Workers’ Compensation (WC) is a large social insurance program that provides medical care and cash benefits to workers injured on the job. Each WC claim involves several different parties—the injured worker, employer, doctor, insurer, and, if applicable, a third-party case manager. To date, the literature has primarily focused on worker responses to incentives, and estimates of worker responsiveness to benefit levels in the 1980s are widely cited. Little is known about how other parties respond to incentives or how worker responsiveness may have changed after the WC policy reforms of the 1990s. In response to rising employer costs, many states have passed policy reforms to reduce these costs.
Between the late 1980s and early 1990s, employers experienced a particularly large runup in WC costs. Employer costs rose by over 25 percent between 1987 and their peak in 1993.4 This growth in costs can be attributed largely to the 44 percent increase in benefits paid during this same time period.5 In response, more employers turned to self-insurance and many states passed policy reforms in an effort to reduce these employer costs.6 Several different types of policies were enacted, some of which addressed employer costs directly by deregulating premiums.7 Other policies sought to decrease employer costs by reducing the total amount of benefits paid to injured workers, either by making it more difficult for benefits to be awarded or by attempting to get injured workers back to work sooner. In some states, such as Ohio, there were sweeping changes to WC.
The formerly public-run system was essentially privatized in 1997. Although there is some empirical evidence about the efficacy of these reforms (e.g., Boden and Ruser, 2003; Neumark et al., 2005; Ruser et al., 2004), many unanswered questions remain, and I address two of them in this dissertation. Though many of these policies were intended to reduce claims, the prior research concerning the impact of the policy reforms on the likelihood of claiming WC is inconclusive. Furthermore, there is no other research that examines the impact of self-insurance on the probability a worker claims WC.8 Perhaps there is no consensus because state WC systems and policies are so nuanced that characterizing the reforms in the same way obscures important differences across states.
Workers’ Compensation Insurance
Workers’ Compensation is regulated by states, with several key features of the program common to all states. States mandate that employers provide WC insurance at the benefit levels set by each state. Workers injured on the job are entitled to medical care for their injury, and once a worker misses one week of work, he or she is eligible to receive cash benefits to replace lost earnings. Cash benefits generally replace two-thirds of pre-injury earnings, subject to a maximum benefit value. Employers can obtain WC coverage in one of three ways.
Employers may purchase insurance from private companies, from the state, or, if the company is large enough, the employer may self-insure.9 Nationwide, approximately half of all benefits are paid by private insurers, with the other half split approximately evenly between state insurers and self-insured employers (Sengupta et al., 2006). In states that offer all three forms of insurance, the only employers that purchase public insurance are those with loss histories so poor that the company is unable to acquire private insurance. In five states, including Ohio, private insurance is not offered. In these states all smaller employers purchase public insurance and larger employers may self-insure
If an employer purchases WC insurance from a private or public insurer, the premiums are an increasingfunction of how risky the employer’s business is (base premium) and the employer’s loss history (experience rate). For example, in Ohio, the base premium for coal miners is approximately ten times that of university professors.11 Smaller employers simply pay these base premiums, and WC premiums are experience rated for larger or riskier employers. Experience rated employers with worse than average loss histories pay more than this base rate, and vice versa.
Author: Melissa Powell McInerney, Doctor of Philosophy, 2008, University of Maryland, College Park