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Estimating the costs of occupational injury in the United States
Accid. Anal. and Prev., Vol. 27, No. 6, pp. 741-747, 1995 Copyright 0 1995 Elsevier Science Ltd Printed in the USA. All rights reserved ocal-4575/95 $9.50 + 0.00
Pergamon OOOl-4575(95)00022-4
ESTIMATING THE COSTS OF OCCUPATIONAL INJURY IN THE UNITED STATES TED R. MILLER*
and
MAURY GALBRAITH
National Public Services Research Institute, 8201 Corporate Drive, Suite 220, Landover, MD 20785, U.S.A. (Received I7 November 1993; Accepted 5 March 1995)
Abstract-This article estimates workplace injury costs in the U.S. These costs have been studied in less detail than most injury costs. Our methods, which mostly use regularly published data, produce order-of-magnitude estimates. Overall, workplace injuries cost the U.S. an estimated $140 billion annually. This estimate includes $17 billion in medical and emergency services, $60 billion in lost productivity, $5 billion in insurance costs, and $62 billion in lost quality of life. One sixth of the societal costs result from the 3% of workplace injuries in motor vehicle crashes. Motor vehicle costs per injury are almost 6 times the workplace injury average. Keywords-Occupational
injury, Costs, Workplace injury, Highway crash injury
INTRODUCTION
Finally, cost estimates provide a basis for benefit-cost analyses of safety measures. The cost categories in our national accounting framework include:
Surprisinglylittle is known about what occupational injuries cost. Using a household survey, Marquis (1992) estimated the national cost of nonfatal workplace injury (excluding lost quality of life) at $83 billion. Her estimate includes $31.5 billion in medical care charges (with payments of perhaps $20-25 billion) and $51.5 billion in lost productivity costs. These are prevalence-based costs, the costs incurred in 1989 due to injuries in that year and prior years. The National Safety Council (NSC) annually publishes an incidence-based estimate of the lifetime costs of all fatal and nonfatal workplace injuries occurring in a given year (excluding lost quality of life). For 1990, the estimated cost was $63.8 billion. Many of the unit costs in the NSC estimate were developed in the 1960s and 1970s. Until 1993 they simply were inflated annually. NSC estimated costs covered by insurance, then assumed an equal amount of uninsured cost existed. Their assumption originated in 1926 data (Heinrich et al. 1980). This article presents incidencebased order-of-magnitude workplace injury costs computed from recent data. It also examines the contribution of motor vehicle crashes to these costs. Workplace injury costs are useful for several reasons. They provide a compact, comprehensive, and stable measure for describing a diverse range of injuries. They show how important these injuries are compared to other injuries. They exhibit workplace injury’s contribution to national health care costs.
*Author
(4 Medical and emergency services-hospital
W (4
(d)
(4
for correspondence. 741
and nursing home care, physician services, physical therapy, and such ancillary items as laboratory tests, prescriptions, and wheel chairs. Emergency services include police, fire, and paramedic response, emergency transport, and coroner services. Wage and household work-lost wages, fringe benefits, housework, and other household services. Administrative and legal costs-costs of incident investigation, record keeping, insurance claims processing, and litigation. Product liability litigation costs are excluded. Workplace disruption-overtime pay, loss of special skills, and productivity losses by supervisors and colleagues, and recruitment and training costs associated with deaths and long-term disabilities, among others. Quality of life-reduced quality of life and pain and suffering of workers and their families. Individual workers and their families bear the non-monetary losses associated with workplace injury. Severe impairments can endure for the remainder of the worker’s life. Workers in risky jobs and industries get higher wages. This wage premium for risk taking can be viewed as
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T. R. MILLER and M. GALBRAITH
payment in advance for possible future losses. This relationship between wage compensation and risk of death allows us to value workers’ quality of life losses.
METHODS We estimate workplace injury costs top-down from national expenditure data. In instances where data for cost estimation is limited, rather than leaving cost components out of the analysis we make workable assumptions to evaluate the potential magnitude of these cost factors. Medical and emergency services The United States Workers’ Compensation program requires employers to contribute to an insurance pool to cover the costs of workplace injury and illness. This program is administered at the state level and covers 81% of U.S. workers (Bureau of the Census 1992, Table 587). Employees give up their right to sue their employer for personal damages in exchange for a swift and certain payment from the workers’s compensation program. Employers, in turn, receive limited liability protection against workplace injury and disease. Workers’ Compensation fully covers medical costs, including costs of follow-up care, medical rehabilitation, back braces and other medical devices, institutional and attendant care, and prescriptions. Costs for treatments lacking proven effectiveness (e.g. herbal therapy, holistic medicine, chiropractic treatment for some injuries) are disallowed in some states. Still, Workers’ Compensation data offer sound estimates of medical costs per workplace injury by severity. Miller (1995) supplies incidence estimates (Table 1) that can be multiplied times these unit costs to estimate total costs. Medical costs came from the National Council on Compensation Insurance (NCCI 1989). This source’s major advantage is that it states ultimate
Table 1. Work-related injuries by severity in 1989 and the portion resulting from motor vehicle crashes Work Total Fatal Nonfatal iniuries Non lost wbrk Lost work Non compensable lost work Compensable lost work Hospitalized Nonhospitalized
Work-M.V.
% M.V.
10,958,600 11,600 10,947,oOO 5,853,OOO 5,094,ooo 2,803,OOO
320,100 3,100 3 17,000 149,000 168,000 52,000
2.9 26.7 2.9 2.5 3.3 1.9
2,291,OOO 614,000 1,677,OoO
116,000 31,000 85,000
5.1 5.0 5.1
Source: Miller, T. R. Injuries to workers Journal of Safety Research. 26:75-86; 1995.
and their dependents.
