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

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

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

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

Synopsis

Employers that self-insure for workers' compensation have greater incentives than insured employers to return injured employees to work as quickly as possible. And because self-insured firms typically are larger, they often have more opportunities to offer injured workers modified work. This report examines the consequences of a disabling workplace injury for workers at 68 private self-insured employers in California from 1991 through 1995. Using employer-provided data on permanent disability claims, which were then linked to longitudinal data from the state of California on earnings before and after injury, the authors estimate the earnings losses associated with a permanent disability and examine the post-injury employment patterns of permanent disability claimants. They found significant earnings losses for claimants at the self-insured firms--more than 20 percent of earnings over the five years after injury. The authors compared the experiences of workers at self-insured firms with workers at insured firms and found lower proportional losses at self-insured firms, but also slightly lower replacement rates. They also found better return to work at self-insured firms. However, when controlling for pre-injury earnings, industry, and firm size, differences in earnings losses between workers injured at self-insured and insured firms are diminished.

Excerpt

As part of the comprehensive review of workers compensation permanent partial disability benefits by the California Commission on Health and Safety and Workers Compensation, this report investigated the long-term economic consequences of a disabling injury, the success of return to work, and the adequacy of compensation at private, self-insured employers in California.

The analysis in this report responds to stakeholder comments on an earlier report (Peterson et al., 1998) that showed significant and sustained wage losses, as well as low wage replacement rates, over the five years after injury at insured firms in California in 1991. Data on self-insured firms were previously unavailable, but anecdotal evidence and economic theory suggested that self-insured employers would in most cases have better return to work than insured employers, which would lead to improved outcomes for ppd claimants. the data for this report are derived from a unique database of private claims data gathered from 68 employers and then linked to state administrative wage data.

We find that ppd claimants at private, self-insured employers in 1991 through 1995 experience significant earnings losses over the five years after injury. However, we also find that there is better (that is, more sustained) return to work at self-insured employers. ppd claimants at self-insured firms are more likely to continue to work during the quarters after injury, less likely to drop out or retire, and if employed, more likely to work at the at-injury employer. Improved return to work implies lower proportional earnings losses at self-insured firms than at insured firms. in particular, we find that whereas ppd claimants in 1993 at insured firms lost 32 percent of their earnings over the five years after injury, ppd claimants at self-insured firms lost only 23 percent of their earnings.

Despite more sustained return to work and lower proportional losses at self-insured firms, we find that workers compensation replaces an equal or lower fraction of losses at the self- insured firms than at the insured firms. This result is surprising because lower proportional wage loss should suggest higher replacement rates. the difference is that claimants at self-insured firms have 50 percent higher earnings on average, and therefore higher absolute losses ($39,500 over the five years after injury at the self-insured firms, compared with $33,000 at the insured firms). At the same time, total benefits are largely unrelated to earnings (due to benefit caps).

The result is that claimants at self-insured employers have 48 percent of their pre-tax losses replaced, compared with 53 percent at the insured employers. a commonly applied . . .

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