Reform in California’s workers’ compensation system points to the vital role that research can play in shaping public policy, according to Dr. Robert Reville, senior economist at the RAND Corporation and adjunct scientist at the Institute for Work & Health (IWH).
Reville presented this key idea to the audience attending IWH’s 2011 Alf Nachemson Memorial Lecture, held on October 27 in Toronto. He brought with him a case study of 10 years of research at RAND featuring an important re-examination of California’s workers’ compensation policies.
As Reville explained, politics often involves compromise between very different interests. Politicians and policy-makers are skilled at staking out extreme positions, in the hopes that when they split the difference, their interests are better represented. Bringing research to the table reduces the range of extremes over which compromise is needed.
In the absence of facts, the scope for extreme differences is larger, said Reville.
Policy research creates facts on the ground that [policy-makers] then have to deal with. Once the facts are on the table, a new range is set, and negotiation has to happen within that range. I think that leads to better policy.
Case study: Disabling injuries
Reville showed how this works in practice with respect to the long-term consequences of disabling injuries. Such disability is costly and an ongoing source of policy debate regarding workers’ compensation. The story began in California in the mid-1990s, when two contradictory positions were often stated as fact: (1) injured workers frequently return to work at their previous jobs and may be over-compensated by their permanent disability awards; and (2) injured workers are inadequately compensated for the persistent income losses that they experience.
To find out which was true, the State of California sponsored RAND’s research, which showed that the earnings of injured workers did not recover to what they would have been in the absence of injury. That study turned out to be the first of several in a 10-year dialogue that ultimately resulted in dramatic reform of the system. The research provided information to policy-makers on a number of issues related to the compensation of workers with permanent disabilities, including:
- earnings losses for permanent disabling occupational injuries;
- the value of return to work;
- the targeting of benefits; and
- the substitution of return to work and benefits.
In addition to providing facts on the consequences of injury, the initial study also showed that benefits in California were high in comparison to other jurisdictions, but still inadequate. Lower return to work (RTW) in California was driving the results.
This, naturally, led to a debate about whether or not RTW programs are helpful to workers in the long run. California then funded additional RTW research for which the key finding was that losses are lower when workers return to an at-injury employer. This suggested that RTW at the original employer benefits both injured workers and employers.
Another key finding was that RTW programs had a beneficial impact on sustained RTW. There was agreement on the importance of RTW programs, but a policy debate remained on how to set benefits for those with a permanent disability. California used a system based on rating the degree of disability. But RAND found that certain types of injuries were consistently under-compensated, and it recommended a system that modified the ratings based on empirical findings of wage loss.
RTW gains in post-injury employment
RAND’s recommendations were partially adopted by California in 2004. However, the reform also substantially reduced benefit rates. Benefit reductions made workers worse off, but a new RTW incentive partially offset the benefit reductions.
RAND found significant improvements in RTW, and the cumulative earnings losses declined over time, Reville said.
The drop in losses was driven by return-to-work gains.
But this did not fully compensate for benefit cuts.
The 2004 changes lowered employer costs, and injured workers experienced important gains in post-injury employment, Reville continued.
The challenge today is to improve benefit adequacy without sacrificing the gains in post-injury employment.
The benefits of public policy analysis
One of the most interesting things about Reville’s case study was the constant evolution of the inquiry: A compromise based on facts was found, giving rise to a new question, to new positioning at the extremes, to new research, to a new compromise and to new questions. He effectively showed that research and policy analysis can improve workers’ compensation policy in many ways. He underscored the promising opportunities in the convergence of policy and research—namely, the ability to update policy parameters; to facilitate the constant evaluation of changes; and to foster smaller, more frequent policy adjustments that are driven by data.
To view Dr. Reville’s slides and listen to the podcast of the 2011 Nachemson lecture, visit: www.iwh.on.ca/nachemson-lecture.