Workers Comp Dangers
by John Goodman

Workers' Compensation is a hugely wasteful system that has received almost no public attention.  All too often, employers believe they have lowered health care costs through one reform or another, only to discover that employees simply shifted their claims from group health to worker's comp.

Fortunately, N. Michael Helvacian, has produced a new study for us on this important public policy question called "Workers' Compensation: Rx for Policy Reform" (National Center for Policy Analysis, Policy Report No. 287, September 2006 (http://www.ncpa.org/pub/st/st287).

The report shows that workers' compensation costs are increasing because state systems provide incentives for employers, employees and others to behave in ways that cause costs to be higher and workplaces to be less safe than they otherwise would be, specifically:

• Insurance premiums, especially for small employers, are not fully experienced-rated; as a result, firms that improve workplace safety cannot reap the full rewards and others are not penalized for poor safety practices.
• Employers are not allowed to use their regular group health plan to cover workers' compensation injuries; as a result, employers and employees do not benefit from cost-control mechanisms common under normal health insurance, and employees have no incentive to economize on their use of health care.
• Employers are also prevented from using ordinary disability insurance for workers' compensation; as a result, workers report injuries that may not be work-related, stay away from work when it is not medically necessary, and engage attorneys to pursue questionable claims.

Addressing these problems would increase the efficiency of the system by controlling costs and giving workers a greater choice of benefits, says Helvacian.  If state systems were properly reformed, employers could:

• Lower their premiums by improving safety and reducing claims costs if premiums were fully adjusted for the firm's experience, rather than based upon occupational or industry risk ratings.
• Integrate employee health plans and workers' compensation medical coverage so that employees could use the same provider networks and employers could pay the same negotiated fees -- thus reducing costs and improving care.
• Provide wage replacement benefits under an integrated disability plan -- thus reducing perverse incentives to make false claims or to claim a disability as work-related when it is not.

John Goodman is president of the National Center for Policy Analysis and N. Michael Helvacian is a Senior Fellow.