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Permanent Disability (PPD) Benefits—Alternative Approaches

Permanent Disability (PPD) Benefits—Alternative Approaches . Peter S. Barth February 10, 2004. My Purpose. Introduce PPD—common footing Where it fits in workers’ compensation Describe alternative methods currently used. The Importance of PPD.

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Permanent Disability (PPD) Benefits—Alternative Approaches

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  1. Permanent Disability (PPD) Benefits—Alternative Approaches Peter S. Barth February 10, 2004

  2. My Purpose • Introduce PPD—common footing • Where it fits in workers’ compensation • Describe alternative methods currently used

  3. The Importance of PPD • Nationally, 63% of costs in indemnity cases (NASI, 2003) • In California, 54% of claims with over 7 days of disability result in PPD • High transactions costs

  4. Medical/Legal Expenses, 12 States % where med/legal used Avg exp. where used % where med/legal used Avg exp. where used State State CA 22 $1,268 NC 2 $539 CT 11 825 PA 14 1,268 FL 8 528 TN 2 579 GA 4 598 TX 11 646 IL 15 699 WI 12 1,083 IN 3 581 Median 11 632 MA 14 618 - - - Source: Telles et. al., 2003, WCRI 1997/2000 Claims with More Than 7 Days of Disability

  5. Workers’ Compensation Is a System—Don’t Consider PPD in a Vacuum • Permanent partial disability linkages with TTD • Permanent partial disability linked to return to work • Permanent partial disability linked to health care costs

  6. PPD in California—The Perfect Storm • Paid claims that extend beyond 7 days • Long duration of TD claims in California • Duration of TD correlated with PPD incidence • California permanent partial disability claims are costly relative to other states (Telles, 2003 WCRI) • Return-to-work performance is poor • 10% never return to work predominantly due to injury (Victor, Barth 2003 WCRI)

  7. California Has High Rate of Paid Claims that Run Longer than 7 Days Percent of all paid claims* that have more than 7 days lost time Ratio of all paid claims* to those with more than 7 days lost time State CA 26.2 2.8 CT 24.2 3.1 FL 19.7 4.1 GA 15.3 5.5 TX 26.4 2.8 WI 20.2 4.0 *Paid claims are those where medical or indemnity benefits have been paid. For claims with more than 7 days of disability or where a PPD, a permanent total or a death benefit was paid. Source: Barth, Helvacian, Liu, 2002, WCRI.

  8. TD Duration Rates (%) for Claims with More than 7 Days of Lost Time Duration of Temp Disability WI CA FL GA TX CT 8<Days>13 20 21 11 13 12 21 14<Days>27 16 21 24 21 17 25 28<Days>89 25 32 31 30 27 33 90<Days>119 5 6 6 6 7 6 120<Days>179 7 6 7 7 10 5 180<Days>359 12 8 10 9 14 6 360<Days>719 11 4 7 7 9 2 Days> 720 4 2 3 7 4 1 Total 100 100 100 100 100 100 For claims with 7 days or more of disability or where a PPD, a permanent total or a death benefit was paid. 1996 claims with experience through June 1999. Source: Barth, Helvacian, Liu, 2002, WCRI.

  9. PPD Rates (%) and Duration of TD Duration of Temp Disability CA CT FL GA TX WI 8-13 days 13 12 10 6 9 5 14-27 days 19 19 16 14 19 10 28-89 days 36 43 30 27 38 28 90-119 days 60 60 53 47 59 48 120-179 days 72 72 65 60 69 59 180-359 days 86 77 78 74 78 74 360-719 days 93 84 79 77 83 83 Days> 720 82 68 73 48 87 75 All Cases 54 43 45 43 54 29 For claims with 7 days or more of disability or where a PPD, a permanent total or a death benefit was paid. 1996 CLAIMS WITH EXPERIENCE THROUGH 1999. Source: Barth, Helvacian, Liu, 2002, WCRI.

  10. There Is Considerable Commonality in State Approaches Apart from PPD • Linked to AWW • Wage replacement rates • Maxima and minima • Survivor benefits

  11. Commonality in PPD Is in the Goals • Adequate benefits/horizontal equity • Prompt, efficient delivery • Return to work • Costs in line

  12. When Do PPD Benefits Begin? • Return to work • MMI • Expiration of TD benefits

  13. Approaches to Delivering PPD Benefits • Unscheduled benefits • Impairment • Wage loss • Loss of wage earning capacity • Two tiered (bifurcated) • Scheduled benefits

  14. 19 States Use Impairment Approach • Solely medically determined (15) • Impairment—age modified (2) • Impairment—adjusted (hybrid) (2) Source: Barth and Niss, 1999, WCRI.

  15. 10 States Use Wage-loss Approach • Actual and ongoing earnings losses • 7 States have a maximum duration • States may or may not use MMI Source: Barth and Niss, 1999, WCRI.

  16. 13 States Use Loss of Wage Earning Capacity • Anticipated earnings losses • e.g., “the diminished ability…to compete in an open labor market” • Other factors include age, education, occupation • Difficult to administer Source: Barth and Niss, 1999, WCRI.

  17. 9 States Use Two-Tiered (Bifurcated)Approach • Impairment or loss of wage earning capacity • Impairment sets lower bound for loss of wage earning capacity Source: Barth and Niss, 1999, WCRI.

  18. 43 States Have Scheduled Benefits • Schedules substitute or complement above approaches • Rarely schedule the spine • For total loss: impairment approach • For partial loss: impairment and/or loss of wage earning capacity

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