experience-insurers’ estimates of total medical costs that will be paid on Workers’ Compensation claims filed in a single year. The data cover 41 states and are broken down into fatalities, permanently disabling injuries, other injuries qualifying for disability compensation, and injuries with only medical care compensated. Although the data exclude workers in large firms that self-insure, the costs per case should be representative. The disadvantage of these costs is that states reported their experience for differing policy years, with most reporting for 1985 or 1986. Furthermore, no attempt is made to convert the costs to constant-year dollars. That introduces some inaccuracy. An alternative to NCCI (1989) would be the government’s annual reports on total Workers’ Compensation medical payments (e.g. Nelson 1991). These reports count all payments for injury during a given year, regardless of when the injuries happened. Such prevalence-based costs only will equal the lifetime costs of injuries in a given year if injury frequency and mix is constant across years. Nevertheless, they seem to be a reasonable approximation. Estimated total medical costs for workplace injuries covered by Workers’ Compensation are only $0.3 billion (about 2.5%) less when estimated using Nelson, (1991) than when estimated using NCCI (1989). We assume the medical costs per worker injured do not vary with Workers’ Compensation coverage. Thus, total medical costs equal covered costs divided by the percentage of workers covered--81%. Emergency services costs are subsumed in this category. Emergency transport costs were computed by multiplying transport costs per case from Rice et al. (1989) times the 1989 National Health Interview Survey (NHIS) count of injuries at work (National Safety Council 1991). Rather than leave police and fire costs out of the analysis we arbitrarily multiplied transport cost times 1.5. These costs have been estimated accurately only for highway crashes, where they are double emergency transport costs (Miller et al. 1991). They should be lower for workplace injury. Wage and household work For fatalities, work losses were computed at a 4% discount rate using the methods described in Rice et al. (1989) and the NHIS age and sex distribution of worker injuries. Injured individuals lose wages, fringe benefits, and household work. Lost wages were estimated in stages. Nelson (1991) provided Workers’ Compensation survivor benefits and disability payments for disabling injuries and illnesses. Multiplying these times the percentage of claims for injury yields injury disability payments covered by Workers’
Costs of occupational injury
Compensation. We assumed the cost per case by severity in NCCI (1989) applied to other disabling injuries. Workers’ Compensation does not fully replace lost wages, Partial replacement has three causes: (a) (b)
(c)
Compensation payments are income tax-free, full replacement equals after-tax wages. Full compensation would create incentives malinger or behave unsafely (for a review the moral hazard literature, see Hensler et 1991). disability compensation Permanent inadequate.
so to of al. is
Rossman et al. (1991) use simulations of Workers’ Compensation (DeVol 1985, 1986) and lifetime earnings to estimate the percentage of wage loss compensated for covered cases. They conclude that Workers’ Compensation compensated 60.3% of wage loss and none of the fringe benefit loss for covered cases in the mid-1980s. Workers’ Compensation is not the only disability insurance covering workers. To support administrative cost estimation, we estimated the remainder. We assumed other disability insurance per permanently disabling injury equalled disability insurance payments per person permanently disabled in highway crashes (from Miller et al. 1991). The permanent disability rates were computed from detailed claims information (DCI) data of the NCCI. We estimated life insurance payments per worker death averaged $35,000 (in December 1990 dollars). This amount was estimated by age group, then aggregated to all people 18-64. For each age group, the average payout equals the percentage covered, times the number of deaths, times the average payout per death. All data came from the American Council of Life Insurance. Sick leave also offers some wage compensation. Total sick leave was computed by multiplying the number of lost-work injuries, times the expected reimbursement per lost-day case, times the percentage reimbursed by sick leave. Hensler et al. ( 1991) provide the reimbursement data. They disaggregate injuries into work, motor-vehicle, and other. Expected reimbursement equals reimbursed cost per injury (gross minus net loss from their Table 4412) divided by the percentage of injuries with lost work (from Table 4-l 1+$2,200 per lost-day injury. The percentage reimbursement from sick leave equals the percentage reimbursed by sick leave plus half the percentage with two reimbursement sources (generally sick leave and another source according to Hensler et al. from Table 4-13). We assumed that disabling injuries that resulted in work loss, but not enough loss to qualify for
143
Workers’ Compensation, averaged 2 days of lost wage work. Sick leave covers 65.2% of workers (Bureau of the Census 1990). We assumed it covered the same percentage of wage losses for these minor injuries. Sick leave was valued at t.he average nonsupervisory, private-sector wage ($10.17/ hour in December 1990, according to the Economic Report of the President (Council of Economic Advisors 1992)). All lost-wage injuries result in lost fringe benefits. We valued these at 20% of wages, the value of supplements to wages reported in the National Income Accounts (Council of Economic Advisors 1992). Alternatively, we could have used Chamber of Commerce annual survey data. These data show a fringe benefit rate of 23.85% exclusive of payments for time not worked. Fringes paid on sick leave were included in sick leave costs. Household work days lost were estimated to equal work days lost times 365 days per year divided by 243 work days per year. Long-term household work and wage losses were valued using the methods in Rice et al. (1989) and data from that source and Douglass et al. (1990). Each dollar of wage loss was accompanied by $0.214 in lost household production. For short-term losses, unpublished data supporting Hensler et al. (1991) suggested multiplying the household work loss duration times 0.9. Short-term household work loss was valued at the adult average, $6.79/hour (in December 1990 dollars) according to Douglass et al. (1990). Legal and administrative
We computed administrative costs by multiplying insurance payments by source times administrative cost percentages of: (a) (b) (c) (d) (e) (f)
8.4% for health insurance 9% for life and disability insurance 13% for Workers’ Compensation 12.5% for auto liability insurance 11% for auto property damage insurance 1% for sick leave
The administrative cost percentages came from Bureau of the Census (1990, 1992) and Wish (1991). The Workers’ Compensation administrative cost includes most legal costs. We added the legal costs for highway crashes, which we computed in costing on-the-job crashes (see below for methodology). Workplace disruption
Rather than leaving out work disruption and employer productivity loss costs we made several arbitrary assumptions in order to determine their magnitude:
744
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@I
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@I
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T. R. MILLER
A quarter of the time wasted by deaths, compensable injuries, and injuries outside of work is supervisory time. A fatal injury costs 4 months of productivity (wages plus fringe benefits). Recruitment, retraining, and lost special skills are the major cost factors. A compensable lost work injury costs one month of productivity for other employees. On average, such injuries involve 41 days of work loss. On-the-job non-compensable lost work injuries cost 2 days of supervisory time and 4 days of non-supervisory time. Work-related crash injuries without lost work cost 2 days of supervisory time and one day of non-supervisory time. This assumption is consistent with PHH FleetAmerica’s unpublished data from their subscribers. Other on-duty injuries without work loss cost one supervisory day and one non-supervisory day.
