Impact on Utilization From an Increase in Workers Compensation Indemnity Benefits

In a new study, NCCI uses a "difference in differences" methodology to analyze the impact of benefit changes in two states (Oregon and New Mexico) to find that for each $1.00 of direct benefit increase, there is an added $0.54 average cost due to increased claim durations.

The results of this analysis provide support for the utilization effects of statutory changes in indemnity benefits.

For Oregon, the 33.0% increase in the maximum weekly TTD benefit resulted in a 17.5% impact on utilization. This implies a duration/benefit elasticity of 0.53 (17.5% / 33.0%). The 7.6% increase in benefit duration in response to a 17.6% increase in the maximum weekly indemnity benefit in New Mexico translates into a duration/benefit elasticity of 0.43 (7.6% / 17.6%).

In terms of TTD indemnity costs, both the Oregon (38%) and New Mexico (33%) studies show that approximately 35% of the total cost impact can be attributed to a duration utilization effect. The focus of this research has been on two event studies where TTD benefits had increased. Some might interpret our findings to also conclude that a decrease in TTD indemnity benefits would result in a utilization impact. However, no such analysis was performed with which to reach such a conclusion.

Note that the difference in differences approach used here captures the portion of the utilization effect that is attributable to changes in duration only; in other words, this method is not suitable for measuring the impact on the frequency of claims that may arise from a statutory indemnity benefit change. However, there are studies indicating that statutory indemnity benefit changes may affect frequency.

NCCI's estimate of the utilization impact on claim durations from a change in statutory indemnity benefits reasonably agrees with estimates of prior studies, thereby providing additional support for the inclusion of such utilization impacts in legislative cost analyses. 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.

View complete report: Impact on Utilization From an Increase in Workers Compensation Indemnity Benefits

National Council on Compensation Insurance