Published:
Cambridge, Mass: National Bureau of Economic Research, 2020
Published in:NBER working paper series ; no. w26976
Extent:
1 Online-Ressource; illustrations (black and white)
Language:
English
DOI:
10.3386/w26976
Identifier:
Reproduction note:
Hardcopy version available to institutional subscribers
Origination:
Footnote:
System requirements: Adobe [Acrobat] Reader required for PDF files
Mode of access: World Wide Web
Description:
Optimal insurance benefit design requires understanding how coverage generosity impacts individual behavior and insured costs. Using unique comprehensive administrative data from Texas, we leverage a sharp increase in the maximum weekly wage replacement benefit in a difference-in-differences research design to identify the impact of workers' compensation wage replacement benefit generosity on individual behavior and program costs. We find that increasing the generosity of wage replacement benefits does not impact the number of claims but has a large impact on claimant behavior, leading to longer income benefit durations and increased medical spending. Our estimates indicate that behavioral responses to increased benefit generosity raised insured costs nearly 1.5 times as much as the mechanical effect on insured costs from the benefit increase. Drawing on these estimates along with an estimate of the consumption drop experienced by injured workers, we calibrate a model to estimate the marginal welfare impact of increasing the generosity of workers' compensation wage replacement benefits. This calibration suggests that increasing benefit generosity would not improve welfare, with much of the projected welfare loss attributable to the impact of income benefit generosity on medical spending