5. Analyses of Disability Ratings and the Claims Process

The broadest conclusion flowing from these data analyses is that the workers' compensation system faces two different sets of PPD claims that present divergent demands and problems. As Figure 4 suggests, by almost every measure California's PPD system is overwhelmingly a system for dealing with "minor" disabilities (defined as disability ratings below 25 percent): PPD claims with disability ratings under 25 account for 90 percent of PPD claims, 80 percent of medical benefits, 70 percent of indemnity benefits, and 60 percent of legal fees.

Figure 4--The Vast Majority of PPD Claims Involve Low Ratings

Despite these differences, minor and major claims go through the same workers' compensation process and both types experience significant delays. Most minor claims take three or more years to resolve, even though minor claimants leave temporary disability within five months. Unfortunately, major claims take even longer. Because all PPD claims go through the same process, the cost of this process is particularly high in relation to the modest benefits for minor claims.

Our wage loss analysis provides further insights into the difference between high- and low-rated claims and examines the validity of the rating process for each type of claim. PPD claimants with the highest disability ratings should be those who suffer the greatest loss of ability to compete in an open labor market, i.e., those with the greatest wage losses. The wage loss study confirmed the general validity of ratings under the disability schedule. Among the small portion of claims with major injuries, disability ratings corresponded with wage loss. For example, applicants with the highest disability ratings, 36 to 99, had higher proportional wage losses than applicants with less seriously rated injuries, 21 to 35, who in turn had higher proportional wage losses than applicants with lower-rated injuries. Workers with higher disability ratings were less likely to return to or remain at work and, when at work, suffered greater losses in earnings.

However, the wage loss study also showed that among minor injury claims--the overwhelming bulk of PPD claims--there is little validity to disability ratings: Differences in disability ratings corresponded poorly with wage loss. As Table 1 shows, over the period of five years after the injury, there is very little relationship between the percentage of wage loss and disability rating for the lowest disability rating categories, 1-5, 6-10, and 11-20.

Even among the lowest disability ratings--ratings less than five--wage losses were large: On average, over the five years after the injury these claimants lost between 18 and 30 percent of earnings. The lack of a relationship between disability rating and wage loss for low-rated claims indicates that the present schedule poorly measures California's statutory basis for determining disability ratings--the loss of ability to compete. For the vast majority of claims, the validity of the disability rating is questionable.

Furthermore, the adequacy of workers' compensation benefits differed between major and minor claims. As Table 1 illustrates, workers' compensation benefits most fully replaced lost wages for claimants with major injuries, i.e., those with disability ratings above 20. Although applicants in this group experienced the greatest amount of lost work time, they also received the most benefits. If wage loss is measured conservatively, based on income while working, benefits replace more than the two-thirds goal. If wage loss is calculated fully to include time away from work, benefits replace about 50 percent of wage loss.

In contrast, workers' compensation benefits compensated only a small fraction of wage loss for the vast majority of workers with minor permanent partial disabilities. For instance, for workers with disability ratings 1-5, only 12 to 14 percent of wage loss is replaced. This group, along with all PPD applicants with disability ratings below 16, has not received an increase in PPD benefits since 1984.

Perhaps the most surprising and poorly understood result of our research is the large wage loss among workers with low-rated claims. We do not know if the injuries and resulting disabilities associated with the low ratings are in fact not as minor as the ratings suggest or, alternatively, if even modest workplace injuries may have consequences far beyond the resulting impairment. For example, these substantial wage losses might result from stigma associated with claiming permanent partial disability, disruption of career development, or strain on worker-employer relations because of the injury and/or claim. Similar wage losses have been found in studies of the effects of layoffs. Given the level of wage losses for workers with low disability ratings and the uncertainty about why the losses are so large, these findings should be examined through further empirical investigation of this issue.