INTRODUCTION

Occupational injuries and illnesses, which include work-related musculoskeletal disorders, impose an enormous burden on society. Their immediate result -- the pain and suffering experienced by workers and their families -- is sufficient reason in itself for OSHA to promulgate an ergonomics program standard that is designed to eliminate such disorders. However, the effects of occupational injuries and illnesses of all kinds extend far beyond their immediate, short-term impacts. Loss of self-esteem, disruption of family life, and feelings of anger and helplessness are the frequent consequences of any disabling occupational illness or injury. This personal toll cannot truly be captured in quantitative or monetary terms because the human dimension of occupational injuries and illnesses -- the pain, suffering, loss of esteem, and reduced quality of life -- cannot readily be expressed in numerical terms.

However, there are dimensions of the burden of occupational injuries and illnesses that can be quantified in monetary terms. These aspects of the problem of work-related musculoskeletal disorders can be measured by the losses experienced by employees and by other costs that are externalized to the rest of society. One consequence of the failure to control the jobs that give rise to musculoskeletal disorders is that these disorders continue to account for a large part of the costs of expensive income maintenance programs, such as workers' compensation temporary and permanent disability programs. These costs impose a burden on society separate from, and in addition to, the human toll in pain and suffering caused by workplace injuries and illnesses.

This chapter describes some of the economic and social costs associated with work-related musculoskeletal disorders. This information can be used as an indicator of the magnitude of the burden imposed on the U.S. economy by these disorders. However, OSHA recognizes that the estimates of musculoskeletal injury-related costs presented in this chapter understate the real financial and social costs involved. This is the case both because some of the actual monetary costs are not fully captured by available economic methodologies and because the human toll, in terms of pain and suffering, cannot be satisfactorily expressed in economic terms.

The extent of the burden imposed by work-related musculoskeletal disorders is suggested by the annual count of such injuries and illnesses and estimates of the costs they impose. In 1997, a total of 626,000 MSDs reported by employers to the Bureau of Labor Statistics (BLS) resulted in days away from work. This represents one-third of all work-related lost workday injuries and illnesses reported to the BLS each year. The total number of work-related MSDs, including those that do not lead to days away from work, is estimated to be three times as high.

Work-related musculoskeletal disorders are also disproportionately severe: The average cost per claim for upper extremity and lower back musculoskeletal disorders is approximately twice that of the average workers' compensation claim ($8,075 for upper extremity musculoskeletal disorders and $8,320 for lower back musculoskeletal disorders, compared with $4,075 for the average non-MSD workers' compensation claim) (Webster and Snook 1994a,b). BLS data show that, in 1996, the typical MSD led to almost twice as much time away from work as the typical lost workday injury. These increased costs and time away from work are a direct result of the greater than average likelihood that these disorders will require intensive medical treatment and/or result in long-term disability. In the State of Washington, for example, approximately 40 percent of accepted workers' compensation claims for occupational carpal tunnel syndrome result in surgery (Adams, Franklin, and Barnhart 1994). Among employees receiving such surgery, 48 percent are still unable to return to work one year after surgery (Adams, Franklin, and Barnhart 1994).

Clearly, work-related musculoskeletal disorders are imposing an enormous burden on workers, employers, and society at large. One study (Sokas, Spiegelman, and Wegman 1989) states that "musculoskeletal disorders rank second only to cardiovascular disease as a cause of disability in the United States...in total economic cost...including direct medical costs and indirect costs due to lost earnings and productivity." Because work-related musculoskeletal disorders represent the single largest preventable occupational safety and health problem in the United States today -- whether measured in sheer number of cases, extent of disability, or loss of productivity -- promulgating an ergonomics standard is consistent with OSHA's policy of attacking more serious occupational injuries and illnesses first.

The potential benefits that will be experienced by workers, employers, and society at large if these work-related musculoskeletal disorders are reduced in number are simply the other side of the costs they currently impose. Not surprisingly, these benefits are very large, both in terms of reduced pain and suffering and savings in medical, compensation, and other costs.

