NCPA - National Center for Policy Analysis

Workers' Compensation Reforms

June 17, 1999

The history of workers' compensation is one of periodic cycles of crisis and reform. Though workers' compensation -- which is funded by employer-paid premiums -- is still costly, the growth in these costs has ebbed, and the "crisis" of the late 1980s and early 1990s is over.

  • Benefit payments, which include the cost of both income replacement and medical care benefits for workers injured on the job, decreased from $45.3 billion to $43.5 billion as of 1997.
  • Nationwide insurance rate decreases dating from 1993 to 1997 reflect the decrease in benefit payments.

With waning interest in cost-control in many states, legislators instead are debating whether state systems meet the needs of injured workers, particularly in matters of access to care and benefit levels.

Medical costs in general are beginning to increase, and an emerging consensus among experts suggests that costs may accelerate in the future. Decreasing benefit levels does not necessarily reduce costs for the states.

  • Economic recovery in the mid-1990s accounts for about 10 percent of the decline in benefit costs.
  • In states where benefits did not decrease, such as Oregon, costs also fell.
  • In California, where benefit levels actually increased, total costs also fell.

The most effective reforms, therefore, take the form of innovations in management to optimize savings and the quality of care for workers at the same time.

  • In Massachusetts, the decrease in Temporary Total Disability Benefits (TTD) did not have as great an affect in reducing total costs as employer and insurer efforts to improve safety and return-to-work programs.
  • In Oregon, costs fell substantially because of insurer and employer efforts to better manage safety, disability and fraud.

Regardless of the causes of cost decreases, it is apparent that state-initiated changes coupled with new approaches taken by employers and insurers raise the awareness about workers' compensation costs.

Source: "Workers' Compensation: A Guide for Policymakers," March 1999, American Legislative Exchange Council, 910 17th Street, N. W., Fifth Floor, Washington, D.C. 20006, (202) 466-3800.


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