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Cost comparison of vocational services offered under industrial insurance.

This study discusses a method of cost analysis to compare vocational systems utilized by governmental industrial insurance agencies. it uses data reported by the Federal Office of Workers' Compensation Programs and by the Washington State Department of Labor and industries. it compares results reported by a Federal and a State industrial insurance vocational rehabilitation (VR) program. The Federal system uses VR staff to make all pertinent decisions through personal contact with the client. in contrast, the Washington State system uses non-VR personnel (mainly claims managers) to make decisions without the personal contact. This study shows a 5 to 1 cost-effective superiority of the Federal system over the Washington State system.


The Federal Office of Workers' Compensation Programs (OWCP) has operated a nationwide vocational rehabilitation system for injured workers covered under the Federal Employees Compensation Act and the Longshore and Harbor Workers Act utilizing the private rehabilitation sector for approximately the last eight years. The OWCP VR staff person, called a Rehabilitation Specialist, manages the OWCP Vocational Rehabilitation program in a given geographical area; conducts initial interviews with the injured workers, directing RCs [rehabilitation counselors], according to OWCP policies and procedures to insure the quality, quantity and timeliness in the delivery of vocational rehabilitation services to injured workers; authorizing the delivery of services by vendors providing rehabilitation services; evaluating the performance of RCs to insure the best possible rehabilitation services are provided to OWCP injured workers. (OWCP, 1986, p. 4)

Also during the last eight years, the Industrial Insurance Division of the Washington State Department of Labor and Industries L&I) has been active in the private VR sector. The L&I system uses VR counselors, both staff and private sector, as evaluators. Claims staff and administration personnel who are not in personal contact with the client then make the funding and program decisions: Virtually all the basic decisions governing ... provision of vocational services, were made in the claims units which were all stationed in one, central location in Olympia. Claims managers had no face to face contact with claimants. (Office of Financial Management, 1986, p. 11-7)

Many reviews of the VR program offered by L&I have been made. The Washington state legislature mandated the Washington state Office of Financial Management (OFM) to submit an annual performance audit of L&I VR in 1982. Their first report (OFM, 1983) listed 14 major program events (mainly studies) from 1979 through 1982. Additionally, the Washington Research Council issued an independent study in 1984, the Joint Select Committee on Workers' Compensation compiled a comprehensive review of the whole L&I system in 1985, and the Washington State University Injured Workers' Project published a study in December 1986.

Although no direct comparison has been reported between the OWCP VR clientele and the L&I VR clientele, some rough parallels can be gleaned from the OWCP Resource Book and the WSU Injured Workers Project study, both of which cite figures for 1984 (see Table 1). OWCP reported the average federal client at the 12th grade level, and longshore at the 11th grade (OWCP, 1986, p.4); WSU reported the average educational level for the 120 day-plus compensable L&I client at 12.1 (Ray, 1986, p.25). OWCP reported the average age of the federal client at 38 and the longshore client at 35 years of age (OWCP, 1986, p.4); WSU reported the average age of the 120 day-plus compensable client at 44.6 years (Ray, 1986, p.22). OWCP reported their average client as making $14,000 per year at injury (OWCP, 1986, p. 4); WSU reported the average income before injury for the 120-day-plus L&I client at $17,467.50 (Ray, 1986, p.25).

Table 1

FY 1984 Background Data


FECA LSHW Educational Level 12.1 11.0 12.0 Age 38.0 35.0 44.6 Annual Income at

Injury $14,000 $17,467


Previous cost-benefit analyses have used the number of referrals, the number of closures, the return-to-work rate, and the overall cost figures of the program to provide effectiveness data. Each of these bases, however, has inherent difficulties that lead to incomplete effectiveness findings. Judging effectiveness based on the number of referrals and/or closures necessarily presumes an accurate (and constant) enumeration of afl VR referrals and closures. However, the existence of multiple claims for individual clients is a serious complication encountered in assessing VR effectiveness. The recent study of the Injured Workers' Research Project (Ray, 1986) noted that: 62 percent of the workers with compensable claims open over 120 days had been injured two or more times (p. 29); 31.7 percent of the respondents had a different more serious claim than the claim closed in 1983-84 [the time frame of the study] (p. 24); workers in both the medical claims and compensable groups may be receiving disability payments for claims other than the claims closed in 1983-84. (p. 43) One person may file multiple claims, each open (or re-opened) for differing lengths of time, and little attempt is made to correlate corresponding data from one claim to another.

Multiple VR referrals also occur frequently. One study reported that it was "not uncommon for cases to recirculate within the vocational rehabilitation system" (Washington Research Council, 1984, p. 37). Another study noted the same difficulty, stating "This count [13,162 referrals] included afl categories of State Fund referrals; i.e., 'first time' referrals and 're-referrals' after transfers and cancellations." (OFM, 1984, p. 11). It is, in fact, not too unusual to find L&I asking for second, third, or more opinions on the same claim, and counting each one al a separate referral and/or separate closure. The only study to look at this variable "suggests that on the average claims are referred 1.5 times." (Ray, 1986, p. 48)

The combination of multiple claims and multiple referrals invalidates these two bases for analysis. For the same reason, utilizing return-to-work rates may also lead to erroneous findings. This rate is determined by dividing the number of persons returning to work (placements) by either the figure for referrals, for closures, or for plan completions. Even if the number of placements is accurate, the figure for referrals, closures, or plan completions is affected by the multiple claims problem.

