MELISSA MCINERNEY

Workplace Safety and the Economic Impact of Workers’

Compensation Insurance

Q1: Protecting Injured Workers vs. Encouraging Economic Development

2

Previous literature found workers very responsive to benefit levels

Increased WC receipt may increase employer costs

States seek to encourage economic development

Concern: employers will choose to locate in states with lower WC costs

MD: Max=$877/week

DC: Max=$1,233/week

VA: Max=$816/week

Propensity to Claim WC May Differ By Earnings Levels

3

Disentangling the Effects of Wages and Benefits on WC Receipt

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(1) (2) (3)

Basic Model

VARIABLES

Log (Weekly WC benefit) 0.205*** 0.098** 0.028(0.044) (0.046) (0.054)

Benefit elasticity 0.527 0.251 0.0718

Number of Observations 314,839 314,839 314,839

Disentangling the Effects of Wages and Benefits on WC Receipt

Quartic in Earnings

Earnings Spline

Follow the literature: Increase benefits 10%, see 5% more

claims

Allow relationship between earnings and WC

receipt to increase at increasing

rate: Increase benefits 10%, see

2.5% more claims

Allow relationship to vary

by quartile of earnings distributio

n: No statistically significant relationship between increased benefits

and propensity

to claim

Policy Implications

5

Workers much less responsive to benefit levels than previous estimates suggest

Can better protect injured workers (by raising maximum benefit levels) without adversely impacting economic development

Q2: Wasteful Spending and WC

6

Examine specific policy change—privatization of WC in Ohio

7

Date of

injury

1 week

Claim filed with TCM

Receive cash benefits

15 months

Incentivized injuries

excluded from bonus calculation

Predicted Responses After Implementation of Bonus Payment for Private Case Management Companies (Incentivized Injuries)

REDUCE DURATION

TCM insurance cards and

phone calls

REDUCE DURATION INCREASE DURATION

NO CHANGE

Time elapsed

since injury

0

100

200

300

400

500

600

1995 1996 1997 1998 1999 2000 2001 2002

Quarter of I njury

Incentivized Injuries Non- Incentivized Injuries

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PRE POST

The 99th Percentile in Distribution of Claim Duration Over TimeDays away from work

Observations are weighted by inverse of predicted probability claim has valid return-to-work information.

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Identifying Assumption: Other than the bonus payment, all changes in duration

during this time period impact treatment and comparison groups in same way

Ways to test identifying assumption:1. Make sure treatment same in period before

bonus payment If groups are treated the same, coefficient estimate on POST1*INCENT

will be zero

2. Examine different comparison groups with more similar groups of injuries

Injuries with same three-digit ICD-9 code Back injuries Bruises Cuts

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Standard errors are clustered by injury code. Regressions are weighted by the inverse predicted probability a claim has valid return-to-work information. Each regression includes injury, demographic, job, time, and TCM effects. Significance at 10 percent (*), 5 percent (**).

Factors Impacting Days Away from Work (OLS), Medical Only Claims

(1) (2) (3) (4) (5) Sample: All Injuries Common Injury

Sample Back Sprains Bruises

(Contusions) Cuts

POST1 -.325** (.037)

-.281** (.078)

-.462** (.039)

-.296** (.108)

-.229** (.028)

POST1*INCENT -.035 (.043)

-.131 (.086)

-.017 (.067)

-.130 (.082)

-.041** (.016)

POST2 -.286** (.037)

-.255** (.076)

-.282** (.028)

-.366** (.071)

-.236** (.042)

POST2*INCENT -.010 (.038)

-.069 (.065)

-.011 (.031)

-.011 (.049)

-.019** (.005)

N 431,686 116,064 61,860 83,528 118,189 R2 .090 .075 .022 .037 .019 Mean of Dep. Var.

2.525 (1.861)

2.815 (1.994)

3.353 (2.239)

2.542 (1.805)

1.953 (1.411)

p-value .193 .095 .888 .100 .282

In every sample, find case managers reduce duration for minor claims between 1/3 and ½ a day

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Standard errors are clustered by injury code. Regressions are weighted by the inverse predicted probability a claim has valid return-to-work information. Each regression includes injury, demographic, job, time, and TCM effects. Significance at 10 percent (*), 5 percent (**).

Factors Impacting Days Away from Work (OLS), Cash Benefit Claims

(1) (2) (3) (4) (5) Sample: All Injuries Common Injury

Sample Back Sprains Bruises

(Contusions) Cuts

POST1 -4.461 (8.580)

-8.960 (9.244)

-13.055 (8.874)

-7.289 (11.406)

8.652 (7.024)

POST1*INCENT 4.450 (7.204)

-1.421 (4.797)

1.411 (3.006)

5.030 (7.975)

1.048 (5.183)

POST2 -11.549 (10.140)

-1.591 (18.711)

-3.287 (18.623)

-20.158 (15.602)

2.496 (10.584)

POST2*INCENT 18.296** (5.553)

17.124** (2.795)

19.989** (3.053)

14.484** (5.521)

-.943 (3.975)

N 44,288 11,726 13,645 3,613 2,412 R2 .201 .048 .036 .049 .055 Mean of Dep. Var.

90.409 (189.248)

69.756 (153.251)

78.753 (167.537)

44.487 (100.274)

29.630 (51.302)

p-value .025 .000 .000 .280 .669

Claim duration increases between 2-2.5 weeks for severe claims

This corresponds to 30% increase in probability a claim lasts more than 15 months

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TCMs reduced duration by about one third of a day for minor claims

Bonus payment generated an increase in duration for severe claims: An increase of about 19 days among cash benefit claims

30 percent in probability spell lasts longer than 15 months

Potential Mechanisms:

Minor claims: reduce duration through infrastructure changes

Severe claims: Increase duration via enrollment in vocational rehabilitation

Findings

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Overall Effect of Privatized Case Managers (2002)Bonus structured such that maximize profits if extend

duration

Cash benefit claims having an incentivized injury miss 18 more days

~7,000 cash benefit claims having an incentivized injury

cash benefits ~ $59 per day

=> (7,000)*($59)*(18 days) = $7.4m in additional benefits

TCMs used vocational rehabilitation to increase claim duration

265 individuals received voc. rehab. because of bonus

average cost ~ $5,000 per participant

=> (265)*($5,000) = $1.3m in voc. rehab. Costs

Bonus payment may cost state over $8.5m in additional benefits paid

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Discussion

WC is an important, large social insurance program, and many policy changes were implemented in the 1990s.

Structure of bonus suggests heterogeneous responses by TCM as claim develops over time, including an increase in duration as claims with incentivized injuries approach 15-month threshold.

Evidence is consistent with these anticipated responses; duration falls by 1/3 of a day for minor claims, increases by 20 days for severe claims

Policy Implications

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Can provide better benefits for injured workers without risking economic development goals

Take great care in contracts write with private companies—may have unintended consequences