Incentive effects of workers' compensation benefits: a literature synthesis

Abstract

Increasingly, the health care community and public policymakers are recognizing the role of economic and psychosocial factors in disability in addition to their traditional attention to environmental, physical, and somatic influences on health and illness. In particular, current discussions of health reform include serious consideration of the integration of workers' compensation and health plan benefits. This article synthesizes what is known regarding one important aspect of health policy: the effects on disability behavior of changes in workers' compensation benefits. The best available literature reveals that an increase of 10 percent in workers' compensation benefits is related to a 1 to 11 percent increase in the frequency of workers' compensation claims and a 2 to 11 percent increase in duration per claim. The article examines the sensitivity of these parameter estimates to differences in research design and proposes an idealized study methodology that, the authors hope, would improve the precision of estimates of the incentive effects of workers' compensation payments.