Identifying Permanently Disabled Workers with Disproportionate Earnings Losses for Supplemental Payments

by Seth A. Seabury, Ethan Scherer

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Research Questions

  1. How does one identify the workers who should be eligible for the benefit?
  2. How does one calculate actual earnings losses?
  3. Can the program be designed to minimize any adverse work incentives that might arise?
  4. What is the potential size of the applicant pool for the new benefit?

Abstract

California workers with permanently disabling workplace injuries have traditionally had high earnings losses, poor return to work outcomes, and a low percentage of earnings losses replaced by workers' compensation benefits. In September 2012, California adopted legislation that includes changes in the calculation of permanent disability ratings, increases in permanent disability compensation, and a program to provide supplemental payments to injured workers whose permanent disability benefits are disproportionately low in comparison to their earnings loss. However, the language in the statute does not expressly define "disproportionately low." This report makes several recommendations about the design and implementation of this program: Payments can be targeted to workers whose actual measured earnings after the disability award are below what would be expected based on the severity of their disability.

Key Findings

Calculating Earnings Losses and Applicant Pool

  • Eligibility criteria based on actual earnings needs to focus on the earnings in the post-injury period for a sufficient period of time after the date of injury to allow for the effects of the injury to be realized.
  • Supplemental Job Displacement Benefit receipt provides a useful indicator for determining eligibility
  • Despite shortcomings, the only practical alternative to calculate actual losses is to compare the earnings of an individual injured before their injury to their earnings after their injury.
  • The number of potential beneficiaries could vary significantly according to Supplemental Job Displacement Benefit receipt and the number of claims

Identifying the Period Over Which to Observe the Actual Loss Experience

  • We utilized the fourth year after the date of injury in our analysis because the typical benefits case is resolved two to three years after injury. Averaging over this time period, when workers are receiving benefits, could be more subject to manipulation in the sense that workers could take additional time off work to increase their potential award. It is possible that if claimants know that the fourth year will be utilized to assess these benefits, some might take additional time off during that year to increase their benefits.

Recommendations

  • One way to avoid adverse work incentives is to base program eligibility on the failure of an employer to provide a qualified offer of return to work.
  • Replacement of lost earnings in California is lowest for workers with the lowest disability ratings. Determining the amount for the supplemental payment according to the difference between actual earnings loss and expected earnings loss could help address this inequity.
  • Given the limitations with attempting to prospectively estimate the likely number of eligible beneficiaries, an exercise that is inherently uncertain and subject to error, it would be preferable for California to monitor the likely take-up of the supplemental benefit as the pool of potentially eligible workers is better understood, and to adjust the eligibility requirement and benefit levels accordingly to ensure program solvency.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Policy Challenges in Designing the Return to Work Program Benefit

  • Chapter Three

    Empirical Analysis

  • Chapter Four

    Conclusion

This research was sponsored by the California Commission on Health and Safety and Workers' Compensation and was conducted in the RAND Center for Health and Safety in the Workplace, a research center of RAND Justice, Infrastructure, and Environment.

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