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

In addition to traditional forms of private and public medical insurance, two other large programshelp 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 awork-related illness, and Social Security Disability Insurance (DI) provided $99 billion to individualswho suffer from permanent disabilities and are unable to engage in substantial gainful activity. Duringthe 1990s, real DI outlays increased nearly 70 percent, whereas real WC cash benefit spending fellby 12 percent. There has been concern that part of this relationship between two of the nation’s largestsocial insurance programs may be due to individuals substituting towards DI as state WC policiestightened. We test this hypothesis using a number of different WC and DI program parameters. Wefirst show that this negative correlation between the national series does not hold over time withinstates, the level at which a causal relationship should operate. We then test how regulatory changesin state WC program parameters impact WC outcomes (intended effect) and DI outcomes (unintendedeffect). We find no compelling evidence of WC tightening causing DI rolls to increase, and concludeit is unlikely that state WC changes were a meaningful factor in explaining the rise in DI....