Association for Public Policy Analysis & Management

Workers’ compensation (WC) provides wage replacement and medical coverage to workers injured on the job.  However, many workers with access to WC can also receive similar coverage through other benefits offered by their employers.  This paper examines one aspect of potential cost shifting by measuring the substitution between using WC and employer-provided health insurance (ESHI) to pay for medical expenses.  WC medical coverage has no copayment or deductible associated with coverage, but employees need to prove their injury is work-related and they are often limited in their choice of medical care provider.  The costs for the employee associated with using empoyer-provided health insurance differs across plans in their cost-sharing mechanisms and over the course of a year if a deductible is present.  Differences in plans and time of year provide variation in the future and spot price of medical care and can identify whether or not workers vary their utilization of WC dependent upon the cost of their outside option through ESHI. 

Using MarketScan data containing WC and employer-provided health insurance claims, the analysis first confirms employee sensitivity to future prices of medical care using a difference-in-difference technique.  The differences in plan deductibles and employee enrollment months allows for control of seasonal differences in medical utilization while focusing on variation in the end-of-year price of medical care that comes with differing enrollment months similar to analysis done in Aron-Dine, Einav, Finkelstein, and Cullen (2015).  This analysis is then replicating using the WC claims information for the same set of employees.  The empirical work finds evidence of cost shifting to WC as employees are less likely to use ESHI and more likely to use WC if they enroll in their ESHI later in the year and face a higher end-of-year price of medical care using the ESHI.

Similarly, sensitivity to the spot price of medical care through ESHI can be measured by comparing employees with and without deductibles, and for employees with deductibles comparing the time period before and after the deductible has been met.  Again, the analysis supports the finding that employees are less likely to use ESHI and more likely to use WC when spot prices of medical care covered by ESHI are high.

Measuring the extent of WC cost-shifting is important for a number of reasons.  In addition to providing benefits to employees injured on the job, WC also serves as an incentive for employers who are experience-rated to invest in the safety of their workplaces.   Variation in WC claiming due to changing prices of ESHI medical care is likely to also impact workplace injuries reported to employers, and therefore measuring the extent of WC cost shifting can better inform occupational safety and health surveillance activities.