Permanent Disability at Private, Self-Insured Firms: A Study of Earnings Loss, Replacement, and Return to Work for Workers' Compensation Claimants

By Robert T. Reville; Suzanne Polich et al. | Go to book overview

INTRODUCTION

Permanent partial disability (PPD) from a workplace injury is perhaps the most vexing issue facing workers compensation policy in California. Employers widely regard the rules, process, and dispute resolution associated with the payment of PPD benefits as both expensive and a source of much contention. In addition, most participants in the workers compensation system consider the benefits to be inadequate and inequitably distributed.

As part of its assistance to the ongoing oversight and evaluation of permanent partial disability in California by the California Commission on Health and Safety and Workers Compensation (CHSWC), RAND published a study estimating the wage losses of workers with permanent disability claims (Peterson et al., 1998). Wage loss was defined as the difference between what an injured worker actually earned for several years following the injury and the worker s potential uninjured earnings, that is, what that worker would have earned had the injury not occurred.

The RAND study, using the only claims-level data on PPD claims available at the time, estimated wage losses for PPD claimants from a sample of claimants injured on the job. At the time of injury, these claimants were working for employers that had purchased insurance for workers compensation. The sample represents approximately two-thirds of the PPD claims in California.

The study revealed that over the five-year period following injury in 1991, the wage losses of PPD claimants injured at insured employers totaled almost 40 percent of their potential earnings. The study also estimated replacement rates for these workers, defined as the fraction of losses replaced by workers compensation benefits. The estimated replacement rates averaged less than 50 percent.

An obstacle to policy response to the Peterson et al. (1998) results was that many stakeholders were concerned that the results of the wage-loss study could not be applied in general to all employers in California, and in particular were not relevant to self-insured employers.1 Self-insured employers, who account for approximately one-third of all claims and 21 percent of claims at private employers, include most of the largest employers in the state. Anecdotally, at least, self-insured employers are regarded as the most innovative and aggressive

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1
Another objection was that the results were driven by the recession in California in the early 1990s, which was just beginning when the workers in the study were injured. The results shown in this report indicate that earnings losses declined after 1991. This issue is analyzed in more detail in Reville and Schoeni (2001).

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