Employees Are Shifting Health Costs To Workers’ Comp

September 13, 2006

Employees routinely shift costs from their employer's health insurance plan to the more generous and inefficient workers' comp system, according to a new study released by the National Center for Policy Analysis (NCPA).  Employers can't control workers' comp costs as much, and as a result, they face increasingly higher insurance premiums, which reached nearly $60 billion in 2000.  Workers ultimately bear these costs through lower wages.  

"If you thought the nation's health care system was wasteful and inefficient, wait until you see worker's comp," said Michael Helvacian, the study's author and an NCPA senior fellow.  "The system is designed to make your back hurt more if your injury was at work rather than at home."

Workers' compensation is the oldest government-mandated employee-benefit program in the United States.  While each state has its own system, and the rules and benefits vary, they all provide coverage for medical costs, replacement of lost wages and payment for death or dismemberment when a worker is injured on the job or has a work-related illness.

According to the study, costs are increasing because state systems prevent employers from controlling costs and provide incentives for employees to engage in wasteful behavior.  For example:

• 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.  This means employees have no incentive to economize their use of health care.  Thus, on the average, it costs twice as much to treat the same injuries or conditions under workers' comp as under group health plans.

• Employers are also prevented from using ordinary disability insurance for workers' comp, which typically requires a worker to be unable to work for 30 to 90 days, while workers' comp benefits can begin after a wait of as little as 3 days.  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.

The study outlines a series of reforms to increase the efficiency of the system and give workers a greater choice of benefits.  Among others, these include:

• Allowing employers to integrate employee health plans and workers' compensation medical coverage so that employees can use the same provider networks and employers can pay the same negotiated fees.

• Allowing employers to provide wage replacement benefits under an integrated disability plan, thus reducing perverse incentives to make false claims.

To view the study, visit http://www.ncpa.org/pub/st/st287/

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