Wage-Loss Workers Comp Benefits Fall Short: WCRI Study

Adequacy of income benefits is one of the long-standing concerns about the performance of workers compensation systems. However, there is little known about whether income benefits (also called wage-loss or indemnity benefits) provide adequate financial support for injured workers.

According to a new study on workers compensation income benefits, the total earnings and income benefits an average worker receives within 10 years after an injury stack up to just 88 percent of what a worker would have earned if not injured.

The study — published by the Workers Compensation Research Institute (WCRI) — highlights a dimension of worker outcomes that may be useful for policymakers and stakeholders when measuring the adequacy of income benefits that workers receive after an injury.

The WCRI study addresses the following questions:

• How does the total income workers receive from benefits and earnings after an injury compare with what workers could have earned without an injury?
• Does the adequacy measure differ by subgroups with different duration of disability?
• How many workers experience large declines in total income after an injury, and how does this compare with what is observed for comparable workers without an injury.

“This report provides important metrics that policymakers can use to assess the adequacy of benefits in their state,” said Dr. John Ruser, president and CEO of WCRI.

The study, Adequacy of Workers’ Compensation Income Benefits in Michigan, shows how adequacy can be determined by examining the extent to which workers compensation income benefits help maintain income after an injury, using workers compensation and earnings data from Michigan.

Among the study’s findings:

• Within 10 years after an injury, the earnings and income benefits an average worker received were projected to be 88 percent of what a worker would have earned if not injured. However, these aggregate results hide important differences across different types of workers.
• Workers with one to 12 months of temporary disability benefits had total income that was projected to replace 91 to 95 percent of earnings had they not been injured. Workers with permanent partial disability and/or lump-sum payments had total income that was projected, within 10 years post-injury, to replace 69 percent of earnings had they not been injured.
• Post-injury employment patterns may contribute to the estimates of adequacy presented above. While 44 percent of workers with more than one month of temporary disability benefits returned to work and stayed continuously employed, another 31 percent had a sustained initial return to work but sporadic employment later on. An additional 21 percent of workers with more than one month of temporary disability benefits either had no meaningful return to work or only sporadic intermediate-term employment patterns. In contrast, a comparison group of workers with medical-only injuries was more likely to have sustained return to work.

This WCRI study focused on the adequacy of income benefits for injuries in 2004. For every worker in the analysis, the study directly observed post-injury earnings through the end of 2008 (an average of 4.5 years after the injury) and projected potential earnings losses to up to 10 years after an injury. Although the data focused on experience for injuries that happened more than a decade ago, and despite changes in Michigan’s policy and economic environment, the information is still valuable because there is rarely an opportunity to examine post-injury earnings or to relate benefit adequacy to post-injury employment patterns, the WCRI stated. It is also the first benefit adequacy study of a wage-loss system.

The authors of this study are Bogdan Savych and H. Allan Hunt.

WCRI is an independent, not-for-profit research organization based in Cambridge, Mass.

Source: Workers Compensation Research Institute

*This story appeared previously in our sister publication Insurance Journal.