Lump-Sum Awards in Workers' Compensation: Reply

Abstract

Shows, Power and Johnson (SPJ) make a valuable contribution through their comment on my paper Lump-Sum Awards in Workers' Compensation. Their discussion of the Florida system is particularly interesting. They also demonstrate well that lump summing in workers' compensation, like most decisions, is a complex process. SPJ focus on my statement, One wonders why lump-sum payments are employed as frequently as they are and at such low interest rates. They provide several good arguments for the desirability of lump sums to workers and employers (and their insurers). My wonderment, however, was not so much that any or all of these parties would prefer certain aspects of lump sums over periodic payment. Rather, it was that legislators and industrial commissions would permit (even encourage) so many lump sums when the social good appears hurt by such action. In fact, SPJ's quote of Larson in Footnote 5 states my concern perfectly. The major change suggested by SPJ that I would like to include in my paper were it not yet published, is to discuss the administrative desirability to insurers of lump summing. There may be a willingness by insurers to accept higher awards (through use of inappropriately low interest rates, for instance) in order to close out the claims and reduce costs of monitoring claims. However, there are some indications that lump sums result in higher initial administrative expenses than do findings and awards.' Thus, overall, administrative expenses are not necessarily reduced through lump summing. SPJ correctly identify the use of low interest rates in calculating commutations as a concern of mine. They also point out, correctly I believe, that settlements result from a long process of negotiations. The negotiations make the permissible interest rate less important . . where the magnitude of lump-sum awards is seen as the outcome of a complex adversary process involving a number of important participants. Yet, this complexity makes me