This chapter is divided into four sections. The first discusses the effectiveness of ergonomics programs in reducing the number and severity of work-related MSDs. The second, taking account of the number of establishments already having ergonomics programs and the number that will need to establish programs as a result of the standard, estimates the actual reduction in these MSDs that will accrue over the next ten years as a result of OSHA's standard. The third section estimates some of the direct cost savings associated with these reductions in MSDs. The chapter closes with a summary of the results of the previous three sections.

EFFECTIVENESS OF ERGONOMICS PROGRAMS

The purpose of the proposed ergonomics program standard is to provide ways of reducing the number and severity of work-related MSDs occurring among employees in general industry. Most of the benefits of the proposed standard will be generated when employers fix their problem jobs and thus reduce the number of covered MSDs these jobs will cause in the future. The hazard awareness, MSD management, and work restriction protection provisions of the proposed standard serve to ensure that MSDs are identified early so that they can be fixed before they have progressed to serious, disabling disorders. These provisions also generate benefits in their own right by ensuring that MSDs are reported while they are still treatable rather than disabling.

The need for employers and employees to recognize the signs and symptoms of MSDs as soon as they occur and to be aware of MSD hazards in the workplace is particularly important because many studies have shown that work-related MSDs are widely underreported. Estimates of the extent of this underreporting range from a factor of 2 (Cannon et al. 1981) to a factor of 7 (Fine et al. 1986). Reasons for this underreporting include the difficulty of linking symptoms such as pain and tingling to workplace risk factors, the belief that pain is a part of the job and that nothing can be done about it, and intentional or unintentional discouragement of reporting. Clearly, unless the proposed standard helps to overcome this underreporting, it will be less effective than it could be.

OSHA has not yet found a way, in this benefits analysis, to separate the potential benefits that will accrue because employers fix their problem jobs from the potential benefits that will be garnered as a result of the early detection of covered MSDs. Most employers who have implemented programs have, in fact, included both job hazard analysis and hazard control elements in their programs. As a result, this section focuses on the quantifiable benefits resulting from ergonomics programs as a whole and does not attempt to estimate benefits for individual provisions, with few exceptions. Instead, OSHA assumes that measures of overall program effectiveness capture the effects of early detection, adequate reporting, training, job hazard analysis, and the control of problem jobs. OSHA also assumes that general industry employers implementing the ergonomics program required by this standard will identify covered MSDs with the same average frequency as do employers responding to the BLS survey.

Each element of the proposed ergonomics program standard plays a critical role in producing the benefits of the proposed standard. The role of the basic program (which includes management leadership, employee participation, and hazard information and reporting) is to help ensure that management and employees have sufficient knowledge of MSDs and ergonomic hazards to know when the full program (job hazard analysis, job controls, training, etc.) must be implemented, particularly in manual handling and manufacturing jobs. The full program ensures that the risk factors associated with MSDs are recognized, addressed, and adequately controlled.

The proposed standard is structured in such a way that the number of jobs controlled in any given year depends on the number of covered MSDs projected to occur, and the number of persons holding jobs that involve the same physical work activities as the jobs giving rise to covered MSDs. To determine the effectiveness of ergonomics programs, OSHA has relied primarily on data on the success of actual ergonomics programs and workplace interventions, supported by data from scientific studies indicating the potential for successful ergonomics programs.

The Preliminary Risk Assessment section of the preamble summarizes the results of more than 100 studies that involved the implementation of ergonomics programs and interventions. Generally, the studies that are listed involved cases where individual companies instituted ergonomics programs or interventions that included some or all of the elements in OSHA's proposed ergonomics program standard. The studies include many from firms engaged in manufacturing and manual handling activities, as well as some that are engaged in other general industry operations. The measures of program effectiveness used in these studies vary greatly. To analyze these results, OSHA focused on four measures of effectiveness: reductions in MSD injury and illness rates, reductions in the number of lost workday MSDs, reductions in the number of workers' compensation claims, and reductions in the cost of workers' compensation claims. Table IV-1 shows the number of studies in each category, and the median and mean reductions seen for each measure of program effectiveness.