Quality of life
Willingness to pay is a modern approach to injury costing. It values life from what people state they are willing to pay, or more commonly what they actually pay for small gains in their survival probability. These values can be estimated from the wage premiums that compensate workers for taking risky jobs. Miller (1990) identifies 30 credible studies showing the amount paid. The average across these studies is $24 (in December 1990 dollars) in after-tax wage compensation per 1 in 100,000 chance of being killed on the job during the year. That equates to $2.4 million per workplace fatality. Viscusi (1993) suggests higher values, $3 to $5 million per workplace fatality. Willingness to pay values measure comprehensive family costs, the comprehensive impact that death or injury has on a family. They include the family’s expected losses of after-tax wages, fringe benefits, and household production, as well as its pain, suffering, and reduced quality of life. The quality of life costestimated tentatively at $1.9 million per fatality-was computed by subtracting lost after-tax wages, fringes, and household work from the wage compensation per fatality. Multiplying the 11,600 workplace fatalities times the quality of life value gives the workplace fatality quality of life cost. Miller (1990) identifies 7 studies that estimate 25-45% of workplace risk compensation is for fatality risk, and uses the 35% midpoint. Applying that percentage to the fatality quality of life cost yields the nonfatal injury quality of life cost (($22 million x ((l/0.35) - 1)) = $40 million). This implies that costs of wage-risk tradeoffs for serious nonfatal injury total $81 billion, about $700 per employee. This could be
and
M. GALBRAITH
a substantial underestimate. If we instead used values from five studies that directly examined compensating wages to avoid nonfatal injury (reviewed in Miller et al. 1989 and Viscusi 1993), costs of wage-risk tradeoffs would average almost $1400 per employee. Considerable uncertainty surrounds these estimates. The coefficient of variation for the value of a statistical life is on the order of 30% (Miller 1990). Variation is certainly higher for the estimates of quality of life lost, especially from nonfatal injury. Comprehensive family, or “willingness to pay”, costs, however, are the only costs justified by economic theory for use in benefit-cost analyses when valuing “life and limb” (Bailey 1980; Gillette and Hopkins 1988; Jones-Lee 1982; Menzel 1986; National Safety Council 1991; Thompson 1980; U.S. Office of Management and Budget 1989; Weimer and Vining 1989).
Cost of on-the-job
highway crash injuries
Costs of on-the-job crash injuries are included in the totals. We also computed a separate break out of these costs. On-the-job crashes include crashes in commercial and passenger vehicles, as well as workzone crashes. To compute them we converted the costs per crash by severity in Miller (1993) into the incidence categories used in Miller (1995). Multiplying workplace incidence times these unit costs yielded the on-the-job costs. The costs for deaths and hospitalized injuries come directly from Miller et al. (1991). For nonhospitalized compensable lost work injury, we used the costs for medically treated nonhospitalized crash injuries. For the remaining injuries, we assigned injuries with lost work the average medical treatment, emergency services, and travel delay costs per case for medically treated injuries, then allocated the remaining costs in these categories to the injuries without work loss. We assigned all productivity losses to the lost-work injuries. Legal and administrative costs were allocated proportionate to the medical and productivity costs. We arbitrarily assigned all the lost quality of life associated with medically treated injuries and a quarter of the loss for untreated injuries to the lost-work cases, with the remainder assigned to the cases without work loss. Importantly, these allocations preserve Miller et al.‘s total crash costs. They also assign a higher quality of life loss per nonfatal injury to crash injuries than other injuries. In part, this mirrors the greater severity of crash injuries. To the extent that it results from comparing carefully estimated crash costs with a quick-and-dirty, conservative estimate of workplace
Costs of occupational
injury costs, however, it overestimates crash injury’s importance. Inflators All costs in this paper are in December 1990 dollars. The inflators used to inflate each cost category (from the Economic Report of the President, Annual Council of Economic Advisors 1992) are: Medical Emergency Services Wage/House Work Legal and Admin. Work Disruption Quality of Life Insurance
Consumer Price IndexMedical Consumer Price Index-All Items Private Nonsupervisory Hourly Earnings Consumer Price Index-All Items Private Nonsupervisory Hourly Earnings Private Nonsupervisory Hourly Earnings Consumer Price Index-All Items RESULTS
Overall, workplace injuries cost society on the order of $140 billion annually. This includes $17 billion in medical and emergency services, $60 billion in employee and employer productivity losses, $5 billion in insurance costs, and $62 billion in lost quality of life. Table 2 summarizes our workplace injury costs by cost category. Our medical payments estimate is much lower than Marquis’ (1992) estimate of $31.5 billion Table 2. Annual costs of workplace injuries and portion of costs in motor vehicle crashes (in billions of December 1990 dollars)
Cost category
All injury
Medical/emergency srvs. Wage/fringe work Household work Work disruption Legal & administrative Quality of life Total@ Injured people Cost/injury
$17 B 42 B 7.5 B 10 B 5.4 B 62 B $140 B 10.958 M $13,000
Motor
vehicle
$1 B 3.4 B 0.7 B 0.4 B 0.9 B 18 B $24 B 321 K $75,000
% Motor vehicle* 5.8% 8.2% 9.4% 4.3% 16.7% 28.4% 16.7% 3.0%
*Percentages and sums were computed before rounding. Note: Excludes insurance overhead expenses (covering sales, underwriting, etc.) of $3.4 billion annually. Source: Costs for all injury computed primarily from U.S. Statistical Abstract data on percentage of employees covered by different types of benefits, Workers’ Compensation payments, insurance administrative cost percentages; and from the wage-risk premium studies reviewed in Miller (1990). Motor vehicle costs computed with incidence data from Miller (1993).
