Study Says Increased WC Benefits Lengthens Claim Duration

By | December 7, 2009

States that increase the maximum weekly benefit for workers compensation can expect to see temporarily total disability, injured workers making claims for longer, almost a week longer, according to a new study released by the National Council on Compensation Insurance, Inc.

States may not realize this is going to occur and may fail to compute it into their estimates of the cost of raising the maximum weekly benefit, wrote study author Frank Schmid, a senior economist with the National Council.

States can end up being unpleasantly surprised.

“Higher benefits mean lower opportunity costs of being away from work,” said Schmid, explaining the relation he found. “Benefits are less than the pre-injury weekly wage. So, being away from work comes at a cost; this cost is the difference between the pre-injury weekly wage and the weekly benefits. The smaller this cost difference, the less unattractive it is to be away from work. This is a straightforward economic argument.”

Schmid looked at data from two states Oregon and New Mexico, and what happened after each increased its maximum allowed benefit.

Oregon increased it benefit from 100 percent of the average weekly wage to 133 percent in 2002. The increase resulted in an increase in temporary total disability indemnity payments of about 4 percent, and 31% of that increase was due to persons making claims longer. The average duration of payments increased by 3-4 days.

New Mexico raised its benefit from 85 percent to 100 percent of the average weekly wage in 2000. That resulted in a rise in temporary total disability payments of about 5 percent, and 29 percent of the increase was due longer payment duration. The average duration of payments increased by 2-3 days.

Schmid wrote that other studies have found a similar effect. He said it is a maxim that a 20 percent increase in benefits creates a 10 percent increase in utilization.

Bob Young, a spokesperson for the California Workers’ Compensation Institute, said that while he was not familiar with Schmid’s study specifically, he thought that Schmid’s relationship might not always be true.

California has tied workers’ compensation benefits to the average weekly wage automatically since the 1990s.

In January, his group published a report on temporary disability payments before and after reform in the state in 2004. That report said that duration of benefits declined even while weekly payments increased following the report, Young said.

The difference between the two studies may be that the California study looked at payments and duration of payments overall, while Schmid’s study controlled carefully in order to isolate the effect on duration and took into account the fact that those individuals not receiving the maximum benefit would not likely have any change in how long they collected that benefit.

“My study finds that it is the short-duration claims that are most sensitive to the increase in the maximum weekly benefit,” Schmid said. “The seriously injured worker—that is, long duration claims–has much less discretion in the return-to-work decision.”

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