1. MELISSA MCINERNEY Workplace Safety and the Economic Impact of Workers’ Compensation Insurance

2. 2 Previous literature found workers very responsive to benefit levels Increased WC receipt may increase employer costs States seek to encourage economic development Concern: employers will choose to locate in states with lower WC costs MD: Max=$877/week DC: Max=$1,233/week VA: Max=$816/week

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4. 4 Follow the literature: Increase benefits 10%, see 5% more claims Allow relationship between earnings and WC receipt to increase at increasing rate: Increase benefits 10%, see 2.5% more claims Allow relationship to vary by quartile of earnings distribution: No statistically significant relationship between increased benefits and propensity to claim

5. 5 Workers much less responsive to benefit levels than previous estimates suggest Can better protect injured workers (by raising maximum benefit levels) without adversely impacting economic development

6. 6 Examine specific policy change—privatization of WC in Ohio

7. 7 Date of injury 1 week Claim filed with TCM Receive cash benefits 15 months Incentivized injuries excluded from bonus calculation REDUCE DURATION TCM insurance cards and phone calls REDUCE DURATIONINCREASE DURATION NO CHANGE Time elapsed since injury

8. 8 PREPOST Days away from work Observations are weighted by inverse of predicted probability claim has valid return-to-work information.

9. 9 Identifying Assumption: Other than the bonus payment, all changes in duration during this time period impact treatment and comparison groups in same way Ways to test identifying assumption: 1.Make sure treatment same in period before bonus payment If groups are treated the same, coefficient estimate on POST1*INCENT will be zero 2. Examine different comparison groups with more similar groups of injuries Injuries with same three-digit ICD-9 code Back injuries Bruises Cuts

10. 10 Standard errors are clustered by injury code. Regressions are weighted by the inverse predicted probability a claim has valid return-to-work information. Each regression includes injury, demographic, job, time, and TCM effects. Significance at 10 percent (*), 5 percent (**). In every sample, find case managers reduce duration for minor claims between 1/3 and ½ a day

11. 11 Standard errors are clustered by injury code. Regressions are weighted by the inverse predicted probability a claim has valid return-to-work information. Each regression includes injury, demographic, job, time, and TCM effects. Significance at 10 percent (*), 5 percent (**). Claim duration increases between 2-2.5 weeks for severe claims This corresponds to 30% increase in probability a claim lasts more than 15 months

12. 12 TCMs reduced duration by about one third of a day for minor claims Bonus payment generated an increase in duration for severe claims: An increase of about 19 days among cash benefit claims 30 percent in probability spell lasts longer than 15 months Potential Mechanisms: Minor claims: reduce duration through infrastructure changes Severe claims: Increase duration via enrollment in vocational rehabilitation

13. 13 Bonus structured such that maximize profits if extend duration Cash benefit claims having an incentivized injury miss 18 more days ~7,000 cash benefit claims having an incentivized injury cash benefits ~ $59 per day => (7,000)*($59)*(18 days) = $7.4m in additional benefits TCMs used vocational rehabilitation to increase claim duration 265 individuals received voc. rehab. because of bonus average cost ~ $5,000 per participant => (265)*($5,000) = $1.3m in voc. rehab. Costs Bonus payment may cost state over $8.5m in additional benefits paid

14. 14 WC is an important, large social insurance program, and many policy changes were implemented in the 1990s. Structure of bonus suggests heterogeneous responses by TCM as claim develops over time, including an increase in duration as claims with incentivized injuries approach 15-month threshold. Evidence is consistent with these anticipated responses; duration falls by 1/3 of a day for minor claims, increases by 20 days for severe claims

15. 15 Can provide better benefits for injured workers without risking economic development goals Take great care in contracts write with private companies—may have unintended consequences