injury
745
in charges. Our estimate comes from Workers’ Compensation programs which are supposed to pay all medical costs for about 80% of workplace injuries. The discrepancy is explained partly by the differences between charges and payments. Marquis’ data suggest that workers are paying a much larger share than the system intends. Nevertheless, adjusting Marquis’s medical care charges to eliminate a large statistical outlier (an individual who self paid $400,000 in additional medical expenses), her estimated medical charges total $26.5 billion. Payments typically are lower than charges in the American health care system, so payments might total perhaps $18-23 billion. Adding Marquis’s out-of-pocket medical and non-medical charges to our estimate, medical payments would total $22 billion. Our estimates are conservative and perhaps more accurate than Marquis’. The discrepancy points to the need for further examination of workplace injury costs. Table 2 also highlights the portion of costs attributable to motor vehicle crashes. Crash injuries are 3% of all workplace injuries but account for one sixth of work-related injury costs. Their per-injury costs are almost six times the average. The high cost of these injuries results from their high fatality rate and from litigation with non-employees over multivehicle crashes. On-the-job crash injuries account for 8% of total crash costs from Miller (1993). Another $11 billion, not detailed here, results from injuries to others involved in crashes with at-fault commercial vehicles. Costs for work-related crashes are higher than for other crashes. Worker injuries cause larger average wage losses per day unable to work since people injured away from work may be unemployed. Table 3 breaks the injury costs down by severity. Compensable lost work injuries dominate. Less serious nonfatal injuries comprise only 5% of the total workplace injury costs. Table 4 presents costs per injury computed from the total cost in Table 2 and the incidence estimates in Miller (1995) (Table 1). Costs average $2.5 million per fatality, $46 thousand per compensable injury, $1600 per non-compensable lost work injury, and $650 per injury without work loss. Workplace injuries are 20% of total injuries. They appear to be atypically serious, accounting for 32% of total injury medical care costs as reported by Rice et al. (1989) and 38% of total injury medical care costs as reported by Miller et al. (1993). Quality of life losses account for 43% of workplace injury costs. By comparison, when more carefully measured, they account for 61% of motor vehicle crash costs (Miller 1993) and 73% (Miller et al. 1995) to 77% (Miller et al. 1993) of victim crime costs.
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T. R. MILLER and M. GALBRAITH
Table 3. Costs of workplace
injury
by severity and cost category
(in millions
of December
1990 dollars)
Nonfatal Cost category
Fatal
Medical/EMS Wage/fringe Household work Work disruption Legal & admin. Subtotal Quality of life TOTAL % of% % of cases
Compensable
150 6000 1300 120 220 $7800 22,000 $29,000 20.5 0.1
lost work
Non compensable
14,000 35,000 5800 5700 4800 $66,000 40,000 $100,000 73.8 20.9
lost work
Non lost work
All
1800 0 0 1700 210 $3600 0 $3600 2.5 53.4
17,000 42,000 7500 10,000 5400 $82,000 62,000 $140,000 100 100
840 550 410 2600 $4:: S45Oi 3.1 25.6
Note: Excludes insurance overheads. Excludes $1 billion in work disruption caused by PDO crashes. Disabling lost day injuries are injuries that would qualify as disabling under Workers’ Compensation if the worker was covered.
Table 4. Costs per injury
by severity (in December
1990 dollars)
Nonfatal Fatal
Cost category Medical/EMS Wage/fringe Household work Work disruption Legal & admin. Subtotal Quality of life TOTAL
Compensable
13,000 520,000 110,000 9900 18,000 $670,000 1,900,000 S2,500,000
Source: Comnuted using incidence of Safety Research 26:75-8611995
lost work
6300 15,000 2500 2500 2100 $29,000 18,000 $46,000 estimates
Acknowledgements-This work was funded in part by the Centers for Disease Control under grant R49/CCR 303657-02, the National Highway Traffic Safety Administration under cooperative agreement DTNH22-91-Z-05140, and the National Institute on Occupational Safety and Health under Purchase Order 0009044165. The work was performed at The Urban Institute. Thanks to Shelli Rossman and John Douglass for their help. The analyses and opinions are solely the authors’.
REFERENCES risks DC:
to life: Measurement American Enterprise
of the Insti-
lost work
Non lost work
300 200 100 900 50 $1600
$6;:
$1,6000
$65:
from Miller, T. R. Injuries
Further research on the cost of workplace injury seems a priority. Injury costs typically are estimated bottom-up from analyses of data bases that sample typical incidents. These estimates instead proceed topdown from national expenditure data. That procedure almost surely is less accurate. Nevertheless, this article affirms workplace injury’s substantial contribution to national health care costs and to injury costs. The cost estimates identify the workplace as an important arena at which to direct injury intervention programs. On-the-job motor vehicle crashes are a particularly costly injury category.
Bailey, M. J. Reducing benefits. Washington, tute: 1980.
Non compens.
to workers
300 0 0 300
and their dependents.
All 1600 3800 700 900 500 $7500 5600 $13,000 Journal
of the Census. U.S. statistical abstract 1989. Washington, DC: U.S. Government Printing Office: 1990. Bureau of the Census. U.S. statistical abstract 1991. Washington, DC: U.S. Government Printing Office: 1992. Council of Economic Advisors. Economic Report of the President 1992. Washington, DC: U.S. Government Printing Office: 1992. DeVol, K. Income replacement for short-term disability: The role of Workers’ Compensation. Cambridge, MA: Workers’ Compensation Research Institute: 1985. DeVol, K. Income replacement for long-term disability. Cambridge, MA: Workers’ Compensation Research Institute: 1986. Douglass, J. B.; Kenney G. M.; Miller T. R. Which estimates of household production are best? J. Forensic Econ. 425-46; 1990. Gillette, C. P.; Hopkins T. D. Report to the Administrative Conference of the United States: Federal Agency Valuations of Human Life. Washington, DC: Administrative Conference of the U.S.; 1988. Heinrich, H. W.; Petersen D.; Roos, N. Industrial accident prevention. New York, NY: McGraw-Hill; 1980. Hensler, D. R.; Marquis, M. S.; Abrahamse A. F.; Berry, S. H.; Ebener, P. A.; Lewis, E. G.; Ling, E. A.; MacCoun, R. J.; Manning, W. G.; Rogowski, J. A.; Vaiana, M. E. Compensation for accidental injuries in the United States. Santa Monica, CA: RAND; 1991. Jones-Lee, M. W. The value of life and safety: Editors introduction. New York, NY: North-Holland Publishing; 1982. Bureau
Costs of occupational injury Marquis, M. S. Economic consequences of work-related injuries. Santa Monica, CA: RAND; 1992. Menzel, P. T. Prior consent and valuing life. In: Agich, G. J.; Begley, C. E., eds. The price of health. Boston, MA: D. Reidel Publishing Company: 1986; 91-112. Miller, T. R. The plausible range for the value of life: Red herrings among the mackerel. J. Forensic Econ. 3:17-40; 1990. Miller, T. R. Costs and functional consequences of U.S. roadway crashes. Accid. Anal. Prev. 25593-607; 1993. Miller, T. R. Injuries to workers and their dependents. J. Safety Res. Accepted for 1995 publication. Miller, T. R.; Calhoun, C.; Arthur, W. B. Utility-adjusted impairment years: A low-cost approach to morbidity valuation. In: Estimating and valuing morbidity in a policy context: Proceedings of a June 1989 Association of Environmental and Resource Economists workshop, Washington, DC: U.S. Environmental Protection Agency: 1989. Miller, T. R.; Cohen, M. A.; Rossman, S. Victim costs of violent crime and resulting injuries. Health Affairs. Winter:l86-197; 1993. Miller, T. R. Injuries to workers and their dependents. J. Safety Res. 26:75-86; 1995. Miller, T. R.; Cohen, M. A.; Wiersema, B. Crime in the United States: victim costs and consequences. Washington, DC: National Institute of Justice: 1995. Miller, T. R.; Viner, J.; Rossman, S.; Pindus, N.; Gellert, W.; Douglass, J.; Dillingham, A.; Blomquist, G. The costs of highway crashes. Washington, DC: The Urban Institute and Federal Highway Administration: 1991.
