Workers’ compensation insurance implications

A conclusion drawn from a study made by a major workers compensation insurer was that about 50% of reported claims and about 60% of their attendant costs had ergonomics implications. Similar data have been frequently published. As this information developed, safety professionals were required to undertake serious introspection concerning the content of their practice and how they spent their time. 

We have emphasized that workers compensation insurance (WC) is the most important public policy influencing workplace safety in the United States. We now examine the economic and policy implications of asymmetric information on the part of workers and firms concerning injury severity and compensability under WC. Concern over the difficulty in determining the information content of workers compensation claims is underscored in a recent Economic Report of the President (1987, p. 197), which noted that... 

A focal point of our book is that numerical simulation of structural models is a useful complement to econometric research. One of the ways we demonstrate the complementarity between estimation and simulation is to use our simulation model to locate where more precise parameter estimates would change the economic and policy implications versus where parameter values matter little to outcomes of interest. We now describe, as in previous chapters, results of how some key structural parameters and starting values affect the economic implications of workers compensation insurance for job safety, claims filed, and claims paid. 

Workers compensation insurance is the most important public policy influence on workplace safety in the United States. Here we have examined more deeply the quantitative properties of the WC program, specifically the imperfect verification of injuries as work related or their severity. Our numerical simulations provide quantitative insights into an issue currently at the forefront of theoretical microeconomics — information asymmetries (Hirschleifer and Riley, 1992). The practical implication of information asymmetry in the case of workers compensation insurance is that increases in benefit generosity can paint a puzzling picture of labor market outcomes because the number of workers applying for and receiving WC benefits can rise while actual workplace injuries fall. Data on injuries reported under workers compensation can produce a wrong conclusion of the effects of WC on workplace safety. 

The results in Tables 5-2 and 5-3 also reveal the implications of extreme changes in the basic parameters of the workers compensation system such as the degree of experience rating and the accuracy of state verification. Applications for claims are the most sensitive to extreme changes in the insurance program parameters with claims paid moderately sensitive, and injuries insensitive to either experience rating or accuracy of state verification. 

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