Workers' Compensation Reform and Return to Work

Permanently disabled workers in California's workers' compensation system have historically displayed poor rates of return to work and high levels of lost earnings attributed to their disability. This study provides a comprehensive analysis of the effects of several large changes to the workers' compensation system on return to work rates for California's injured workers. In particular, we study how public policies within and outside the workers' compensation system that influence return to work have changed in California over the last 10 years. We then estimate the average return to work of injured and disabled workers over this time period and compare the trends to the policy changes. Overall we find that return to work has improved, though it is unclear how much of this can truly be attributed to changes in workers' compensation policy. Finally, we examine the impact of recent reforms to the workers' compensation system on the adequacy of benefits for injured and disabled workers. Disability benefits have fallen sharply as a result of changes to the system for evaluating the severity of workplace injuries. This study finds that these benefit cuts have reduced the adequacy of workers' compensation benefits, despite the gains in return to work over this time period. We estimate that the replacement of lost income from workers' compensation benefits fell by about 26% after the reforms took effect in 2005. Had return to work not improved, replacement rates would have fallen an additional 15%. In the report we discuss the implications of these findings for future reform efforts.