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National Council on Compensation Insurance (NCCI) Insurance expense exhibit: Actuarial operation memorandum to subscribers. Boca Raton, FL: NCCI; 24 October 1989. National Safety Council. Accident facts, 1990 edition. Chicago, IL: National Safety Council; 1991. Nelson, W. J. Jr. Workers’ Compensation: Coverage, benefits, and costs, 1988. Social Security Bulletin 5412-20; March 1991. Rice, D. P.; MacKenzie, E. J. Associates. Cost of injury in the United States: A report to congress. San Francisco, CA: Institute for Health and Aging, University of California, and Johns Hopkins University: 1989. Rossman, S. B.; Miller, T. R.; Douglass, J. B. The costs of occupational traumatic and cumulative injuries: Final report to the National Institute for Occupational Safety and Health (NIOSH). Washington, DC: The Urban Institute: 1991. Thompson, M. S. Benefit-cost analysis for program evaluation. Beverly Hills, CA: Sage Publications: 1980. U.S. Office of Management and Budget. Regulatory program of the United States. Washington, DC: U.S. Government Printing Office: 1989. Viscusi, W. K. The value of risks to life and health. J. Econ. Lit. 31:1912-1946; 1993. Weimer, D.; Vining, A. Policy analysis: Concepts and practice. Englewood Cliffs, NJ: Prentice Hall; 1989. Wish, P. Review and preview: 1990 and 1991. Best’s Review 91:14-24; 1991.
Pergamon OOOl-4575(95)00022-4
ESTIMATING THE COSTS OF OCCUPATIONAL INJURY IN THE UNITED STATES TED R. MILLER*
and
MAURY GALBRAITH
National Public Services Research Institute, 8201 Corporate Drive, Suite 220, Landover, MD 20785, U.S.A. (Received I7 November 1993; Accepted 5 March 1995)
Abstract-This article estimates workplace injury costs in the U.S. These costs have been studied in less detail than most injury costs. Our methods, which mostly use regularly published data, produce order-of-magnitude estimates. Overall, workplace injuries cost the U.S. an estimated $140 billion annually. This estimate includes $17 billion in medical and emergency services, $60 billion in lost productivity, $5 billion in insurance costs, and $62 billion in lost quality of life. One sixth of the societal costs result from the 3% of workplace injuries in motor vehicle crashes. Motor vehicle costs per injury are almost 6 times the workplace injury average. Keywords-Occupational
injury, Costs, Workplace injury, Highway crash injury
INTRODUCTION
Finally, cost estimates provide a basis for benefit-cost analyses of safety measures. The cost categories in our national accounting framework include:
Surprisinglylittle is known about what occupational injuries cost. Using a household survey, Marquis (1992) estimated the national cost of nonfatal workplace injury (excluding lost quality of life) at $83 billion. Her estimate includes $31.5 billion in medical care charges (with payments of perhaps $20-25 billion) and $51.5 billion in lost productivity costs. These are prevalence-based costs, the costs incurred in 1989 due to injuries in that year and prior years. The National Safety Council (NSC) annually publishes an incidence-based estimate of the lifetime costs of all fatal and nonfatal workplace injuries occurring in a given year (excluding lost quality of life). For 1990, the estimated cost was $63.8 billion. Many of the unit costs in the NSC estimate were developed in the 1960s and 1970s. Until 1993 they simply were inflated annually. NSC estimated costs covered by insurance, then assumed an equal amount of uninsured cost existed. Their assumption originated in 1926 data (Heinrich et al. 1980). This article presents incidencebased order-of-magnitude workplace injury costs computed from recent data. It also examines the contribution of motor vehicle crashes to these costs. Workplace injury costs are useful for several reasons. They provide a compact, comprehensive, and stable measure for describing a diverse range of injuries. They show how important these injuries are compared to other injuries. They exhibit workplace injury’s contribution to national health care costs.
*Author
(4 Medical and emergency services-hospital
W (4
(d)
(4
for correspondence. 741
and nursing home care, physician services, physical therapy, and such ancillary items as laboratory tests, prescriptions, and wheel chairs. Emergency services include police, fire, and paramedic response, emergency transport, and coroner services. Wage and household work-lost wages, fringe benefits, housework, and other household services. Administrative and legal costs-costs of incident investigation, record keeping, insurance claims processing, and litigation. Product liability litigation costs are excluded. Workplace disruption-overtime pay, loss of special skills, and productivity losses by supervisors and colleagues, and recruitment and training costs associated with deaths and long-term disabilities, among others. Quality of life-reduced quality of life and pain and suffering of workers and their families. Individual workers and their families bear the non-monetary losses associated with workplace injury. Severe impairments can endure for the remainder of the worker’s life. Workers in risky jobs and industries get higher wages. This wage premium for risk taking can be viewed as
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T. R. MILLER and M. GALBRAITH
payment in advance for possible future losses. This relationship between wage compensation and risk of death allows us to value workers’ quality of life losses.
