Worker's Compensation Coverage for the Self-Employed: The Israeli Experience

Abstract

self-employed typically are excluded from workers' compensation coverage because of alleged high administrative costs and fear that they will claim benefits for non-work accidents. Israel has covered the selfemployed for more than 20 years; its experience, therefore, is useful assessing these two allegations. Israel's administrative cost for the selfemployed is much higher than that for wage and salary workers. While little support exists for the view that the self-employed claim benefits for non-work accidents, the number of work days lost per accident by the selfemployed is much higher than that for wage and salary workers. Virtually all countries have some system of compensation for work-connected injuries and occupational illness. These programs cover wage and salary workers, and typically exclude the self-employed. In this 1973 study of social security programs ten major developed countries, Kaim-Caudle concluded: The self-employed benefited only rarely from protection against workconnected injuries. only countries which provided schemes for certain of the self-employed were Austria, Germany, and Denmark and even there the conditions and terms were less favorable than those applying to [1, p. 100]. According to the Department of Health, Education, and Welfare's 1977 survey of Social Security Programs Throughout the World, about a fourth of the 129 countries with workers' compensation statutes provide some kind of coverage for the self-employed [5, pp. xviii-xix]. self-employed are not covered because of (a) alleged high administrative costs and (b) the danger of abuse. According to Kaim-Caudle, in any scheme restricted to industrial accidents, it is fairly easy for the self-employed to claim benefit for accidents which are not work-connected. quantitative importance of this can easily be exaggerated, but the fear of abuse is Joseph Krislov is Professor of Economics at the University of Kentucky. He holds the Ph.D. degree. Professor Krislov has been Visiting Professor at Tel-Aviv University and a Fulbright Professor at Trinity College, Dublin. He was employed six years as a Research Analyst for the U.S. Social Security Administration. Yehuda Kahane is Senior Lecturer and Academic Director, Erhard Insurance Center, Faculty of Management, Tel-Aviv University. He holds the Ph.D. degree. Dr. Kahane taught at Hebrew University of Jerusalem, University of Florida, University of Toronto, and currently is visiting at the Research Center for Risk and Insurance at the Instituto de Estudios Superiores de Administration, Caracas, Venezuala. authors would like to thank Mrs. Yechiela Bern, Ms. Rivka Pri-Or, and Mr. Igal Volozni, deputy actuary, the National Insurance Institute (Israeli Social Security), for help preparing the data and for their critical comments. This content downloaded from 157.55.39.162 on Thu, 11 Aug 2016 05:38:02 UTC All use subject to http://about.jstor.org/terms 114 Journal of Risk and Insurance uppermost the minds of many policy-makers all over the world [1, p. 1001. Israel has covered its self-employed from 1957 [2, pp. 252-2541, and that country's experiences should be helpful deciding whether the two objections are Specifically this paper seeks to determine (1) the extent of abuse by the selfemployed and (2) the administrative cost providing coverage. If the objections to coverage are valid, then some estimates of the increased costs would emerge. Presumably, other countries contemplating coverage of the selfemployed would incur similar costs and then would be a position to make a political decision whether to incur these additional costs. Some interest has been expressed the United States workers' compensation for the self-employed. 1972 National Commission of State Workmen's Compensation Laws pointed out that workers' compensation originated by covering employees only, and that coverage has not been extended beyond this group. Commission concluded, however, that we are not convinced that the practice of confining workmen's compensation to employees remains valid. It specifically recommended that coverage be made available, on an optional basis, for the self-employed [6, p. 48]. Optional coverage for some self-employed was available some jurisdictions even before 1972, but only a few individuals apparently elected such coverage. Administrative Costs At the authors' request, the Israel National Insurance Institute prepared some special tabulations allocating the administrative costs for the fiscal years 1974, 1975, and 1976. agency's administrative cost data for fiscal 1977 are not strictly comparable with those for previous years, and therefore that year was not included the analysis. Table 1 indicates that total administrative costs as a percentage of premium income for the self-employed and the wage and salary worker have fluctu-