Comments on Thomason and Burton, Bruce and Atkins, Anderson and Meyer, and Green and Riddell

Abstract

We are in debt to Professors Thomason and Burton (in this issue) for a thorough survey of the literature and for a careful analysis of an aspect of workers' compensation programs in the United States. This article raises numerous issues of interest. 1. Workers' compensation, both in terms of coverage and in terms of paid benefits, is one of the largest social programs in the United States. It is distinctive in that it is the only social program that involves extensive use of private insurers. The article focuses on one element of the programthe settlement procedure: claims can be settled either in court or out of court. Past studies have suggested that insurers try to pressure plaintiffs into settling out of court and that workers who are economically weaker are more susceptible to these pressures. Furthermore, the plaintiffs' lawyers, it is argued, play an important role in settling out of court, to their clients' disadvantage. Thomason and Burton reexamine the issue using New York data and confirm earlier findings: insurers cut the claim adjustment to pressure claimants into settlements which are substantially less than the compensation claimants could have received through adjudication (p. S5). The settlement involves a lump-sum payment, whereas the adjudication payments are paid over the claimant's lifetime (or at least as long as the claimant suffers from loss of earnings). The authors estimate the discount rate embodied in the lump-sum settlement (compared with weekly payments) and conclude that it is about 20%. They recognize that this interest rate may not seem high given the capital market conditions the claimants face. Actually, a lump-sum settlement may look like a very good deal, given the savings in legal fees and the freedom the worker gains in obtaining a