The use of program cost figures, either in relation to overall costs, or to year-to-year changes, suffers from a different problem. These figures take into account no outcome performance variable.

It is proposed in this paper that a more appropriate measure for cost/benefit analysis is the ratio of VR program costs for a given fiscal period divided by the number of placements reported for that same fiscal period. Both placements and program costs are reasonably available and accurate. Neither data base is subject to the "multiple claims" deficiency problem. Each fiscal period will contain costs that may be attributed to a benefit occurring in another fiscal period. However, the reverse (benefits without attributed costs) will balance the analysis. For example, some clients whose VR costs fall mainly in F-Y'86 will be reported as placements in FY'87 or 88. However, there will also be those clients whose placement is reported in FY'86, but whose VR costs fell mainly in FY'84 and/or FY'85. Over time, the figures should balance, and only a major change in the system should cause a significant difference between reporting periods. Because L&I operates a Rehabilitation Center, and OWCP does not, it was necessary to subtract Rehabilitation Center expenses to allow comparison of ratios. This is illustrated in the row titled "Comparison Totals."


For FY 1984, the U.S. Office of Workers' Compensation Programs (OWCP) reported 55,000 claims opened nationwide. Payments to private VR counselors and retraining expenses combined were reported at approximately 6,000,000 and the VR program administrative staff overhead was estimated at $1,100,000. OWCP also reported 1,006 return-to-works (OWCP, 1986, p.3). Program costs may be calculated at $7,100,000, and the cost per return-to-work at $7,058 (See Table 2, Column A). OWCP has not published figures for FY 1986.

For FY 1984, the Washington State Department of Labor and Industries L&I) reported 31,765 claims, payments of $14,000,000 to private rehabilitation counselors, $2,600,000 in retraining costs, $3,300,000 for internal rehabilitation staff costs, and $776,616 for the Office of Rehabilitation Review (ORR - a quality control unit). L&I also reported 533 return-to-works (OFM, 1984, p. 11). Program costs may be calculated at $20,600,000, and the cost per return-to-work at $35,030. (See Table 2, Column B) In 1985, L&I reorganized the VR referral and authorization mechanisms, and concentrated authority over vocational rehabilitation in the claims managers located in Olympia, WA. Prior to this reorganization, VR referrals were made by a separate claims unit set up originally to compile medical records for referrals to the Buckner Rehabilitation Center. Responsibility for plan approval during FY'84 was vested in ORR. Neither unit, however, had more than incidental contact with clients.

During FY 1986, L&I reported 32,599 claims, payments of $11,300,000 to private VR counselors, and $3,300,000 internal VR staff costs. L&I did not report the retraining costs during that year, but did report 789 retraining plans. In that State law allows a maximum of $3,000 per year per retraining case, the author assumed a conservative average cost of $2,500 per retraining case. That expense is therefore estimated at $1,972,500. L&I also did not report the costs separately of the re-named and re-structured ORR staff (now Office of Rehabilitation Services, or ORS), but maintained most of that staff on board. That expense was therefore estimated at $750,000. The L&I administrative overhead incurred by the claims managers in screening, referring, authorizing plans and costs, and monitoring of services was not given, and the author was unable to make a reasonable estimate of this expense. It is therefore not included in the data. L&I also reported 422 return-to-works (OFM, 1986). Program costs may be calculated at $17,300,000, and the cost per return-to-work at 35,990. (See Table 2, Column C)


In other major vocational rehabilitation programs operated under governmental auspices within the State of Washington (e.g., the State-run Division of Vocational Rehabilitation, and Services for the Blind; and the federally run Veteran's Administration Vocational Rehabilitation Program), effective authority for managing VR services, as well as responsibility for the success of the system, is vested in the VR official. As is the case with the Federal OWCP, the VR official in these agencies decides - through personal contact and review of pertinent information - eligibility for services, who is accepted for services, to whom the client is referred, the details of the appropriate plan, and authorizes funding for the plan.

Both of the governmental systems discussed were given a broad legislative mandate to establish and run a vocational rehabilitation program within an industrial insurance setting. The Federal system chose to delegate authority for their VR program to the VR staff; the Washington State system chose to delegate this authority to the claims staff. This analysis suggests that a system in which the VR staff manages its program through personal contact with the clients is at least five times as cost effective as a claims manager system. In addition, the only study to have made a comparison between statistically equivalent populations within the L&I claims manager system found no difference in outcomes between clients who received VR services and those who did not: "Referral for rehabilitation evaluation or development of a rehabilitation plan did not result in the provision of services which improved the employment situation of injured workers with 120 or more days of time-loss." (Ray, 1986, p. 57)

This comparison supports the concept that having the VR staff manage the VR program, both in terms of costs and in terms of benefits, should be a priority both for administrators and for legislators. Further research to be conducted utilizing this method would include the basis for counselor selection, the effects of time and cost limitations, and how the degree of claims involvement in the VR process affects cost effectiveness.
COPYRIGHT 1989 National Rehabilitation Association
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Author:Peterson, Gary A.
Publication:The Journal of Rehabilitation
Date:Oct 1, 1989
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