Under most state and private insurance plans, the employer and the employee
gain by maintaining good safety records.
Disability payments from other sources
do not affect your Social Security disability benefits. But, if the disability
payment is workers? compensation or another public disability payment,
your Social Security benefits may be reduced. After the reduction, your
total public disability benefits should not exceed eighty percent of your
average current earnings before you became disabled. These include your
combined family Social Security benefits, your workers? compensation payment
and any other public disability payment you receive. The workers? compensation
payment and another type of public disability payment are kinds of payments
that affect your Social Security disability benefits. Workers? compensation
payment is one that is made to a worker because of a job-related injury
and illness. It may be paid by federal or state workers? compensation agencies,
employers or insurance companies on behalf of employers. Public disability
payments that may affect your Social Security benefits are those paid under
a federal, state or local government law or plan that pays for conditions
that are not job-related. They differ from workers? compensation because
the disability that the worker has may not be job related. Examples are
civil service disability benefits, military disability benefits, state
temporary disability benefits and state or local government retirement
benefits that are based on disability.
The higher costs of providing workers’
compensation benefits in risky occupations may lead employers to improve
safety in order to lower their insurance costs. The 75th anniversary of
the Federal Employees’ Compensation Act (FECA) is an opportune time to
reflect on broad policy issues of no-fault work injury liability statutes.
Policy discussions regarding occupational safety and health usually are
divided into two distinct parts with government standards established under
the Occupational Safety and Health Administration (OSHA) as the regulatory
device for encouraging prevention and workers’ compensation considered
as the program for providing benefits to disabled workers. The much debated
standards approach established under the Occupational Safety and Health
Act draws attention to the role of workers’ compensation as apart of the
policy mix for improving the health and safety of employees. General issues
of safety and health and their effect on employers and employees are first
considered in this article. Then the mechanics of determining workers’
compensation benefits in the private sector and how this process relates
to employer prevention incentives are briefly reviewed. Evidence on the
effect of workers’ compensation on safety and health is also discussed.
Finally, the specific arrangements by which Federal agencies are charged
for the work injury liabilities of their employees are compared with arrangements
used in the private sector to determine whether the Federal arrangements
are consistent with the objective of encouraging prevention of injury and
illness.
All workers’ compensation systems in the
United States require employers to guarantee that compensation to injured
workers will be paid. Some large employers may self-insure but most employers
meet this obligation by purchasing insurance. Several States offer workers’
compensation insurance in competition with commercial carriers, while other
States have a monopoly insurance fund. The largest source of workers’ compensation,
however, is insurance purchased from private companies. Workers’ compensation
insurance rates are based on the riskiness of the firm’s industrial classification
within each State. Approximately 600 groupings are used to determine the
firm’s “manual” rate, which is stated as a percent of payroll. If a firm
is large enough, the manual rate will begin to be adjusted by the experience
of the individual firm. The larger the firm’s payroll, the larger will
be the degree of this experience rating. In a typically risky industry,
firms with approximately 1,800 employees will have premiums based on their
own experience. It is obvious from this cursory review of the rate-setting
procedure, that the system is quite subtle in its attention to the accident
and disease experience of the individual firm. Within the workers’ compensation
community, experience rating is often viewed as a matter of equity–firms
with poor claims experience are charged a premium that reflects poor performance
and firms with good experience are charged less.
However, the potential for using this scheme
to regulate behavior is also apparent. Considering the significance of
occupational safety and health as a regulatory concern, it is somewhat
surprising that so few studies have examined experience rating. It is a
complex area to study, largely because of the complicating factor of the
employee’s response to higher benefits. A straightforward prediction about
the effect of experience rating on employers is that higher statutory benefit
levels should encourage more prevention. Benefit levels vary across States
and are regularly increased within States. However, higher benefit levels
are associated with higher reported levels of accidents. Higher levels
of benefits apparently encourage employees to report accidents. It is very
difficult to remove this employee effect from any effect higher benefits
might have on the employer. More attention should be paid to how liability
arrangements can be improved to create a better workplace environment.
Suggestions have been made to allow, or even require, all employers to
self-insure deductibles for workers’ compensation, and thus sharpen the
immediate reward for reduced injuries and disease. Other possibilities
for refining the incentives of the experience-rating system are to simplify
the relationships between experience and premiums. The current formula
is a complex array of actuarially important factors that are beyond the
comprehension of most safety and health professionals. Perhaps some elements
of the relationship between experience and premiums could be simplified
so as to make the reward for improved safety and health more apparent to
decision makers. The use of claims experience from the first 3 of the last
4 years is another reason that the linkage between experience and premiums
is more obtuse than is desirable.
A final suggestion for improvement in the
experience-rating scheme concerns the workers’ compensation rate regulation
system used in most States. Workers’ compensation rates are still heavily
regulated in most States, and although there are several mechanisms through
which competition can manifest itself, pricing is not explicitly and visibly
competitive in most States. This results in a marketplace that is not as
effective as one would expect under open competition–and this lack of
creative tension is manifested, in part, by producing few new ideas in
experience rating. Regulated rates also often subvert the potential of
experience rating by holding rates below the level established by the benefit
levels and claims. In an effort to please worker groups, State legislators
frequently set higher benefit levels, but then seek to appease employers
by keeping rates below the level implied by those benefits. This eventually
results in rates that make many employers unprofitable customers for insurers,
which leads to employers being unable to obtain voluntary insurance. Because
employers are legally obligated to have insurance, they are forced into
assigned risk pools. Assigned risk pools, with rates that do not fully
reflect benefit levels and claims experience, further diffuse the relationship
between experience and premiums, and thus distort the incentives of workers’
compensation.
Federal employee work injury and disease
benefits are paid by the employing agency through regular payroll funding
during the 45-day period of pay continuation and then through an annual
bill that accounts for benefits paid to the agency’s work- disabled employees.
This is essentially self-insurance, with extended claims administered through
the Office of Workers’ Compensation Programs, the Department of Labor agency
responsible for administering FECA. This arrangement avoids the imperfections
of the experience-rating system, because employers are fully rewarded or
penalized for their claims experience. Although employers pay the full
amount due, there are some problems. For example, it is not clear that
anyone at the “insurer’s” level is inclined to encourage disabled employees
to return to work. Another potential problem is that agencies must deal
only with the one authorized “insurer.” In most private insurance markets,
the amount of prevention services is used as a device to attract and retain
customers. It is not clear whether the Office of Workers ‘Compensation
Programs has any incentive to offer these key services. Occupational health
and safety is as important a regulatory issue today as it was in the early
20th century, when it was at the vanguard of government intervention in
the labor market. We should clearly be using all available devices for
improving the operation of the labor market. Because employees will be
compensated for their occupational injuries, it is necessary to take full
advantage of the financing of that compensation system in order to create
incentives for prevention. The financing arrangements now in use are quite
strong, but reinforcing prevention incentives has never been viewed as
their primary purpose. Recognition of this preventive incentive role and
attention to its improvement will serve to improve the occupational health
and safety of American workers.