Step-downs reduce workers compensation payments to encourage return to work. Are they effective?
Objective: To determine whether step-downs, which cut the rate of compensation paid to injured workers after they have been on benefits for several months, incentivise return to work. Methods: We aggregated administrative claims data from nine Australian workers compensation systems to calculate weekly scheme exit rates, a proxy for return to work. Jurisdictions were further subdivided into four condition subgroups: fractures, musculoskeletal, mental health, and other trauma. The effect of
... The effect of step-downs on scheme exit was tested using a regression discontinuity design. Results were pooled into meta-analyses to calculate combined effects and the proportion of variance attributable to heterogeneity. Results: The combined effect of step-downs was a 0.61 percentage point (95% CI -1.16 to -0.05) reduction in the exit rate, with significant heterogeneity between jurisdictions (I2 = 73%, p = .001). Most significant effects were observed within earliest step-downs, implemented at 13 weeks of benefit payment. Within condition subgroups, only fractures had a significant combined effect (-0.84, 95% CI -1.61 to -0.07), and sensitivity analysis suggested a potentially meaningful effect among mental health claims as well. Conclusions: The results suggest step-downs prompt an anticipatory effect, meaning some claimants leave compensation ahead of the step-down to avoid the reduction in benefits. However, the effects were small and, given their anticipatory nature, probably short-lived. Our findings were statistically significant, but questions remain about practical significance. We find limited evidence that step-downs are an effective incentive for return to work.