Comparing Retro to Non Retro Program Costs
The reason given for handing out over one hundred million dollars in “incentives/subsidies” every year to Retro programs was that the incentives did not cost tax payers because the Workers Comp program was “saving money” by giving Retro programs incentives to lower claims and therefore lower costs.
The problem is that there is no evidence that Retro programs have ever lowered costs. To the contrary, there is plenty of evidence that there is NO COST DIFFERENCE between Retro and non-Retro programs (or that Retro programs cost slightly more than non-retro programs). Thus, the Retro “refunds” are merely an additional (but hidden) form of corporate welfare. Instead of being Retro Refunds, they should be called Retro Rip offs.
There have been two major studies in our State comparing the cost-performance of Retro to non-Retro programs. The first was a 1994 study which found that difference between the two programs to be “statistically insignificant”. [1] This study did find ten factors that were significant. Thus, L & I knew or should have known, back in 1994 that Retro Refunds were not justified. Yet they have given more than a billion dollars in Retro refunds since then under the false claim that they saved money.
A second and more definitive study was published in 2005 by the Washington State Department of Labor and Industries Research and Data Services staff. This second study controlled for the effects of industry and size of company (two of the ten factors found to influence length of claims and therefore cost of claims in the 1994 study). What is important about the 2005 study is that they used a variable which was not subject to the coding error found in 2009. Thus, we can have at least some confidence that the conclusions of this study are accurate. The data for the study came from claims during the years 1999 and 2000.
The conclusion of this second study was that, even after 10 years of Retro “Safety Education” Programs in Washington State, Retro programs were not less costly than non-Retro programs. In fact, Retro programs had slightly higher long term claim costs than non-Retro programs!
Here are a couple of charts from this study: [2]
The variable used in the above chart was “excess unemployment” which is above average time delay in returning to work. This in turn is a good predictor of long term claim costs. The above chart shows that in 1999, Non-Retro claims were slightly higher than Retro claims. However, in 2000, the reverse was true. Over the entire two year period of the study, there was no statistically significant difference between the two groups (thus confirming the Null Hypothesis).
A big predictor of cost and length of claims is employer size with larger employers having much lower long term costs. The study concluded that larger employers are more stable and more flexible in terms of having positions to offer workers to get them to return to work sooner. The above chart shows that, in general, Non-Retro programs had slightly lower costs in nearly every size of company.
Of particular significance is the second column because the average BIAW insured company is in the group size of 5 to 9. For this particular group, non-Retro employers have much lower costs than Retro employers. Thus, there is no truth at all to the BIAW myth that their Retro program saves money. Instead, BIAW and Retro are a huge financial burden on their employees, employers and the State’s tax payers.
The study concluded that 7 factors did make a difference. These included gender, marital status, age, industry, firm size, pre-injury employment, pre-injury earnings (economic status), dependent quality and nature of injury.
Given that two of these factors (employment history and earning history) are strongly related to graduation from high school which in turn is strongly related to class sizes, we would be much more likely to lower workers comp claims by putting a billion dollars more into our public schools than by putting a billion dollars into propping up insurance scams like the BIAW.
[1] Cheadle et al (1994) Factors influencing the Duration of Work Related Disability: A Population Based Study of Washington State Workers Compensation, American Journal of Public Health, February 1994 Volume 84, No 2. pages 190 to 197.
[2] Rolle, L, Blanford, B & Grob, H. (2005) Measuring Return to Work: Controlling for the Effects of Size and Industry, Washington State Department of Labor and Industries.
