Study finds claim durations jumped after benefits increased in two states

An increase in workers' compensation benefits in Oregon and New Mexico led to longer claim durations, according to a recent study by the National Council on Compensation Insurance.

NCCI used a "difference in differences" methodology to analyze the impact of benefit changes in the two states. Researchers found that for each $1 of direct benefit increase, there was an added $0.54 average cost due to increased claim durations.

In Oregon, the 33 percent increase in the maximum weekly temporary total disability benefit resulted in a 17.5 percent impact on utilization. Researchers said this implied a duration/benefit elasticity of 0.53 (17.5 percent/33 percent). In New Mexico, a 17.6 percent hike in the maximum weekly indemnity benefit resulted in a 7.6 percent increase in benefit duration, which implied a duration/benefit elasticity of 0.43 (7.6 percent/17.6 percent).

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In terms of temporary total disability indemnity costs, both the Oregon (38 percent) and New Mexico (33 percent) studies indicated that approximately 35 percent of the total cost impact can be attributed to a duration utilization effect. NCCI said the focus of the research has been on two event studies where temporary total disability benefits had increased.

"Some might interpret our findings to also conclude that a decrease in temporary total disability indemnity benefits would result in a utilization impact," the authors noted. "However, no such analysis was performed with which to reach such a conclusion."

NCCI said its estimate of the utilization impact on claim durations from a change in statutory indemnity benefits reasonably agrees with estimates of previous studies, thereby providing additional support for the inclusion of such utilization impacts in legislative cost analyses. Researchers said that producing more accurate and responsive cost impacts will enhance the legislative pricing and ratemaking services offered by NCCI, and it will provide valuable information to aid public policy decision-making.

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December 17, 2009

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