Calif. Workers’ Comp System Inadequate in Replacing Lost Earnings

Permanently disabled workers in California’s workers’ compensation system have historically faced poor return-to-work rates and high levels of lost earnings after a disabling injury, a new study has found.

In fact, workers’ compensation benefits, despite imposing high costs on California’s employers, have generally been insufficient to adequately replace these losses, with benefits falling about 26 percent since the state implemented reforms in 2005, according to RAND Corp. However, the nonprofit research organization said improving return-to-work for injured workers — thereby lowering earnings losses while also reducing employer costs — has been a key goal of policymakers in recent years.

RAND’s research, which was requested by the California Commission on Health and Safety and Workers’ Compensation (CHSWC), analyzed the effects of several large changes to the workers’ compensation system on return-to-work rates and the adequacy of benefits for California’s injured workers.

The study found that overall return-to-work rates have improved, although it is unclear how much of that improvement can be attributed to changes in workers’ compensation policy. Disability benefits have fallen sharply as a result of changes to the system for evaluating the severity of workplace injuries, the group said. These benefit cuts have reduced the adequacy of workers’ compensation benefits — despite the gains in return-to-work rates over the same period.

The study estimated that the replacement of lost income from workers’ compensation benefits fell by about 26 percent after the reforms took effect in 2005. Had the return-to-work rates not improved, replacement rates would have fallen an additional 15 percent, the nonprofit group said.

RAND further noted that while California clearly made strides in terms of return-to-work gains, there are areas that could use improvement.

“The general lack of use and impact of the workplace modification subsidy program is discouraging, but it still seems like more could be done to improve return to work at smaller employers,” RAND said. It noted that return-to-work programs generally are geared toward larger employers, which have more flexibility to modify staff and reallocate workers. The group said more research needs to be done to understand what kinds of programs would be most effective for smaller businesses.

The study also suggested the state evaluate the potential gains of integrating occupational and nonoccupational disability compensation. “FEHA in California clearly has a strong incentive effect on employers that affects their return-to-work decisions for occupational and nonoccupational disabilities,” RAND stated. “There is clear overlap between the two systems, and it seems that more could be done to help facilitate a better coordination between the two.”

View RAND Corporation’s study, “Workers’ Compensation Reform and Return to Work: the California Experience,” at www.rand.org/pubs/monographs/MG1035.html.