As shown in the table, these workplace programs and interventions were found to achieve a median reduction in MSD rates of 64% and a median reduction in the number of lost workday MSDs of 80%. Further, the table shows that programs are even more effective in reducing more severe MSDs, as shown by the higher reduction rates for lost workday MSDs and the costs of workers' compensation claims. These studies thus suggest that ergonomics programs can reduce the number of lost workday MSDs by 74% or more and may be even more effective in reducing the more severe MSDs. The results of OSHA's review of the effectiveness of ergonomics programs and workplace interventions are supported by a collection of case studies submitted by ergonomists from several countries, including the United States. From these case studies, Oxenburgh, a world-renowned ergonomist, concluded that engineering controls generally reduce work-related musculoskeletal disorders by 70 to 90% (Oxenburgh, 1991).

As noted in the Preliminary Risk Assessment section of this preamble, epidemiological studies also provide strong evidence of the effectiveness of ergonomics programs and workplace interventions designed to reduce work-related MSDs. These epidemiological studies show the extent to which the MSDs studied were caused by workplace risk factors and then demonstrate that the rate or number of such MSDs can be reduced by controlling or eliminating these risk factors through ergonomics programs and workplace interventions. For example, in a meta-analysis, Hagberg and Wegman (1987) reviewed the epidemiological literature on work-related upper extremity MSDs and concluded that at least 50% and as many as 90% of all such disorders are caused by workplace risk factors. A study by Liles et al. (1994) showed that reducing work-related back stress in high back stress jobs would reduce work-related back injuries by 79%. Silverstein et al. (1987) showed that, for carpal tunnel syndrome and tendinitis, reducing the number of risk factors to which employees are exposed from two risk factors to one leads to a reduction in these injuries of 83% for carpal tunnel syndrome and a minimum (the lowest reduction found in the study) of 79% for tendinitis.

The Preliminary Risk Assessment section of this preamble also describes the results of a number of risk ratio studies reviewed by NIOSH (NIOSH 1997). This assessment found that reducing the risk factors in the jobs of the exposed population to the risk factor levels found in the jobs of the control (non-exposed) populations in these studies would result in a 69% reduction in the number of MSDs of the neck or shoulder in the exposed population, a 57% to 86% reduction in the number of upper extremity disorders in this population, and a 56% reduction in the number of MSDs of the back. OSHA assumes, for the purpose of this analysis, that the levels of risk factors present in the jobs of the workers in the control populations (i.e., the exposures of the control group workers to forceful exertions, awkward or static posture, repetitive motions, etc.) are equivalent to the levels of risk factors that would be present in jobs that have been controlled or "fixed."

These studies clearly indicate that effectiveness rates of more than 65% are attainable by eliminating or substantially reducing workplace risk factors. Several large-scale studies, such as those of Hagberg and Wegman (1987), Liles et al. (1994), and Silverstein et al. (1997), also strongly suggest that these programs may reduce particularly prevalent and severe kinds of MSDs, such as cases of tendinitis, back injury, and carpal tunnel syndrome, by a minimum of 50% and often more. The potential effectiveness of interventions shown by the average values reported in the risk ratio studies reviewed by NIOSH was also 50% or more, even in the case of back injuries. However, the effectiveness rates reported in these studies may be lower than the effectiveness rates potentially achievable by the proposed standard because the risk ratio studies included all MSDs in the group of MSDs examined, and not just covered MSDs, as defined by the proposed standard. This methodological problem would be likely to be most severe for back injuries, which have a high background level in the general population. Thus, for back injuries clearly identified as covered MSDs, such as those described in the Liles et al. study (1994), a higher effectiveness rate (on the order of 79%) is to be expected.

Based on its review of all of these sources, OSHA has determined that an estimated effectiveness rate of 50% is appropriate for this benefits analysis. Although this estimate is somewhat lower than the median or average effectiveness rate reported in the intervention studies, OSHA believes it is a conservative choice because it recognizes that some epidemiological studies have reported lower rates. In the remainder of this section, OSHA uses this 50% effectiveness rate to estimate the benefits that employees and employers are projected to experience as a result of implementing the full program required by the proposed rule in establishments that do not already have ergonomics programs.

