This Ain't Gonna Work Rand Report on Earnings Losses

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David DePaolo’s Work Comp World

This Ain't Gonna Work
Published: October 31, 2013


FOR IMMEDIATE RELEASE: Wednesday, November 7, 2013
Contact: Steve Hopcraft 916/; Twitter: @shopcraft

I'm not sure what to expect from the Rand report on earnings losses that was prepared for the California Commission on Health Safety and Workers' Compensation as directed by the legislature in SB 863 to determine the handling of the $120 million slush fund.

The idea of the slush fund was suspect from the start - it was a last minute compromise with no boundaries, no rules established, to get SB 863 passed.

Its purpose was to provide additional indemnity to injured workers with disproportionate earnings losses.

The problem from what Rand is reporting is that nearly all injured workers - at least the demographic studied - have disproportionate earnings losses.

The report says the average decline in post-injury earnings for permanently disabled workers is 42.1%.

But it's shocking that the report finds that workers with impairment ratings of 1% to 4% have an average decline in earnings of 30.9%.

And for workers with impairment ratings of 95% to 99%, the loss in earnings is 93.6%.

Either something is seriously wrong overall with workers' compensation, or something is seriously wrong with this study.

The report states, "Even uninjured workers, on average, show a 15% decline in earnings when observed during a similar period of time. This highlights the primary limitation of using actual earnings to estimate the impact of an injury – individual earnings could decline for many reasons, some of which have nothing to do with the injury."

Frankly, drawing any meaningful conclusion from this study relative to policy implementation is going to be very difficult if the Average Joe Worker over the course of the study time table has a 15% decline in earnings.

The report authors assume 60,000 workers will be permanently disabled each year. I just don't see buy that - I think the number is much, much higher than that. Over 350,000 applications for adjudication of claim are filed every year with the workers' compensation appeals board district offices and most of those settle with some payment of permanent partial disability indemnity.

The authors also state that 34,380 of those workers −57.3% − will not return to their at-injury employer within two years after the injury and that 84.9% of workers who do not return to their at-injury employer, or about 29,000 employees, will experience above-average earnings losses.

Something is amiss.

The authors believe that this demonstrated decline is due primarily to attrition of workers from the EDD database over time (e.g., because of retirement, exiting the labor force, moving, etc.).

One of the premises of the study is to provide a definition of what is "disproportionately low in comparison to their earnings loss" within the meaning of section 139.48 of the CA Labor Code.

The study authors acknowledge three inherent, and big, limitations in their study:

"One is a lack of post-injury income other than earnings reported to the EDD. An individual’s actual post-injury income will include many sources that are not reported to the EDD (e.g., retirement or disability benefits). Because these are ignored in this work, it is likely that the estimates here overstate the post-injury decline in earnings and overstate the number of potential beneficiaries. Another source of uncertainty is the potential behavioral response by workers as a result of the new payment. We used a very wide range – double – of potential beneficiaries to capture this effect, but it could be improved over time as the use of the SJDB is monitored. Finally, while the aggregate benefit level is fixed
in the statute ($120 million), key factors such as the number of injured workers and economic conditions vary over time. Without knowing how many injuries there will be, and how many of those injuries will be significant enough to lead to economic losses large enough to make someone eligible for this program, it is impossible to predict exactly what the aggregate program cost will be."

Honestly - back to the drawing board on this. The Rand study is incomplete, error prone and should not be the basis at this time for such a huge change in policy. The premise behind the study is flawed.

The authors are focused on defining "disproportionately low" empirically, but the empirical evidence itself is flawed.

Rather, it seems to me that the "director" (as used in LC 139.48) should dictate FIRST what the eligibility framework is going to be - e.g. only 70% or greater PD ratings such as required to qualify for the inflation adjusted "life pension" payments.

As proposed by Rand, this program is doomed to failure. CHSWC should reject the proposals by Rand, the director should redefine the limitations of the program as authorized by the law, and Rand should go back to the drawing board for a new proposal.

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