METHODS We estimate workplace injury costs top-down from national expenditure data. In instances where data for cost estimation is limited, rather than leaving cost components out of the analysis we make workable assumptions to evaluate the potential magnitude of these cost factors. Medical and emergency services The United States Workers’ Compensation program requires employers to contribute to an insurance pool to cover the costs of workplace injury and illness. This program is administered at the state level and covers 81% of U.S. workers (Bureau of the Census 1992, Table 587). Employees give up their right to sue their employer for personal damages in exchange for a swift and certain payment from the workers’s compensation program. Employers, in turn, receive limited liability protection against workplace injury and disease. Workers’ Compensation fully covers medical costs, including costs of follow-up care, medical rehabilitation, back braces and other medical devices, institutional and attendant care, and prescriptions. Costs for treatments lacking proven effectiveness (e.g. herbal therapy, holistic medicine, chiropractic treatment for some injuries) are disallowed in some states. Still, Workers’ Compensation data offer sound estimates of medical costs per workplace injury by severity. Miller (1995) supplies incidence estimates (Table 1) that can be multiplied times these unit costs to estimate total costs. Medical costs came from the National Council on Compensation Insurance (NCCI 1989). This source’s major advantage is that it states ultimate
Table 1. Work-related injuries by severity in 1989 and the portion resulting from motor vehicle crashes Work Total Fatal Nonfatal iniuries Non lost wbrk Lost work Non compensable lost work Compensable lost work Hospitalized Nonhospitalized
Work-M.V.
% M.V.
10,958,600 11,600 10,947,oOO 5,853,OOO 5,094,ooo 2,803,OOO
320,100 3,100 3 17,000 149,000 168,000 52,000
2.9 26.7 2.9 2.5 3.3 1.9
2,291,OOO 614,000 1,677,OoO
116,000 31,000 85,000
5.1 5.0 5.1
Source: Miller, T. R. Injuries to workers Journal of Safety Research. 26:75-86; 1995.
and their dependents.
experience-insurers’ estimates of total medical costs that will be paid on Workers’ Compensation claims filed in a single year. The data cover 41 states and are broken down into fatalities, permanently disabling injuries, other injuries qualifying for disability compensation, and injuries with only medical care compensated. Although the data exclude workers in large firms that self-insure, the costs per case should be representative. The disadvantage of these costs is that states reported their experience for differing policy years, with most reporting for 1985 or 1986. Furthermore, no attempt is made to convert the costs to constant-year dollars. That introduces some inaccuracy. An alternative to NCCI (1989) would be the government’s annual reports on total Workers’ Compensation medical payments (e.g. Nelson 1991). These reports count all payments for injury during a given year, regardless of when the injuries happened. Such prevalence-based costs only will equal the lifetime costs of injuries in a given year if injury frequency and mix is constant across years. Nevertheless, they seem to be a reasonable approximation. Estimated total medical costs for workplace injuries covered by Workers’ Compensation are only $0.3 billion (about 2.5%) less when estimated using Nelson, (1991) than when estimated using NCCI (1989). We assume the medical costs per worker injured do not vary with Workers’ Compensation coverage. Thus, total medical costs equal covered costs divided by the percentage of workers covered--81%. Emergency services costs are subsumed in this category. Emergency transport costs were computed by multiplying transport costs per case from Rice et al. (1989) times the 1989 National Health Interview Survey (NHIS) count of injuries at work (National Safety Council 1991). Rather than leave police and fire costs out of the analysis we arbitrarily multiplied transport cost times 1.5. These costs have been estimated accurately only for highway crashes, where they are double emergency transport costs (Miller et al. 1991). They should be lower for workplace injury. Wage and household work For fatalities, work losses were computed at a 4% discount rate using the methods described in Rice et al. (1989) and the NHIS age and sex distribution of worker injuries. Injured individuals lose wages, fringe benefits, and household work. Lost wages were estimated in stages. Nelson (1991) provided Workers’ Compensation survivor benefits and disability payments for disabling injuries and illnesses. Multiplying these times the percentage of claims for injury yields injury disability payments covered by Workers’
Costs of occupational injury
Compensation. We assumed the cost per case by severity in NCCI (1989) applied to other disabling injuries. Workers’ Compensation does not fully replace lost wages, Partial replacement has three causes: (a) (b)
(c)
Compensation payments are income tax-free, full replacement equals after-tax wages. Full compensation would create incentives malinger or behave unsafely (for a review the moral hazard literature, see Hensler et 1991). disability compensation Permanent inadequate.
so to of al. is
Rossman et al. (1991) use simulations of Workers’ Compensation (DeVol 1985, 1986) and lifetime earnings to estimate the percentage of wage loss compensated for covered cases. They conclude that Workers’ Compensation compensated 60.3% of wage loss and none of the fringe benefit loss for covered cases in the mid-1980s. Workers’ Compensation is not the only disability insurance covering workers. To support administrative cost estimation, we estimated the remainder. We assumed other disability insurance per permanently disabling injury equalled disability insurance payments per person permanently disabled in highway crashes (from Miller et al. 1991). The permanent disability rates were computed from detailed claims information (DCI) data of the NCCI. We estimated life insurance payments per worker death averaged $35,000 (in December 1990 dollars). This amount was estimated by age group, then aggregated to all people 18-64. For each age group, the average payout equals the percentage covered, times the number of deaths, times the average payout per death. All data came from the American Council of Life Insurance. Sick leave also offers some wage compensation. Total sick leave was computed by multiplying the number of lost-work injuries, times the expected reimbursement per lost-day case, times the percentage reimbursed by sick leave. Hensler et al. ( 1991) provide the reimbursement data. They disaggregate injuries into work, motor-vehicle, and other. Expected reimbursement equals reimbursed cost per injury (gross minus net loss from their Table 4412) divided by the percentage of injuries with lost work (from Table 4-l 1+$2,200 per lost-day injury. The percentage reimbursement from sick leave equals the percentage reimbursed by sick leave plus half the percentage with two reimbursement sources (generally sick leave and another source according to Hensler et al. from Table 4-13). We assumed that disabling injuries that resulted in work loss, but not enough loss to qualify for
143
Workers’ Compensation, averaged 2 days of lost wage work. Sick leave covers 65.2% of workers (Bureau of the Census 1990). We assumed it covered the same percentage of wage losses for these minor injuries. Sick leave was valued at t.he average nonsupervisory, private-sector wage ($10.17/ hour in December 1990, according to the Economic Report of the President (Council of Economic Advisors 1992)). All lost-wage injuries result in lost fringe benefits. We valued these at 20% of wages, the value of supplements to wages reported in the National Income Accounts (Council of Economic Advisors 1992). Alternatively, we could have used Chamber of Commerce annual survey data. These data show a fringe benefit rate of 23.85% exclusive of payments for time not worked. Fringes paid on sick leave were included in sick leave costs. Household work days lost were estimated to equal work days lost times 365 days per year divided by 243 work days per year. Long-term household work and wage losses were valued using the methods in Rice et al. (1989) and data from that source and Douglass et al. (1990). Each dollar of wage loss was accompanied by $0.214 in lost household production. For short-term losses, unpublished data supporting Hensler et al. (1991) suggested multiplying the household work loss duration times 0.9. Short-term household work loss was valued at the adult average, $6.79/hour (in December 1990 dollars) according to Douglass et al. (1990). Legal and administrative