Reduction in Number of MSDs

The effectiveness of the proposed ergonomics program standard in preventing covered MSDs needs to be calculated in two steps. The first is to determine the number of employees whose problem jobs will be fixed as a result of the program, and the second is to apply the effectiveness rate to determine the number of covered MSDs the proposed standard is projected to avert.

Determining the number of employees whose jobs will be fixed as a result of a full ergonomics program is unusually complicated for the proposed ergonomics program standard because of the structure of the standard itself. For example, the full program is applicable only to employees in a job in which a covered MSD, as defined by this standard, has occurred.

Any analysis of the number of employees affected by the program envisioned by the proposed rule must consider: (1) that many firms already have ergonomics programs, (2) that some MSDs initially reported to employers will turn out, on closer examination, not to be covered MSDs, (3) that some MSDs will occur in jobs that have already been fixed, and (4) that, over time, more and more employees covered by the standard will work in jobs that have been fixed. OSHA has only been able to obtain quantitative data on two of these points: the number of establishments already having programs, and an estimate of the number of employers likely to choose the Quick Fix option. There is little or no data on the other points.

Lacking such data, OSHA assumes, for analytical purposes, that all MSDs, rather than a portion of all MSDs, that occur in jobs that have not been fixed will require employers to implement a full program, and that all MSDs, rather than some MSDs, occurring in jobs that have been fixed will not require employers to implement a full program. In other words, in terms of this analysis, OSHA treats these two factors as offsets of each other. Clearly, in actuality, some jobs that have been fixed will need further hazard control, and some MSDs will continue to occur in jobs that have not been fixed but will not be covered by the proposed standard. The result of these simplifying assumptions is to overestimate the frequency with which a full program will be needed in the first years after the standard is implemented and to underestimate the frequency with which a full program will be needed in the out-years. Because this analysis only covers the first 10 years following the proposed standard's effective date, OSHA believes that this simplifying assumption is likely to lead to an overestimate of both the benefits and costs. (In its cost analysis, OSHA assumes that employers will incur costs to investigate all MSDs that occur; thus, the simplifying assumption used here is not permitted to reduce the costs attributed to employers' assessments of the work-relatedness and then covered status of MSDs used for cost purposes.)

OSHA has also assumed that MSD rates are influenced only by the job fixes required by the proposed standard. However, there are other factors that influence MSD rates both unrelated to the proposed standard and related to the proposed standard. For example, lost workday MSD rates have declined in recent years at the same rate as all other lost workday injuries and illnesses, which means that the number of MSDs reported has remained a constant proportion of all reported lost workday injuries and illnesses. To the extent that this decline in rates is due to better injury and illness prevention programs, the continuation of this decline would result in both fewer benefits and fewer costs attributable to the standard, in approximately proportional amounts. However, to the extent that the reported decline is due to changes in reporting practices, the effect is more difficult to assess, because the proposed standard may affect reporting practices in a variety of ways, as discussed below.

First, the proposed standard is designed to encourage employee reporting of MSDs in several ways: by requiring an MSD reporting system as part of the basic program, by providing employees with information that will enable them to recognize MSDs and know how to report them, and by providing for medical management, including work restriction protection, for employees with covered MSDs. Some employers have reported that implementing MSD reporting systems and providing employee information sometimes results in initial increases in the number of MSDs reported. However, employers find that this effect is quickly countered by the effect of the program in reducing MSDs. As noted above, the combination of employee information and medical management can substantially reduce the duration of MSDs. Work restriction protection is also designed to encourage the early and full reporting of MSDs. In the absence of work restriction protection, employees could suffer serious financial losses as a result of reporting MSDs (see the Initial Regulatory Flexibility Analysis, Chapter VII, for more information), which would have a chilling effect on the reporting of MSDs. However, the proposed standard also provides employers with a significant incentive to discourage reporting, because an employer who determines that a reported MSD is covered must then fix the job and/or implement a full program.

