The study, of what it calls "skyrocketing rates" yielding higher premiums, reveals that higher premiums are instead associated with decreases in the Dow Jones Industrial Average and interest rates on U.S. Treasury bonds.
"Insurance companies appear to have been setting premiums according to their returns on the stock and bond markets, not according to the number of claims they have," said J. Paul Leigh, UC Davis professor of public health sciences and senior author of the study. "They invest because they need a financial cushion to pay for claims and, if they lose, raise premiums to recoup their losses."
The analysis of trends was an essential part of the report and was provided so that policy makers would have information available to understand why why regulations should be enacted to protect workers. In 2009 California workers sustained between 3 and 4 million occupational injuries amounting to a cost to employers of $74 billion.
In conducting the study, Leigh and UC Davis postdoctoral scholar Abhinav Bhushan examined U.S. Bureau of Labor Statistics data on incidence rates for injuries and illnesses, along with data from the National Academy of Social Insurance on workers' compensation costs (to employers) and benefits (to workers and medical providers) from 1973 through 2007. Beginning in 1992, the Bureau of Labor Statistics began identifying cases involving more than 30 days away from work, providing the study team with the opportunity to evaluate the impact of more severe work-related injuries and illnesses on premiums. That information was compared with Dow Jones Industrial Average indices and Treasury bond interest rates.
The researchers found that while premiums increased from 1992-2007, claims decreased 1 to 2 percent each year. Claims for serious illnesses and injuries varied, but decreased overall.
The team also discovered that for the entire 35-year timeframe of the study, rising premium rates were closely linked with the Dow Jones Industrial Average or Treasury bonds. As either the Dow or interest rates on Treasury bonds fell, premiums rose, and vice versa.
"The association of premiums with the stock market and Treasury bonds was consistent and strong," said Leigh. "Increasing premiums had nothing to do with the number of injured workers, who often are incorrectly blamed for increasing premiums for employers."
The study also explored the decline in workers' compensation claims over the last two decades. This trend is often linked with the establishment of the Occupational Safety and Health Administration, created by Congress to ensure safe working conditions nationwide. The agency, however, was established in 1970, and the downward trend in claims was not evident until 1993.
Leigh suspects the decline may be related to the transition of some high-injury jobs, such as construction and janitorial services, from large companies to smaller companies, where employees may not belong to unions and could be more fearful of losing their jobs if they complain of work-related injuries or illnesses. According to Leigh, small companies are also less likely to keep complete records, so injuries are recorded and reported less often.
"Insurance commissioners and legislators who regulate premium increases should pay greater attention to trends in claims rather than to insurance companies' returns on investments in allowing premium increases," Leigh said. "More effort should also be directed toward policing contractors and smaller businesses to assure they aren't circumventing workers' compensation laws."
Workers compensation has dramatically changed since its enactment a century ago. The system should not be an economic engine to sustain Industry and the cottage industries that evolved. The policymakers need to focus on maintaining the intent of the original crafters, which was to equally balance the costs upon both labor and Industry so that the costs of the program could be passed along to the consumer. Workers compensation is best served if the system is an economic engine for a safer work environment rather than a monument to a failed manufacturing economy.
For over 4 decades the Law Offices of Jon L. Gelman 1.973.696.7900 jon@gelmans.com have been representing injured workers and their families who have suffered occupational accidents and illnesses.
