Loss Reduction Through Worker Satisfaction: The Case of Workers’ Compensation

• Published date: 01 March 2011
• DOI: http://doi.org/10.1111/j.1540-6296.2010.01188.x
• Author: William G. Johnson,Richard J. Butler
• Date: 01 March 2011

C

Risk Management and Insurance Review, 2011, Vol.14, No. 1, 1-26

DOI: 10.1111/j.1540-6296.2010.01188.x

FEATURE ARTICLES

LOSS REDUCTION THROUGH WORKER SATISFACTION:

THE CASE OF WORKERS’COMPENSATION

Richard J. Butler

William G. Johnson

ABSTRACT

A prospective study of occupational low back pain (LBP) indicates loss reduc-

tion efforts in workers’ compensation that improve workers satisfaction with

the treatment of their claim significantly improves levels of recovery (reduces

losses) and lowers workers’ compensation insurance costs. The improved out-

comes associated with greater worker satisfaction with the firm’s treatment of

their injury claim, as well as with the treatment from their health care provider,

are robust to five alternative measures of back problems,including leg pain and

back pain scales, measures of functional limitation, and quality of life scales.

Satisfaction with effectiveness of the health care is more important in recov-

ery than satisfaction with the provider’s bedside manner. While satisfaction

with health care provider significantly improves back pain and functionality at

6 months, satisfaction with the employer’s treatment of the claim is equally

important at 6 months and grows in quantitative importance at 1 year. Overall,

higher satisfaction with claim treatment reduces the likelihood that an injury

becomes an indemnity claim and results in almost a 30 percent reduction in

claim costs.

Richard J. Butler, PhD, is the Martha Jane Knowlton Coray University Professor in the Depart-

ment of Economics, Brigham Young University, phone: 801-422-1372; fax: 801-422-0194; e-mail:

richard_butler@byu.edu. WilliamG. Johnson, PhD, is Director, Center for Health Information Re-

search, ASU-Biomedicine, and Professor, Department of Biomedical Informatrics, Arizona State

University; e-mail: william.g.johnson@asu.edu. This study was supported by the Office of the

Vice President for Research and Economic Affairs, Arizona State University, and the College of

Family, Home, and Social Sciences at Brigham Young University. Corporate/Industry and Insti-

tutional funds were received in support of this work. No benefits in any form have been or will be

received from a commercial party related directly or indirectly to the subject of this manuscript.

IRB approval for this project was obtained from Arizona State University and East Carolina

University. The authors aregrateful for the useful comments of our conscientious reviewer who

helped to improve this article. The authors also thank the Healthy Back Study Advisory Commit-

tee, composed of Troyen A. Brennan, MD, LLD; Scott Haldeman, DC, MD, PhD; Robert Mootz,

DC; John J. Triano,DC, PhD; Margaret A. Turk, MD; Robert J. Weber, MD; and Frank A. Zolli, DC,

EdD, for guidance throughout the project. This article was subject to double-blind peer review.

1

2RISK MANAGEMENT AND INSURANCE REVIEW

INTRODUCTION

Loss reduction, or decreasing the impact of adverse outcomes, is one of the principal

techniques employed in risk management and insurance (Williamset al., 1998; MacMinn,

2000), and yet little is known empirically about how human resource policy and practice

affect workplace risks through loss reduction efforts. The nearest exceptions are a few

studies that find employee involvement in firm decision making and financial returns

tends to lower workers’ compensation costs (Hunt et al., 1993; Habeck et al., 1998; Butler

and Park, 2005). Even in these studies, there is no attempt to identify the mechanism

through which workers’ compensation costs are lowered—whether risk avoidance, risk

prevention, or loss reduction.

This study quantifies how loss reduction, as measured by the firm’s efforts to improve

employee satisfaction with the treatment of their insurance claim, affects the perceived

loss and cost of the claim. In particular, we examine how a firm’s treatment of workers’

low back pain (LBP) claims directly affect back problems and workers’ compensation

costs. As “being fair” with a worker’s claim is likely to be relatively costless, a finding

of significant benefits from worker satisfaction would suggest that it is a cost beneficial

form of loss reduction.

We choose to examine occupational back problems because they account for about a

third of all workers’ compensation costs in the United States. Except for relatively rare

instances involving cancer or fractures, the primary symptoms of back problems are

patients’ reports of pain and physical limitations. The severity of pain and the effect

of pain on the ability to continue to work or to return to work depend, therefore, on

individual perceptions of their working environment and responses to pain that are

difficult to measure or to compare among individuals.

Among workers with back pain, the traditional criteria used to measure recovery are the

end of a work absence, sometimes accompanied by measures of the extent to which a

worker returns to his pre-onset job, hours of work, or by the completion of medical

care. Return to work measures are also used as outcomes in the evaluation of the

effectiveness or cost effectiveness of health care for back pain. The need to rely on

self-reported symptoms and the influence of unobservable attitudes and perceptions

among the victims of back pain make it extremely difficult to evaluate the effectiveness

of health care for back pain.

While health care is one of several significant influences on returns to work, workers’

perceptions of their health status and of their relationships with their employers are

among the most important influences (Gardner and Butler, 1996; Turk, 1996; Liosel,

2005). In the occupational medicine literature, it is widely believed that workers who

are not satisfied with their jobs or the provision of health care are generally less moti-

vated to take an active part in the treatment of their back problems (Nachemson and

Jonsson, 2000). Measures of satisfaction with the way the provider is taking care of the

injury may be good predictors of improved health outcomes. Some researchers find

that outcomes are improved with better attitudes (Brewin, Robson, and Shapiro, 1983;

Yelin, Henke, and Epstein, 1986; Cats-Baril and Frymoyer, 1991; Kraus et al., 2001),

but others (MacKenzie et al., 1998) find no effect. Our research uniquely explores this

relationship by examining how satisfaction with health care providers’ treatment of

the occupational injury and satisfaction with the firm’s treatment of the injury claim