Employers have expressed concern that the proposed standard will, on balance, encourage an increase in the reporting of MSDs and increase the amount of time employees need to recover from MSDs that are reported. Some employers and Small Entity Representatives (SERs) to the SBREFA Panel have even suggested that the proposed standard, particularly the work restriction protection provision, will provide a large incentive for employees to commit fraud. Turning first to the issue of fraud, the best evidence available does not suggest that employee-perpetrated fraud constitutes a significant portion of worker compensation costs. Workers' compensation premiums and benefits remained relatively low until the mid 1980s. Beginning at that time, both premiums and benefits increased steadily, with premiums increasing at an average rate of 9.4 percent per year (Ruttenberg and Elisburg 1998). This rate has recently slowed, and, in the last few years, premiums have begun to decrease. Nevertheless, the National Council on Compensation Insurance (NCCI) reported in 1994 that the average workers' compensation premium rose in the 1984-1994 period from $92 to $500 per employee per month (NCCI, as cited in Ruttenberg and Elisburg, 1998).

There are many causes for the rise in workers' compensation costs in the 1980s and early 1990s. These include:

• A growing workforce

• An aging workforce (although more experienced workers have fewer injuries than less experienced ones, the injuries of older workers tend to be more severe and to require a longer healing period) (Spieler, as cited in Ruttenberg and Elisburg, 1998)

• Recognition of new occupational diseases and of MSDs

• Adjustments in benefits payments to account for prior benefits underpayment

• Increases in litigation and medical costs related to workers' compensation claims

• Continuing existence of hazardous workplaces

• Increases in the profits of workers' compensation insurers.

Among the cost containment measures taken by insurance companies and employers, acting through state legislatures, was the establishment of state anti-fraud units in most states. In 1992, the National Council on Compensation Insurance (NCCI) also launched a National Fraud Advisory Commission, which issued the report referred to above in 1994.

There is widespread disagreement about the extent of workers' compensation system fraud, with estimates, based primarily on anecdotal evidence, ranging from 5 to 25 percent of losses. However, there is a general consensus that worker-perpetrated fraud constitutes only about 2 percent of this fraud (NCCI 1994 and Burton, both as cited in Ruttenberg and Elisburg 1998).

The three principal types of workers' compensation system fraud are:

• Claims fraud

• Premium fraud

• Medical/legal provider fraud.

Claims fraud exists when a claim is filed for a non-existent injury, when the extent of the injury is exaggerated, when benefits are collected while working another job, or when a non-work injury is filed as if it had occurred at work (Ruttenberg and Elisburg 1998). Workers cannot usually file a fraudulent claim without the help of medical and legal professionals.

Premium fraud is generally perpetrated by employers. This type of fraud involves underreporting of payroll, manipulation of data affecting experience rating, misrepresentation of business location, misclassification of job types, or use of employee leasing schemes. Employer-perpetrated premium fraud is widely acknowledged to be the major part of workers' compensation fraud: "...in cracking down on fraud in workers' compensation, the big money is on the employer side of the issue" (Ludwig, as cited in Ruttenberg and Elisburg 1998). A growing component of premium fraud involves employee leasing. In these cases, the employer terminates employment with a group of workers' compensation-covered employers and then either leases these or other employees back through another entity (which has a lower experience modification rate). Other companies require their employee to become independent contractors. The National Association of Insurance Commissioners and the International Association of Industrial Accident Boards and Commissioners has drafted a model regulation designed to prevent companies from using employee leasing to fraudulently lower their workers' compensation premiums (Ruttenberg and Elisburg 1998).

Medical/legal provider fraud involves fraud committed by health care providers, lawyers, disability fraud mills, and cappers (individuals who work with lawyers and health care providers for a fee and who find workers willing to file a fraudulent claim). Medical/legal provider fraud involves "creative" billing, kickbacks, self-referrals, upcoding, unbundling, over-utilization, and product switching.

A recent report on workers' compensation fraud concludes: "The major reasons for the cost increases associated with the [workers' compensation] system in recent years are not ... associated with fraud, and the largest fraud costs are not associated with workers. For example, the NCCI estimates that only 2 percent of Workers' Compensation fraud is perpetrated by workers" (Labor Research Association, 1998).

