Indemnity Benefit Duration, Maximum Weekly Benefits, and Claim Attributes

Posted Date: October 25, 2010
    

Industry InformationResearch

Published October 23, 2009, updated August 13, 2010

Pricing legislative changes is an integral part of NCCI ratemaking. An increase in the maximum weekly indemnity benefit for temporary total disability claims increases indemnity payments for given injury durations, but, at the same time, these injury durations may increase as well (among claimants affected by the benefit change), thus giving rise to an additional cost effect.

This study makes use of a research framework developed by Krueger (and subsequently employed in several studies) on the effect of changes in the maximum weekly benefit on injury duration. This research framework is a natural experiment, where the treatment effect is measured as the difference in the "post-reform minus pre-reform" differences between treatment and control groups. 

Using data sets provided by the Oregon Department of Consumer and Business Services and the New Mexico Workers' Compensation Administration, this study shows that an increase in the maximum weekly benefit of temporary total disability claims leads to a lengthening of the average benefit duration in the group of affected claimants. This increase in the utilization of indemnity benefits contributes to about 30% of the total cost impact of the reform.