The Two Things that Every Kid Learns
Thomas Parry, Ph.D., President, Integrated Benefits Institute
March 2008
Risk shifting and cost shifting are two things that every kid learns well – particularly if he has an older
brother.
I learned this lesson most vividly when I was in the second grade. I grew up in the Berkeley Hills in
the San Francisco Bay Area. Two things we had in abundance: steep streets and empty lots. One day,
when my older brother and I were walking home from grammar school, we found an old tire as we
took a short cut through an empty lot right next to the steepest street in Berkeley. Tire. Steep street.
Gravity. Three things no kid could ignore.
My brother shifted to me the risk of rolling that tire down the hill. He got the benefit of seeing it clear
the first cross street before he took off. Later on that day, I bore the full costs.
Employers and cost shifting. Cost and risk shifting have been a favorite strategy of employers as they
designed their benefits programs in individual silos. When the person in charge of the silo was
responsible only for costs in that program, there was every incentive to shift costs and risks to another
program or to external vendors. That lost-time claim reported as short-term disability? It happened on
the job, didn’t it? Are you sure those medical costs aren’t related to a workers’ compensation claim
instead of group health? Isn’t the vendor responsible for those costs?
Employers have come to understand that the risk and cost of absence-based lost productivity can never
be shifted outside the employer’s boundaries. This realization has led many employers to integrate
their absence programs, particularly short-term disability and workers’ compensation lost time.
The perspective held by many, however, is that lost-time claims in the two programs are unduly
challenging because the two programs are so different. We use 263,000 short-term disability and
69,000 workers’ compensation lost-time claims from IBI’s 2006 benchmarking database to examine
these differences.
At first blush – at least according to average lost time in each program – workers’ compensation
claims are longer in duration than their STD counterparts: 123 days vs. 49 days respectively. [See
graphic on next page.] At the same time, it’s clear from the exhibit below that the average length of
lost time in workers’ compensation is unduly influenced by claims of long duration (the so-called
“long tail” in workers’ compensation).
This is demonstrated by comparing median durations in the two programs (the median is the 50th
percentile, where half the claims are longer in duration and half are shorter). The median lost time for
both programs is 30 days. In fact, a significant share of workers’ compensation lost time claims are of
relatively short duration: one third of all workers’ compensation lost time claims in this database
involve 20 days or less of lost time, compared to about one-quarter of STD claims.
WC & STD Disability Duration
25%
STD
WC
% of all claims
20%
STD
- Mean lost days: 49
- Median lost days: 30
WC
15%
- Mean lost days: 123
- Median lost days: 30
10%
5%
0%
1-
9
30- 60 90 120 150 180 210 240 270 300 330 360 390 420 450 480 >50
39 - 69 - 99 - 1 - 1 - 1 - 2 - 2 - 2 -30 -33 -36 - 3 - 4 -45 -48 0
99 29
29 59 89 19 49 79 9
9
9
9
9
lost workdays
To what degree are these differences a result of the structural dimensions of the two programs?
Workers’ compensation is a statutory system with few arbitrary limits on claim duration. Short-term
disability is a contractual system with maximum benefit durations set within the contract. The two
systems may treat different kinds of injuries and illnesses.
To examine the degree to which results of the two programs have different results for similar cases, we
limit the analysis to low-back claims in the two systems. Furthermore, we examine only STD cases
with benefits beginning on the first date of disability and having a maximum of 26 weeks in benefit
duration. We also limit workers’ compensation cases to those closing within 26 weeks of injury (we
have in the database workers’ compensation lost time from date of injury regardless of any waiting
period for benefit payment). In the sample for this analysis, we include 1,891 STD claims and 11,264
workers’ compensation claims. We find that three quarters of all workers’ compensation low-back
claims are closed within 26 weeks of injury.
WC & STD Low-Back Claims
(26 Weeks Maximum Duration)
30%
STD
WC
% of claims
25%
20%
STD
- Mean lost days: 37
- Median lost days: 29
15%
WC
10%
- Mean lost days: 30
- Median lost days: 16
5%
0%
1
-9
10
-1
9
20
40 50 60 70 80 90 10 11 12
13
3
-4 -5 -6 -7 -8 -9 0- 0- 0- 0
- 2 0- 3
9
9
9
9
9
9
9
9
1 0 11 1 2
9
9
9
lost workdays
We get a different view of the two programs when examining low-back claims closed within 26
weeks. Not only is the mean lost work time for STD low-back conditions longer than for similar
workers’ compensation claims – 37 days vs. 30 days, respectively – the median is longer as well (29
days vs. 16 days, respectively). Thus, for this limited analysis of claims closed within 6 months, we
don’t find workers’ compensation low-back claims to be bunched at the “upper end” of the
distribution, thus driving longer average durations in the sample. In fact, nearly half of these workers’
compensation claims have durations of 20 days or fewer compared to a little more than a quarter for
STD.
Commentary. This limited analysis raises some interesting questions. To what degree are durations
shorter in workers’ compensation for similar low-back injuries because of more active case
management and a return-to-work focus? At the same time, there is no doubt that “long-tail” workers’
compensation claims represent a significant challenge to claims management and to integration. For
example, workers’ compensation low-back cases that are open beyond 6 months are litigated 3-1/2
times more often than those closed within 6 months. In addition, these open claims are nearly four
times more likely to involve a permanent disability award, a potentially complicating factor in
workers’ compensation claims management.
One strategy for employers wanting to integrate the two lost-time programs may be to create a triage
system, the purpose of which is to identify as early as possible the more difficult workers’
compensation cases for a different approach to management, and bring the same medical-management
and return-to-work focus for both the workers’ compensation and STD claims that are not so
problematic.