Nevertheless, even in the absence of fraud, the reporting of MSDs may increase as a result of the standard's work restriction protection provisions. In a series of studies, Krueger found that increases in workers' compensation benefits increase both the number of accepted worker compensation claims (Krueger, 1990a) and the duration of these claims. His studies found that a 10 percent increase in the value of weekly workers' compensation benefits will increase the number of claims filed by 7 percent and the duration of claims by 16.8%. (Krueger notes that other studies on this topic have found a range of effects from barely measurable to significantly higher than his estimates.) Some commenters have suggested that the increased benefits provided to employees by work restriction protection (WRP) could similarly be expected to lead to increased reporting of MSDs and an increase in claims filed. However, an increase in the number of MSDs reported and the number of claims filed is precisely the effect that OSHA hopes to achieve with the WRP provision of the standard. This is the case because, given the substantial amount of underreporting and claims underfiling that is currently taking place with MSDs (see the many peer-reviewed studies summarized in Section VII of the Preamble, which document MSD underreporting and underfiling on the order of 50% or more in several cases), employers are not receiving the information they need about the extent and seriousness of the MSD hazards in their workplace, and employees are not reporting MSDs early, when many can be prevented from progressing further. Thus, the OSHA 200 logs and workers' compensation premiums in these employers' establishments are not reflecting the true number of MSDs. This means, in turn, that the costs of many MSDs are going into the private health insurance and disability systems, because injured workers do not feel comfortable reporting their MSDs to their employers. Failure to report almost inevitably means that MSDs are allowed to progress to the point where caring for them is more painful, more expensive, and more time consuming than necessary.

The reasons why as many as 50 percent of injured workers are not reporting their musculoskeletal injuries and other injuries and illnesses to their employers or seeking compensation for their work-related conditions are many. According to the authors of these studies, workers feared reprisal for reporting, were discouraged from reporting by their supervisors or managers, were discouraged from making a workers' compensation claim by the high rates of claims rejection for MSDs, wanted to avoid the "hassle" of filing a workers' compensation claim, or preferred (or were encouraged by their employers) to use the employer's or their own health insurance rather than the workers' compensation insurance system.

Based on this substantial body of evidence, OSHA believes that the administrative remedies the standard will provide to employees whose employers discourage them from reporting or participating in the ergonomics program and the protections the work restriction protection provision of the standard will provide to employees who report covered MSDs are essential if the amount of future underreporting is to be reduced. The Initial Regulatory Flexibility Analysis section discusses the possible effects on both the direct cost savings (benefits) and the costs of the proposed standard of an increase in the number of MSDs reported. However, if a substantial underreporting of MSDs continues, the benefits analysis presented here substantially underestimates the number of MSDs that would be prevented by the standard. This is the case because the proposed standard's benefits are based on the number of MSDs currently being reported, but does not capture those MSDs that are not currently being reported but will be prevented when employers take action under the standard.

Use of these simplifying assumptions allows OSHA to calculate the number of problem jobs that will be fixed in each industry in the first year after the standard's effective date by using data on the MSD rate reported to the BLS for each industry, information on the effectiveness of ergonomics programs, and data on the percentage of employees who are already subject to ergonomics programs. Working with the BLS, OSHA developed estimates, based on the results of the BLS survey, of the number and rates of MSDs involving lost workdays by industry. The BLS data, however, do not report the number of MSDs occurring every year that do not involve lost workdays. OSHA estimated the rate of all MSDs (including MSDs that do not involve lost workdays) by assuming that the ratio of lost workday MSDs to non-lost workday MSDs is the same as the ratio of lost workday injuries and illnesses of all types to non-lost workday injuries and illnesses of all types. In this analysis, OSHA has used the industry-specific ratios reported by the BLS to determine this factor for various industries. In general, the ratio is about 3:1. The effectiveness rate for the ergonomics program envisioned by the proposed standard is estimated to be 50%, as discussed in the previous section. Data on the number of employees working in establishments that have MSDs are taken from OSHA's 1993 ergonomics survey (ERG 1999).

