Friday, September 18, 2015

Can we quantify the size of the worker deductible (waiting period) in workers' compensation?

The most recent NASI report on Workers’ Compensation Costs, Coverage and Benefits 2013 acknowledges  that “waiting periods” served by injured workers are  an “implicit” and “indirect” cost of workers’ compensation.  The report also notes the difficulties in estimating those costs.  Whether measured in terms of days away from work or lost wages,  waiting periods in the jurisdictions that have them are real costs borne by workers and their families.

A waiting period is a period of time or proportion of weekly-earnings loss that must be incurred by the worker before workers’ compensation for temporary disability begins.  Lost wages during the waiting period are uncompensated.  Waiting periods are present in every US workers’ compensation system but relatively rare in Canada (only three provinces have waiting periods:  3/5ths of a work week in New Brunswick and  2/5ths of a work week in Nova Scotia and Prince Edward Island) and absent  in all Australian schemes. 

In the US, waiting periods range from three to seven days(excluding the day of injury in most cases).  A waiting period is typically served when a worker is absent from work for the specified number of days due to work-related injury, illness or disease.  In all but two states (Hawaii and Rhode Island) waiting periods are waived or retroactively compensated for longer duration claims.  The length of this “retroactive period” varies from as little as five days (Nevada, North Dakota) to as long as six weeks (Nebraska).  While the insurer may pay medical costs during the waiting period, the worker bears the cost of lost wages during the waiting period.

Gunderson and Hyatt  (Waiting Periods and Direct Payments in Workers’ Compensation Prepared for the Royal Commission on Workers’ Compensation in British Columbia, June 1998) provide five policy rationales/objectives for waiting periods:

·         Reduce moral hazard
·         “Self-insuring” as a financial incentive for promoting safety
·         Reduce administrative costs
·         Reduce benefit costs
·         Cost sharing between injured workers and employers

Note that three of the above relate directly to shifting the financial cost of work-related injury, illness and disease from the employer to the worker in jurisdictions with waiting periods.  It follows that those with the longest waiting periods and long or non-existent retroactive periods shift more of the cost to workers and their families. 

A waiting period is a worker “deductible”.  Employer deductibles are quantified in the NASI report.  The waiting period and retroactive periods for each US jurisdiction are summarized in Table C (pages 66 – 72) of the report.  To the best of my knowledge, no state or public agency reports annual data on the waiting period cost in either dollar terms or days away from work.   This lack of workers’ compensation data on the worker waiting-period deductible has thus far made accounting for this workers’ compensation system “cost” too big a challenge for NASI and other investigators. 

A conservative estimate, however, may be gained by using other sources.  Given that all waiting periods in the US are of three or more days and given that no state has a retroactive period of less than five days,  a minimum estimate of this cost may be achieved by examining the number of cases of work absences due to work-related injury that range from 1 to 3 days. 

The US Bureau of Labor Statistics (BLS) reports that the median days away from work for occupational injuries in 2013 was 8 days, down one day from previous years.  In a state with a three day waiting period, the worker has no entitlement to compensation for the loss of 3/8ths or 37.5% of an 8 day loss.  If the days away from work are less than or equal to the waiting period, there is no entitlement to compensation; wages lost during the waiting period are uncompensated.  The worker and his or her family must bear the full cost of wages lost. 

2013  Cases of nonfatal occupational injuries resulting in days away from work. 
                        1 day               2 days              3-5 days          6-10 days    11-20 days
Male               90600              70550              118280            87330         82220
Female            67740              53540               80220             56450         49550
Not Specified     430                  190                    550                 440            540

( Data extracted on: September 2015
Nonfatal cases involving days away from work: selected characteristics    
Series Id:  CSUDAX0XXXXX6G000       
Area:       All U.S.        
Ownership:  All ownerships   
Data Type:  Injury and illness Cases  
Case Type:  Industry division or selected characteristic by gender) 

If you multiply the cases in each of the first three categories by 1, 2 and 3 days respectively, these cases of work absences of very short duration (1-5 days) represent more than a million days served by workers in waiting periods.

Now, think about the cases with more than three days away from work but less than the specified absence for the retroactive period to apply.  These cases are not subject to a retroactive period because their duration is too short.  The most common retroactive period is 21 days.  If days away from work extend beyond 21 days, the waiting period is typically compensated (except in RI and HI, where the waiting period is not compensated).  Cases involving work absence categories of 6-10 or 11-20 days away from work will have typically served a three day waiting period.  So, multiplying the number of cases in these categories by three will yield the number of days away from work that result in waiting period days (most of which represent days of wage loss that are uncompensated by workers' compensation).

Based on BLS nonfatal injury data for cases involving 1-20 days away from work, workers served more than 1.8 million days of  waiting period "deductible" in 2013.   

There are, of course, limitations to this method.  BLS data may include cases that are not covered by workers’ compensation and may exclude certain cases that result in compensation but are outside the definition of reportable work-injury absences used by BLS sources.  On the other hand, this method underestimates the impact waiting periods of longer than three days and retroactive periods greater than 21 days would have on the total of uncompensated days due to the waiting period.  BLS definitions of days away from work are based on calendar days so it is possible that some workers who work five days or less per week and are absent over a weekend would be captured within some of the counts.

Based on data from private industry, just over 70% of work-injury cases involve 30 or fewer days away from work.  More than 42% of cases involve 1-5 days away from work.  That means for the majority of work-injury cases, the waiting periods reduce the effective workers’ compensation benefit substantially. 

Workers with good sick leave or access to other short-term funding sources including savings may be able to cope with the financial loss associated with uncompensated days better than those without savings or access to other benefit programs  Waiting periods externalizes the cost of work-injury and  essentially constitute a premium rate subsidy—something that should be taken into account when comparing premium rates between jurisdictions or estimating the full cost of workers’ compensation system 

Waiting period costs may not be easy to calculate but every state and province that has a waiting period and a retroactive period has the data to quantify the number of cases that serve a waiting period, report the uncompensated work-absence days and estimate the financial cost workers bear for losses during the waiting period.  Quantifying the waiting period “deductible” will go a long way to creating a more complete picture of workers’ compensation costs, coverage and benefits.  

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