We computed administrative costs by multiplying insurance payments by source times administrative cost percentages of: (a) (b) (c) (d) (e) (f)
8.4% for health insurance 9% for life and disability insurance 13% for Workers’ Compensation 12.5% for auto liability insurance 11% for auto property damage insurance 1% for sick leave
The administrative cost percentages came from Bureau of the Census (1990, 1992) and Wish (1991). The Workers’ Compensation administrative cost includes most legal costs. We added the legal costs for highway crashes, which we computed in costing on-the-job crashes (see below for methodology). Workplace disruption
Rather than leaving out work disruption and employer productivity loss costs we made several arbitrary assumptions in order to determine their magnitude:
744
(4
@I
(4
@I
(4
(0
T. R. MILLER
A quarter of the time wasted by deaths, compensable injuries, and injuries outside of work is supervisory time. A fatal injury costs 4 months of productivity (wages plus fringe benefits). Recruitment, retraining, and lost special skills are the major cost factors. A compensable lost work injury costs one month of productivity for other employees. On average, such injuries involve 41 days of work loss. On-the-job non-compensable lost work injuries cost 2 days of supervisory time and 4 days of non-supervisory time. Work-related crash injuries without lost work cost 2 days of supervisory time and one day of non-supervisory time. This assumption is consistent with PHH FleetAmerica’s unpublished data from their subscribers. Other on-duty injuries without work loss cost one supervisory day and one non-supervisory day.
Quality of life
Willingness to pay is a modern approach to injury costing. It values life from what people state they are willing to pay, or more commonly what they actually pay for small gains in their survival probability. These values can be estimated from the wage premiums that compensate workers for taking risky jobs. Miller (1990) identifies 30 credible studies showing the amount paid. The average across these studies is $24 (in December 1990 dollars) in after-tax wage compensation per 1 in 100,000 chance of being killed on the job during the year. That equates to $2.4 million per workplace fatality. Viscusi (1993) suggests higher values, $3 to $5 million per workplace fatality. Willingness to pay values measure comprehensive family costs, the comprehensive impact that death or injury has on a family. They include the family’s expected losses of after-tax wages, fringe benefits, and household production, as well as its pain, suffering, and reduced quality of life. The quality of life costestimated tentatively at $1.9 million per fatality-was computed by subtracting lost after-tax wages, fringes, and household work from the wage compensation per fatality. Multiplying the 11,600 workplace fatalities times the quality of life value gives the workplace fatality quality of life cost. Miller (1990) identifies 7 studies that estimate 25-45% of workplace risk compensation is for fatality risk, and uses the 35% midpoint. Applying that percentage to the fatality quality of life cost yields the nonfatal injury quality of life cost (($22 million x ((l/0.35) - 1)) = $40 million). This implies that costs of wage-risk tradeoffs for serious nonfatal injury total $81 billion, about $700 per employee. This could be
and
M. GALBRAITH
a substantial underestimate. If we instead used values from five studies that directly examined compensating wages to avoid nonfatal injury (reviewed in Miller et al. 1989 and Viscusi 1993), costs of wage-risk tradeoffs would average almost $1400 per employee. Considerable uncertainty surrounds these estimates. The coefficient of variation for the value of a statistical life is on the order of 30% (Miller 1990). Variation is certainly higher for the estimates of quality of life lost, especially from nonfatal injury. Comprehensive family, or “willingness to pay”, costs, however, are the only costs justified by economic theory for use in benefit-cost analyses when valuing “life and limb” (Bailey 1980; Gillette and Hopkins 1988; Jones-Lee 1982; Menzel 1986; National Safety Council 1991; Thompson 1980; U.S. Office of Management and Budget 1989; Weimer and Vining 1989).
Cost of on-the-job
highway crash injuries
Costs of on-the-job crash injuries are included in the totals. We also computed a separate break out of these costs. On-the-job crashes include crashes in commercial and passenger vehicles, as well as workzone crashes. To compute them we converted the costs per crash by severity in Miller (1993) into the incidence categories used in Miller (1995). Multiplying workplace incidence times these unit costs yielded the on-the-job costs. The costs for deaths and hospitalized injuries come directly from Miller et al. (1991). For nonhospitalized compensable lost work injury, we used the costs for medically treated nonhospitalized crash injuries. For the remaining injuries, we assigned injuries with lost work the average medical treatment, emergency services, and travel delay costs per case for medically treated injuries, then allocated the remaining costs in these categories to the injuries without work loss. We assigned all productivity losses to the lost-work injuries. Legal and administrative costs were allocated proportionate to the medical and productivity costs. We arbitrarily assigned all the lost quality of life associated with medically treated injuries and a quarter of the loss for untreated injuries to the lost-work cases, with the remainder assigned to the cases without work loss. Importantly, these allocations preserve Miller et al.‘s total crash costs. They also assign a higher quality of life loss per nonfatal injury to crash injuries than other injuries. In part, this mirrors the greater severity of crash injuries. To the extent that it results from comparing carefully estimated crash costs with a quick-and-dirty, conservative estimate of workplace
Costs of occupational
injury costs, however, it overestimates crash injury’s importance. Inflators All costs in this paper are in December 1990 dollars. The inflators used to inflate each cost category (from the Economic Report of the President, Annual Council of Economic Advisors 1992) are: Medical Emergency Services Wage/House Work Legal and Admin. Work Disruption Quality of Life Insurance
Consumer Price IndexMedical Consumer Price Index-All Items Private Nonsupervisory Hourly Earnings Consumer Price Index-All Items Private Nonsupervisory Hourly Earnings Private Nonsupervisory Hourly Earnings Consumer Price Index-All Items RESULTS
Overall, workplace injuries cost society on the order of $140 billion annually. This includes $17 billion in medical and emergency services, $60 billion in employee and employer productivity losses, $5 billion in insurance costs, and $62 billion in lost quality of life. Table 2 summarizes our workplace injury costs by cost category. Our medical payments estimate is much lower than Marquis’ (1992) estimate of $31.5 billion Table 2. Annual costs of workplace injuries and portion of costs in motor vehicle crashes (in billions of December 1990 dollars)
Cost category
All injury
Medical/emergency srvs. Wage/fringe work Household work Work disruption Legal & administrative Quality of life Total@ Injured people Cost/injury
$17 B 42 B 7.5 B 10 B 5.4 B 62 B $140 B 10.958 M $13,000
Motor
vehicle
$1 B 3.4 B 0.7 B 0.4 B 0.9 B 18 B $24 B 321 K $75,000
% Motor vehicle* 5.8% 8.2% 9.4% 4.3% 16.7% 28.4% 16.7% 3.0%
*Percentages and sums were computed before rounding. Note: Excludes insurance overhead expenses (covering sales, underwriting, etc.) of $3.4 billion annually. Source: Costs for all injury computed primarily from U.S. Statistical Abstract data on percentage of employees covered by different types of benefits, Workers’ Compensation payments, insurance administrative cost percentages; and from the wage-risk premium studies reviewed in Miller (1990). Motor vehicle costs computed with incidence data from Miller (1993).