The first step in calculating the number of jobs employers will be required to fix is to determine the projected industry-specific MSD rate for establishments that do not now have ergonomics programs. This calculation involves the average MSD rate for the industry, the percentage of employees in that industry who are already covered by an ergonomics program, and the estimated effectiveness rate for the proposed ergonomics program. (The formula used in this calculation is shown in the appendix to this chapter.) Next, the number of jobs that will have to be fixed in the first year is calculated by multiplying the rate of MSDs for employees in jobs that have not yet been fixed times the number of employees not already covered by an ergonomics program times the average number of employees per establishment with the same job. Unfortunately, data specific to the question of how many workers have the same job in establishments in various industries are not available, although data to approximate it are available. The approach OSHA adopted for this preliminary economic analysis was to examine the 1993 survey data for the number of occupations and processes per establishment in each of the 3-digit SICs.⁽¹⁾ For establishments with 1-9 employees, the number of identical jobs was defined as the number of employees of the same occupation or the total number of employees per establishment/number of occupations per establishment. For more complex operations in establishments with 10-499 employees, OSHA assumed that many of the employees in the same occupation would be performing different tasks, depending on the process. The number of identical jobs in those establishments was defined as the number of employees per establishment/number of occupations per establishment/number of processes per establishment. For the largest establishments, i.e., those with more than 500 employees, this figure was divided by 3.

This approach conforms to estimates made by Auburn Engineers that 1000-employee plants would expect to have 200 to 300 ergonomically different jobs. In some industries with a large office-work component, the number of identical jobs would be higher. Based on this approach, OSHA estimates that, in the first year of the standard's implementation, an average of 6.5 identical jobs ("same" jobs, in the language of the standard) would have to be analyzed and controlled for every covered MSD identified. (Chapter II lists the number of same jobs by industry.) This number drops substantially in later years, when a relatively larger portion of small establishments are brought under the scope of the standard.

To calculate the number of jobs fixed in the second year, the number of employees in jobs covered by a program in the first year is added to the number of employees already covered by an ergonomics program, and the same computation is repeated again. In this analysis, this series of calculations is done for each of the 10 years included in the time horizon. Table IV-2 shows the estimated number of employees first covered by the full program on a year-by-year basis.

Table IV-2. Number Of Employees First Covered by a Full Ergonomics Program

This table shows that the number of employees first covered by the ergonomics program mandated by the standard falls from a high of 7.5 million in the first year after promulgation of the standard to 1.1 million in the tenth year. Because the number of employees first covered by the standard is greatest in the first year, the costs and economic impacts of the standard will also be greatest in the first year.

Reductions in the Number of Covered MSDs Achieved by the Proposed Ergonomics Program Standard

OSHA estimated the effectiveness of the proposed standard in reducing work-related MSDs using industry-by-industry data on MSD rates and the estimates, from Table IV-2, of the number of employees covered for the first time by a full ergonomics program on a year-by-year basis. To determine the number of covered MSDs averted each year as a result of the full program required by the standard, OSHA multiplied the number of employees first covered by the full program in any given year by the rate of MSDs in previously uncontrolled jobs in the industry times the effectiveness rate. OSHA assumed that the benefits (i.e., the covered MSDs averted) would begin to accrue in the year after the fix was made and would continue for 10 years. (The cost analysis also assumes that controls (and their associated costs) will continue to be implemented (and incurred) for 10 years.) OSHA then calculated the benefits of the programs being implemented for the first time in any given year as well as the cumulative benefits of all programs implemented to date. Table IV-3 shows the resulting estimates of the total number of covered MSDs averted, on a year-by-year basis, and the estimated reductions in general industry MSD rates, also on a year-by-year basis.

As this table shows, the number of covered MSDs averted and the decline in MSD rates are modest in the initial years, because relatively few jobs will have been controlled in the early years, but the number of covered MSDs averted and the decline in rates increases year by year as the number of controlled problem jobs increases. In the first year, the number of covered MSDs averted in general industry (measured from the pre-standard baseline) is 123,000, for a 7% reduction in the rate of covered MSDs. By the tenth year, the number of covered MSDs averted in general industry has reached 482,000, for an overall reduction in MSD rates of 26% over that time period. At the end of the first ten years, the ergonomic program standard is projected to have averted a total of 3,090,000 covered MSDs in general industry workplace. OSHA believes that the benefits of the standard will not stop after 10 years but will continue to accrue for many years thereafter, because the benefits of the job fixes implemented by employers in the first 10 years

Table IV-3. Number and Rates of Covered MSDs Averted, on a Year-by-Year Basis, in General Industry Workplaces

will continue to avert MSDs for years into the future. However, in this preliminary economic analysis, a 10-year horizon is used for both the cost and benefits estimates.

