Benefits and Earnings Losses for Permanently Disabled Workers in California

In 2013, California began implementation of major reforms to the state workers' compensation system that were enacted in 2012 as part of Senate Bill 863 (SB863). These reforms included several changes to Permanent Partial Disability (PPD) benefits. This report provides early evidence on how these reforms have affected disability ratings and benefits and compares PPD benefits to the earnings losses experienced by permanently disabled workers. Because SB863 changed benefits in part by modifying the disability rating system, we also evaluate the impact of these changes on the equity of PPD benefits. In order to address these questions, we analyzed administrative data identifying permanently disabled workers that was linked to data on wage and salary earnings. We find that permanently disabled workers experience large earnings losses, with earnings reduced by 30% on average in the second year following the injury. Workers who were injured during and after the Great Recession of 2008–2009 experienced substantially higher earnings losses than those injured before the great recession. However, changes in the composition of the injured worker population, particularly a shift toward workers with lower pre-injury earnings, explains nearly half of this trend. Impairment ratings and benefits increased over this time period as well, but the fraction of earnings losses replaced by benefits declined between 2005 and 2012 due to increased earnings losses. Increased benefits and ratings under SB863 will yield replacement rates higher than those observed in 2005 even if earnings losses remain elevated. Impacts on equity are detectable but small.