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Title: Self-insuring for workers' compensation benefits and occupational fatalities

Tuesday, June 14, 2016
Lobby (Annenberg Center)

Author(s): Abay Asfaw

Discussant:

Objectives: We previously published a study on self-insuring for workers' compensation benefits. We showed that, compared to buying insurance, self-insuring was more likely to be positively associated with fewer nonfatal occupational injuries. However, we could not attribute this finding to either reporting or true safety investment effects because, while self-insuring increases the incentive of firms to invest in safety, it also increases their incentive to engage in excessive claims management practices. Therefore, we would expect more discrepancies between reported and actual injures in self-insured than in insured firms. This would represent a ‘reporting effect.' On the other hand, self-insured firms have additional economic incentives to invest in safety and health and this is the major driver for the observed low level of injuries in self-insured firms. This would represent a ‘safety investment' effect. In the current study, we examined the impact of self-insurance on safety investments using a hard to underreport indicator, fatal occupational injuries.

Methods: We used panel data from the Bureau of Labor Statistics and National Academy of Social Insurance. We used data from all states for the period between 1998 and 2005 and a fixed effects vector decomposition technique. We hypothesized that if self-insurance affected only claims-reporting, the association between self-insurance and fatalities would not be statistically significant.

Results: We found that states with high shares of self-insured firms were associated with fewer fatal occupational injuries. After controlling for firm size, labor force composition, industrial mix, and other state-level fixed effects, a ten percentage point increase in the share of self-insured firms was associated with a decrease of the occupational fatality rate by 4.5 percent. When we measured self-insurance as a dichotomous variable (as above and below the median value), we derived similar results. States with above the average share of self-insured firms experienced nearly 4 percent less occupational fatalities compared to states with below the average share of self-insured firms.

Conclusions: The negative association between self-insuring and occupational fatality rates implied that self-insuring was likely to increases the incentive of firms to invest in safety, rather than engage in excessive claims management practices.