Distribution of Workers Compensation Cases with Cash Benefits

Distribution of Workers’ Compensation Cases with Cash Benefits, U. S. , 2002* Temporary Disability 64% Permanent Partial Disability 35 Permanent Total and Fatalities 1 *Excludes Medical only cases, privately insured, 38 states. Source: NCCI

PPD Rates for Claims with Disability More than 7 Days, 6 State Study (1996 -99) California Texas Connecticut Florida Georgia Wisconsin Source: Barth (WCRI Data) 54% 54 43 45 44 29

Benefits Paid Workers’ Compensation, U. S. , 2002* Temporary Disability Permanent Partial Disability Permanent Total and Fatalities *Excludes medical only cases, privately insured, 38 states. Source: NCCI Data 17% 59 24

Proportion of Claims Awarded Impairment Benefits- Selected Canadian Provinces (Permanent Disability) 2005* BC ON QC Low High Canada 8. 0% 10. 8 15. 2 3. 4 15. 2 9. 3 New claims reported in the accident year with at least a day’s lost time paid, (typically pay beginning the day after injury) Source: Canadian AWCBC

Core Characteristics of US Workers’ Compensation Programs State run, state administered Coverage compulsory, 49 states (not TX)-scores of exemptions WC is the exclusive remedy (aside from 3 rd party actions) Generally highly litigious Private insurance in 45 of the 50 states

Core Characteristics of US Workers’ Compensation Programs State insurance funds in (approximately) 22 States Self insurance by employer in 48 states (not WY, ND) (Group self insurance in 37 states) Hundreds of private insurance carriers No universal health cars No direct linkage to health and safety laws

U. S. Workers’ Compensation, Snapshot, with and without California, 2005, (All States) Covered Workers 128. 1 million w/o CA Including CA Covered Wages $4, 539 (billion) $5, 210 (billion) WC Benefits Paid 44. 5 55. 5 Medical Benefits Paid 21. 0 26. 1 Cash Benefits Paid 23. 5 29. 4 Employer Costs for WC 68. 6 89. 0 Amounts per $100/covered payroll WC Benefits Paid $0. 98 $1. 06 Medical Benefits Paid 0. 46 0. 50 Cash Benefits Paid 0. 52 0. 56 Employer Costs for WC 1. 51 1. 71 Source: NASI

State WC Benefits per $100/covered payroll, 2005 5 Lowest AZ MA AR IN NY 5 Highest $. 58. 62. 63. 67 WV MO WA AK CA Source: NASI $3. 81 2. 11 1. 72 1. 70 1. 59

Workers’ Compensation Premium Rate-Making, Selected States 2006 Rank State 1 2 6 10 26 48 50 51 AL CA FL NY TN AR IN ND Source: Oregon Premium study. Premium $5. 00 4. 13 3. 32 3. 15 2. 48 1. 59 1. 24 1. 10 Percent of Median 201 166 134 127 100 64 50 44

Approaches to Compensating PPD Cases, US Scheduled Losses (43 states) (Table of Maims) Unscheduled Losses* Impairment (19 states) Loss of Wage Earning Capacity (13 states) Wage Loss (10 states) Bifurcated (9 states) *Examples include spinal injuries, internal body organs, occupational diseases, psychological disorders. Source: Barth and Niss (WCRI)

Some Alternative Approaches to Compensating PPD Cases Japan 14 Grades of impairment Grades 1 -3 Lump sum plus periodic pension 4 -7 Periodic pension only 1 -7 Pension is for period of disablement, rates decline as grade. 8 -14 Lump sum only, amounts decline as grade increases.

Germany Benefit tied to impairment in most cases Pension paid only where a decline in earning capacity of at least 20 percent Pension tied to degree of loss of earning capacity Pension can be modified (increased) where a material change in condition (5% or more) Full pension is 2/3’s of average weekly wage, and paid where earning capacity reduced by 100%. Worker retains pension for 3 years, even where return to work After 3 years, one-half of pensions become permanent

China A new scheme Disability rating is tied primarily to impairment Dual benefits are available Grade 1 rating, lump sum is 24 months salary---Grade 10 rating, lump sum is 6 months salary, paid by insurance fund Grade 1 rating, pension is 90% salary—Grade 4, pension is 75% salary Grades 1 -4 paid by insurance fund Grades 5 -6, if suitably re-employed, no pension. If not suitably re-employed, the pension is 70% or 60% respectively, and must be paid by the employer and not the insurance fund Grades 7 -10 no pension

Victoria Step-down of temporary disability benefit after 13 weeks provides incentives both to employer and to worker to return to work. After 104 weeks, if there is a current work capacity, an incentive for the worker as well as the employer to have a return to work. Recognizes that return to work depends upon both the worker and the employer.

Evaluating Permanent Disability Programs Income replacement criterion: Studies in WI, CA, WA, NM Identify workers with PD benefits and a comparison group Using pre-injury and post-injury earnings, create earning profiles Estimate earnings losses and add back compensation Evaluate net impact of injury, and consider injury types that are outliers. Difficulties with the approach: Available data (And national vs. state) Zero earnings (Out migration, uncovered employment) How many years post injury Pre and post injury injuries Losses due to disability vs. losses due to work separation

Efforts to Change Permanent Disability Compensation Programs Difficulties: Core issues (common law and disability evaluation approach) Inertia by the adjudicators Too many stakeholders Breaking in period Court challenges Warning-Eliminating benefits for certain injuries or illnesses. California Case Study Problems: Costs high, benefits low-“The worst of all worlds” Litigation and other transactions costs, delays Inconsistent awards, uncertainty

Measures taken: Use of the AMA Guides as one of the bases for the award for greater consistency and certainty Use of the AMA Guides to deny permanent benefits where a zero rating for impairment Improved quality of medical ratings Incentives for employers to offer to re-employ via a reduction the size of benefits (or increase where no job offer) A reduction in amount of PPD benefits for those with ratings below 15% and an increase for those with rating above 70%. Change apportionment to limit current rating to disability caused by current injury.

Modifying the Permanent Disability Compensation Program Compensation Benefits: Bifurcated benefit approaches Step-downs during temporary disability period Benefits only for those with return to work, if a capacity to work The small employer problem Re-employment Programs: Employment quotas for the disabled Anti-discrimination laws Subsidies for workplace modifications Protection from second injuries that affect experience modifiers Wage subsidies through vouchers, reduced insurance premiums