Workers compensation costs being covered by other sources

SACRAMENTO, Calif.—Researchers at the University of California Davis say nearly 80% of direct and indirect costs that could be covered by workers compensation insurance are being paid by private health plans, government insurance programs or from workers' own pockets.

The study's lead author says underreported workers comp claims have resulted in discounted insurance premiums and decreased incentives for employers to improve their safety records.

However, workers comp experts are skeptical of the study, saying that workplaces have become safer over time, and that workers comp often covers costs for treatment unrelated to work injuries.

Harry Shuford, chief economist at Boca Raton, Fla.-based NCCI Holdings Inc., said the study shows the need for greater understanding between workers comp experts and the public health community, including researchers.

“At the base, our concerns and interests are the same,” Mr. Shuford said. “We want a safer workplace. We don't want employees getting hurt, much less being killed, on the job, and I think both groups have lots of value to contribute if we can just get past this hurdle.”

The report, Workers' Compensation Benefits and Shifting Costs for Occupational Injury and Illness, was published in the April edition of the Journal of Occupational and Environmental Medicine. It found that there were $249.6 billion in medical and indirect costs related to workplace injuries and illnesses in 2007.

%%BREAK%%

Nonmedical costs included fringe benefits and personal productivity, factors that the researchers noted are not typically covered by workers comp insurance, as well as job wages.

Of total costs, $51.7 billion was paid by workers comp programs, while $197.9 billion was paid by other sources, including private health insurance, public or federal health plans, or out of pocket.

The study found that that 44.5%, or $29.9 billion, of medical costs for occupational injuries and illnesses was covered by workers comp, while 55.5% of medical costs, or $37.2 billion, was covered by other payers.

J. Paul Leigh, the study's lead author, said he believes the findings result largely from underreported occupational injuries—either from employers that don't want to face fines for safety hazards or from workers who perceive a stigma from workers comp claims.

“In the minds of many workers, it's a term like "welfare,' and that term is radioactive for some people,” said Mr. Leigh, a professor of public health sciences at the UC Davis. “People don't want that term "workers compensation' anywhere on their personnel report.”

The study concludes that cost-shifting has resulted in employers paying artificially low workers comp premiums.

Mr. Leigh said he believes that workers comp premiums should be at least twice as high, and said lesser premiums don't give companies an incentive to keep their workers safe.

“Right now, the employers don't see the true cost of the injury,” Mr. Leigh said.

John F. Burton Jr., professor emeritus at Rutgers and Cornell universities and a workers comp policy expert, generally agreed with the UC Davis study.

He said states have made it more difficult in the past 20 years for employees to obtain workers comp benefits, which would explain much of the cost-shifting found in the UC Davis report.

%%BREAK%%

Mr. Burton also agreed that workers comp premiums are likely too low, based on occupational injury costs that are covered by other payers. He said shifting more costs to workers comp would offer additional protections for injured employees who otherwise depend on traditional health plans or their own savings to pay for health care.

“There's a lot of employers that don't have health insurance, and the ones that do don't necessarily provide health benefits that are as generous as those under workers compensation, especially among small employers,” Mr. Burton said.

However, NCCI's Mr. Shuford contends that the study doesn't quantify costs that are covered by workers comp insurers that aren't job-related. For instance, he notes that insurers sometimes pay for bariatric surgery or smoking-cessation programs that help workers become healthier as they heal from job injuries.

Additionally, Mr. Shuford says the current cost of workers comp premiums already has encouraged employers to develop safer workplaces.

He pointed to data from the U.S. Bureau of Labor Statistics, which shows that 3.5 private-sector workers out of every 100 suffered workplace injuries and illnesses in 2010. That's down from 6.1 workers who suffered injuries or illnesses out of every 100 employees in 2000.

“It's never been safer to be a worker in America, no matter what occupation you're in,” Mr. Shuford said.

Robert Hartwig, president of the Insurance Information Institute Inc. in New York, disputed the scope of the UC Davis study. While workers comp pays for indemnity costs, he disagreed with including home productivity or fringe benefits as part of the study's analysis.

%%BREAK%%

“The workers compensation system works pretty well as a form of no-fault recovery for injured workers,” Mr. Hartwig said. “But it was never meant to be a form of business interruption insurance, which is what's being proposed here.”

Richard Weishaupt, senior attorney for Community Legal Services Inc. in Philadelphia, said he believes cost-shifting may occur because some workers don't understand the workers comp system.

His office provides legal help for Philadelphia's low-income population. Workers who come to the office often seek Social Security or Supplemental Security Income benefits after they were injured on the job, Mr. Weishaupt said.

“Some were miscategorized as independent contractors, and others just never knew that workers comp was an option,” he said.

While Mr. Shuford said lack of awareness may prevent some workers from filing claims, he added that most people who suffer severe or debilitating injuries are directed into the system by employers or physicians.

When accounting for fraud and nonwork-related injuries, Mr. Shuford said the workers comp industry may be responsible for covering more than its fair share of claims.

“It's not a reflection of reality,” he said of the UC Davis study findings.

Mr. Leigh stands by his research, and says workers would be better served by modifying the workers comp system to cover more injuries and illnesses.

“I'm just a big believer in prevention,” he said.