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Joint Project Addresses WC Costs/Benefits:
How Much, How Soon?

By John Millrany - June 25, 2001

Change is on the horizon in the sometimes-volatile world of workers’ compensation costs/benefits. However, this begs the question of how much change and in which direction.

Costs? Probability factor is, always, up. Benefits? The experts are ready to chime in.

A joint effort by the California Commission on Health and Safety and Workers’ Compensation (CHSWC), the Department of Industrial Relations and UC Berkeley is targeted at streamlining analyses to address costs/benefits issues. At its meeting last April in San Francisco, CHSWC voted to distribute a program, developed by Frank Neuhauser at UC Berkeley, known as the Workers’ Compensation Benefit Model.

The model is designed to assist policymakers and stakeholder groups in analyzing potential legislative changes to WC benefit levels for Temporary Disability, Permanent Partial Disability, Life Pensions, Permanent Total Disability and indirect effects on Medical Costs. The model estimates the cost to employers. Using data developed by RAND Corp., the model also estimates the impact of various benefit changes on wage replacement rates for workers.

For amplification, addressed the following questions to Neuhauser.

Q: There have been earlier aspects to this project. What were the results of the initial input?

A: That’s a really interesting question. Early versions of the Benefit Simulation Model were developed two years ago to help evaluate Senate Bill 320 and a version was widely distributed last year during evaluation of SB-996. Those versions focused on estimating the cost of benefit changes. What makes the current version unique and particularly powerful is that besides calculating costs, it estimates the impact of benefit changes on replacement rates for workers’ lost wages. Up to now, the debate has only been about dollars. Now we can expand the discussion to include outcomes for workers. This allows policymakers to examine the trade-off between benefits and costs.

Q: This is a micro-simulation model, based on an underlying claim-level database and developed to run on a personal computer. Please elaborate.

A: Micro-simulation just means that the model runs off several thousand claims that as a group have characteristics similar to all claims in California. Benefits and wage loss replacement are estimated for each of these claims using current benefit levels and proposed benefit levels. Then these results are adjusted to reflect the entire California workers’ compensation system.

Many states estimate changes this way. But, California’s effort has several unique aspects. One of them you have mentioned, that the model runs on most personal computers, desktop and laptop. This means instead of asking a third party to estimate changes, policymakers, legislators and stakeholders can do real time estimates on changes while having meetings or committee hearings. And the model is user friendly enough that almost anyone with a personal computer can quickly learn to test different benefit ideas.

Another unique aspect is the ability of the user to adjust different areas of the model where people may disagree on the how the system works. For example, historically there has been disagreement over if, and how much, benefit increases affect the frequency and severity of claims. The Benefit Simulation Model allows users to apply their own estimates of these utilization effects and the results clearly show what values were used, along with the results.

Q: What is the cost of the model and who is using it?

A: The model is being distributed by the Commission on Health and Safety and Workers’ Compensation. The charge is $45 to cover the cost of shipping and handling and producing the CD-ROM and instructions. A number of Assembly and Senate committees have requested copies. Most major insurers have obtained copies through the California Workers’ Compensation Institute. A number of employer and labor stakeholder groups have also requested copies of the model.

It should be noted that insurers and large, self-insured employers, and even labor organizations, could also have a version of the model developed specifically for their book of business. Benefit changes will have different impacts on parties depending on the distribution of wages and injuries within a party’s experience.

Q: How do you obtain the program?

A: Copies of the model can be obtained by contacting the Commission on Health and Safety and Workers’ Compensation (415) 703-4220.


As a researcher at UC-Berkeley, Frank Neuhauser has undertaken numerous studies of the California Workers’ Compensation System as well as developing models to estimate annual tax revenue and budget expenditures for the State of California. He has a master’s degree in Public Policy from the Goldman School of Public Policy at UC Berkeley.


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