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A methodological proposal to evaluate the cost of duration moral hazard in workplace accident insurance

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Abstract

The cost of duration moral hazard in workplace accident insurance has been amply explored by North-American scholars. Given the current context of financial constraints in public accounts, and particularly in the Social Security system, we feel that the issue merits inquiry in the case of Spain. The present research posits a methodological proposal using the econometric technique of stochastic frontiers, which allows us to break down the duration of work-related leave into what we term “economic days” and “medical days”. Our calculations indicate that during the 9-year period spanning 2005–2013, the cost of sick leave amongst full-time salaried workers amounted to 6920 million Euros (in constant 2011 Euros). Of this total, and bearing in mind that “economic days” are those attributable to duration moral hazard, over 3000 million Euros might be linked to workplace absenteeism. It is on this figure where economic policy measures might prove more effective.

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Notes

  1. From a more limited standpoint, yet nonetheless one which also reflects the enormity of the costs associated with occupational accidents, and in what is now considered a classical quote in the literature in this field, Krueger [30] estimates that in a typical year in the USA, for every day lost due to strikes, 50 days are lost to work accidents.

  2. At this point, it is necessary to make a comment on presenteeism or, to put in other words, the situation when a worker goes to work while sick or before having recovered from an injury. Should this idea be an issue in our database, the estimates would not be reliable. However, as it will be shown in a later section, on the one hand, the wide coverage of the Spanish public health insurance makes us think that presenteeism should not be an important question in this country as compared, for instance, to the United States. On the other hand, we test directly whether those workers with worse working conditions exhibit some signals of presenteeism. We do not find evidence of such behavior in our data. As most European countries have (relatively) generous public health insurance, and show less variability in the worker’s working conditions than in Spain (particularly, the weight of fixed-term contracts is much lower than in Spain), we feel that our methodology might be implemented without fearing of being affected by presenteeism in such European countries.

  3. Although as Ziebarth and Karlsson [57] point out: “Relatively few people know that six US states and Puerto Rico have forms of sickness insurance that are quite similar to those in Europe”.

  4. Spain is an example of such a European country. Despite this, our research is focused on workplace accidents because our database only records this kind of case. In this sense, our study is closely related to the American literature.

  5. In this paper, we focus on TI. Injuries leading to permanent incapacity are less likely to be associated with moral hazard problems.

  6. The interested reader can find a quite detailed discussion of the regulation of TI benefits in Spain in Galiana-Moreno and Camara-Botia [21].

  7. There have been no substantial changes in the general insurance policy either. The only remarkable change is the inclusion of the self-employed workers within the system. However, we remove them from our database so as to avoid biased comparisons.

  8. In Luxembourg only permanent employees are covered.

  9. Health insurance organization in Denmark, the UK and Sweden.

  10. Corrales et al. [15] and Moral et al. [42] apply duration models for the Spanish case.

  11. Within the methodological framework of the present paper, this lower frontier would be associated with what the literature has termed as the cost frontier.

  12. Aigner et al. [2] use a semi-normal distribution, Meeusen and Van den Broeck [38] opt for an exponential distribution, Stevenson [52] uses a normal truncated distribution, and Green [22, 23] chooses a gamma distribution.

  13. Not being able to estimate the value of the variances separately means that the corresponding tests cannot be carried out to validate inefficiency.

  14. This regression gives predictions that are biased but nonetheless consistent and not subject to error normality.

  15. It is a medical decision what determines the seriousness of an injury in the SAW. An injury can fall into four categories: (1) minor injuries, (2) serious injuries, (3) very serious injuries and (4) fatal injuries. We group together those “serious” and “very serious” injuries in the SAW under the label “serious” in this paper. Obviously, we have removed from our database all injuries ending in a death (fatal injuries).

  16. For the purposes of this paper, Central and South America, Asia (except Japan) and East Europe are considered “developing countries”.

  17. In order to compute the aggregate cost, we proceed in two steps. Firstly, we multiply the number of days of sick leave by the corresponding compensation for each individual register in our database. Then, we add all the individual costs for the whole year so as to obtain the aggregate figure.

  18. Even though there are two different classifications of occupations (CNO-94 and CNO-11), nine homogenous groups were constructed. The groups included are: CNO1 (Managers), CNO2 (Professional, technicians and scientists), CNO3 (Technicians and associate professionals), CNO4 (Clerical support workers), CNO5 (Transport, trade, service and sales workers), CNO6 (Skilled agricultural, forestry and fishery workers), CNO7 (Occupations unique to primary industry, processing, manufacturing and utilities), CNO8 (Plant and machine operators and assemblers) and CNO9 (Unskilled workers).

  19. The activity sectors are agriculture, industry, building and services.

  20. Corrales et al [15] find significant differences in sick leave duration resulting from workplace accidents in the various regions in Spain.

  21. The literature has found that, in recessions, the rate of workplace accidents goes down [8] and that sickness absences are procyclical [32, 46].

  22. The literature has often stressed the importance of the type of contract on workplace accident rates [4, 24, 26].

  23. For a review of the effects of compensation on workplace accident rates, consult the review conducted by Fortin and Lanoie [18].

  24. In this sense, Moral et al. [41] report differences in the percentage of difficult to diagnose accidents reported by national and immigrant workers. In a more recent paper, Martín-Roman and Moral [37] find a higher proportion of hard-to-diagnose injuries on Mondays.

  25. The logarithm likelihood ratio tests find a cost frontier with significance level of 1%. However, when positing a production frontier, this does not prove significant.

  26. The results for the truncated-normal distribution are available from the authors upon request.

  27. The full estimations with the coefficients not included in Table 4 are available to those interested upon request from the authors.

  28. In this sense, it is worth pointing out that article 283 of the current General Law of the Social Security (Royal Decree Law 8/2015) establishes that if the labor contract of an injured (at work) employee expires while he/she is in a TI spell, such a worker will continue receiving the compensation until the sick leave ends. At that moment, the employee becomes legally unemployed should the extinction of the labor contract falls into any of the categories within the article 267.1. If that were the case, the worker would receive the UI compensation (if entitled). More importantly, the number of days while in TI is not taken into account (i.e., is not discounted) in the calculation of the UI benefit period. With this legal framework in mind, it is easy to think that during the Great Recession some workers have taken advantage opportunistically of the workplace accident insurance, prolonging their sick leave spells with an economic motivation.

  29. Although a heart attack has an objective diagnosis, its recovery period depends on the patient’s behavior.

  30. See again Fortin et al. [19, 20] for the Canadian case or Guadalupe [24] for the Spanish one.

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Acknowledgements

The first author was partially supported by the Spanish Ministry of Education (MEC) under project ECO2014-52343-P, co-financed by FEDER funds. The second author has been partially supported by MEC under project CSO2015-69439-R. We would like to thank all the participants of the Health Economics session in the XL Symposium of Spanish Economic Association held in Girona (Spain), especially Catia Nicodemo and Toni Mora, for their insightful comments.

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  1. Department of Economic Analysis, Facultad de Ciencias Sociales, Jurídicas y de la Comunicación, University of Valladolid, Plaza del Alto de los Leones, 1, 40001, Segovia, Spain

    Ángel Martín-Román & Alfonso Moral

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  1. Ángel Martín-Román
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Correspondence to Ángel Martín-Román.

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Martín-Román, Á., Moral, A. A methodological proposal to evaluate the cost of duration moral hazard in workplace accident insurance. Eur J Health Econ 18, 1181–1198 (2017). https://doi.org/10.1007/s10198-017-0878-6

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