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The Effect of State Workers' Compensation Program Changes on the Use of Federal Social Security Disability Insurance

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  • Melissa P. McInerney
  • Kosali I. Simon

Abstract

In addition to traditional forms of private and public medical insurance, two other large programs help pay for costs associated with ill health. In 2007, Workers Compensation (WC) insurance provided $55.4 billion in medical care and cash benefits to employees who are injured at work or contract a work-related illness, and Social Security Disability Insurance (DI) provided $99 billion to individuals who suffer from permanent disabilities and are unable to engage in substantial gainful activity. During the 1990s, real DI outlays increased nearly 70 percent, whereas real WC cash benefit spending fell by 12 percent. There has been concern that part of this relationship between two of the nation’s largest social insurance programs may be due to individuals substituting towards DI as state WC policies tightened. We test this hypothesis using a number of different WC and DI program parameters. We first show that this negative correlation between the national series does not hold over time within states, the level at which a causal relationship should operate. We then test how regulatory changes in state WC program parameters impact WC outcomes (intended effect) and DI outcomes (unintended effect). We find no compelling evidence of WC tightening causing DI rolls to increase, and conclude it is unlikely that state WC changes were a meaningful factor in explaining the rise in DI.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15895.

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Date of creation: Apr 2010
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Publication status: published as MELISSA McINERNEY & KOSALI SIMON, 2012. "The Effect of State Workers’ Compensation Program Changes on the Use of Federal Social Security Disability Insurance," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(1), pages 57-88, 01.
Handle: RePEc:nbr:nberwo:15895

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