiums will go up next year and the employer could be put out of business. This is one reason why it’s very important for employers to be educated. Incentives only work if you understand them.

There is a standard for extremely egregious behavior by the employer, set by case law.  In such a case, the worker might have a tort claim. But even in that case, workers’ comp would act first to provide medical and indemnity benefits as long as it happened at work.

What if an outside party was involved?

In such a case, such as an auto accident, workers’ compensation covers the injured worker first, so that immediate needs are covered.  Litigation involving the outside party might take place after that.


My credibility: I worked for the Workers’ Compensation Administration for 18 years in a number of policy and public information related positions.  Among other responsibilities, I served for 10 years as staff to the governor-appointed Advisory Council on Workers’ Compensation and Occupational Disease Disablement and wrote several major agency publications. When I left state government, I chose not to waste my knowledge by walking away entirely. I am not biased in favor of any interest group, but rather the well-being of the system.

If this were an issue like the environment or child advocacy, nobody would question an ageing volunteer. But a volunteer in workers’ comp is an oddity. I’ve been told I have no standing.  Currently I write a newspaper column and I am the only journalist in New Mexico who regularly follows workers’ comp.

My “standing” is that I spent 18 years of my life educating the public about this system, contributing to making it better, and now I am devoting some effort to keep it on track. I’m almost 75 years old and if I get tired of this, there might be no one to take my place.

This document is posted on my web site,  It is copyrighted. Readers are welcome to copy it or to share the link.

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