injury
745
in charges. Our estimate comes from Workers’ Compensation programs which are supposed to pay all medical costs for about 80% of workplace injuries. The discrepancy is explained partly by the differences between charges and payments. Marquis’ data suggest that workers are paying a much larger share than the system intends. Nevertheless, adjusting Marquis’s medical care charges to eliminate a large statistical outlier (an individual who self paid $400,000 in additional medical expenses), her estimated medical charges total $26.5 billion. Payments typically are lower than charges in the American health care system, so payments might total perhaps $18-23 billion. Adding Marquis’s out-of-pocket medical and non-medical charges to our estimate, medical payments would total $22 billion. Our estimates are conservative and perhaps more accurate than Marquis’. The discrepancy points to the need for further examination of workplace injury costs. Table 2 also highlights the portion of costs attributable to motor vehicle crashes. Crash injuries are 3% of all workplace injuries but account for one sixth of work-related injury costs. Their per-injury costs are almost six times the average. The high cost of these injuries results from their high fatality rate and from litigation with non-employees over multivehicle crashes. On-the-job crash injuries account for 8% of total crash costs from Miller (1993). Another $11 billion, not detailed here, results from injuries to others involved in crashes with at-fault commercial vehicles. Costs for work-related crashes are higher than for other crashes. Worker injuries cause larger average wage losses per day unable to work since people injured away from work may be unemployed. Table 3 breaks the injury costs down by severity. Compensable lost work injuries dominate. Less serious nonfatal injuries comprise only 5% of the total workplace injury costs. Table 4 presents costs per injury computed from the total cost in Table 2 and the incidence estimates in Miller (1995) (Table 1). Costs average $2.5 million per fatality, $46 thousand per compensable injury, $1600 per non-compensable lost work injury, and $650 per injury without work loss. Workplace injuries are 20% of total injuries. They appear to be atypically serious, accounting for 32% of total injury medical care costs as reported by Rice et al. (1989) and 38% of total injury medical care costs as reported by Miller et al. (1993). Quality of life losses account for 43% of workplace injury costs. By comparison, when more carefully measured, they account for 61% of motor vehicle crash costs (Miller 1993) and 73% (Miller et al. 1995) to 77% (Miller et al. 1993) of victim crime costs.
146
T. R. MILLER and M. GALBRAITH
Table 3. Costs of workplace
injury
by severity and cost category
(in millions
of December
1990 dollars)
Nonfatal Cost category
Fatal
Medical/EMS Wage/fringe Household work Work disruption Legal & admin. Subtotal Quality of life TOTAL % of% % of cases
Compensable
150 6000 1300 120 220 $7800 22,000 $29,000 20.5 0.1
lost work
Non compensable
14,000 35,000 5800 5700 4800 $66,000 40,000 $100,000 73.8 20.9
lost work
Non lost work
All
1800 0 0 1700 210 $3600 0 $3600 2.5 53.4
17,000 42,000 7500 10,000 5400 $82,000 62,000 $140,000 100 100
840 550 410 2600 $4:: S45Oi 3.1 25.6
Note: Excludes insurance overheads. Excludes $1 billion in work disruption caused by PDO crashes. Disabling lost day injuries are injuries that would qualify as disabling under Workers’ Compensation if the worker was covered.
Table 4. Costs per injury
by severity (in December
1990 dollars)
Nonfatal Fatal
Cost category Medical/EMS Wage/fringe Household work Work disruption Legal & admin. Subtotal Quality of life TOTAL
Compensable
13,000 520,000 110,000 9900 18,000 $670,000 1,900,000 S2,500,000
Source: Comnuted using incidence of Safety Research 26:75-8611995
lost work
6300 15,000 2500 2500 2100 $29,000 18,000 $46,000 estimates
Acknowledgements-This work was funded in part by the Centers for Disease Control under grant R49/CCR 303657-02, the National Highway Traffic Safety Administration under cooperative agreement DTNH22-91-Z-05140, and the National Institute on Occupational Safety and Health under Purchase Order 0009044165. The work was performed at The Urban Institute. Thanks to Shelli Rossman and John Douglass for their help. The analyses and opinions are solely the authors’.
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300 200 100 900 50 $1600
$6;:
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$65:
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Further research on the cost of workplace injury seems a priority. Injury costs typically are estimated bottom-up from analyses of data bases that sample typical incidents. These estimates instead proceed topdown from national expenditure data. That procedure almost surely is less accurate. Nevertheless, this article affirms workplace injury’s substantial contribution to national health care costs and to injury costs. The cost estimates identify the workplace as an important arena at which to direct injury intervention programs. On-the-job motor vehicle crashes are a particularly costly injury category.
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