DIRECT COST SAVINGS FROM AVERTING COVERED MSDs

As a matter of policy, OSHA does not place a monetary value on human life or on the pain and suffering experienced by injured or sick workers. Accordingly, OSHA monetizes only a portion of the direct cost savings that will accrue to employers, employees, and society at large as a result of OSHA rules, like this proposed ergonomics program standard, that are designed to avert job-related injuries, illnesses, and deaths.

OSHA does believe that some dimensions of the burden of occupational injuries and illnesses can be quantified in monetary terms. These aspects of the problem of occupational injuries and illnesses can be measured by the monetary losses experienced by employees and by estimating some of the other injury-related costs that are externalized to society. One consequence of the failure of society to prevent work-related MSDs is the growth of enormously expensive income maintenance programs, such as workers' compensation and long-term disability programs. These costs impose a burden on society separate from and in addition to the nonquantifiable human toll in pain and suffering caused by injuries and illnesses in the workplace.

Some of the losses associated with lost time due to work-related injuries and illnesses stem from the lost output of the worker, which can be measured by the value that the market places on his or her time. This value is measured as the worker's total wage plus fringe benefits. Other costs include: (1) medical expenses, (2) costs of workers' compensation insurance administration, and (3) indirect costs to employers (other than those for workers' compensation administration).

OSHA estimates the value of lost output by starting with workers' compensation indemnity payments and then adding to this figure some of the other economic losses associated with work-related injuries. Workers' compensation indemnity payments typically take two forms: temporary total disability payments, which cover absences from work before the condition of the injured worker stabilizes, and permanent partial disability payments, which compensate the worker for the long-term effects of a stabilized condition. On a nationwide basis, it is estimated that permanent partial disability payments account for 68.5 percent of all indemnity payments [WCRI, 1987]. OSHA proceeded through the following steps to arrive at a value for lost output:

1. Calculate the value of workers' compensation indemnity payments for typical injuries and illnesses addressed by the proposed ergonomics program standard;

2. Add the difference between the value of these indemnity payments and the worker's after-tax income, based on various studies comparing workers' compensation payments with after-tax income. This step estimates the magnitude of lost after-tax income;

3. Add the estimated value of taxes, based on the typical value of taxes as a percentage of after-tax income. This step estimates the value of total income lost; and

4. Add the value of fringe benefits, based on data on employer costs for employee compensation. This step estimates the total market value of lost output.

Below is an explanation of OSHA's detailed methodology for estimating each of these areas of cost savings as related to compliance with the proposed ergonomics program standard.

Value of Workers' Compensation Payments

Although many workers' compensation claims involve injuries that do not result in lost work time, this analysis conservatively assumes that the number of workers' compensation claims is at least as great as the number of lost-workday claims. Based on data for 1989, Webster and Snook (1994b) reported that both low back pain-related injuries and upper extremity repetitive strain injuries have average values of workers' compensation claims of $8,000 per claim. (The remaining category of MSDs, lower extremity MSDs, constitutes less than 5 percent of all MSDs.) OSHA used this value per claim to compute the market value of income lost due to workplace injuries and illnesses. The National Academy of Social Insurance estimates that 61.5 percent of these claims are paid out for indemnity payments and 38.5 percent for medical costs [NASI, 1997]. Thus, based on an average value of MSD claims of $8,000, the value of indemnity payments per claim will be $4,920 and of medical payments will be $3,080 per claim.

Value of Lost After-Tax Income

As described above, of the two types of indemnity payments, permanent partial disability payments account for the majority of dollar outlay, at 68.5 percent, while temporary total disability payments account for the remainder, approximately 31.5 percent. The extent to which income is replaced by each type of indemnity payment (i.e., temporary or permanent) differs. First, although rules vary by State, temporary disability income is designed in most States to replace two-thirds of the worker's before-tax income. However, most States place a minimum and a maximum on the amount of money paid out to an injured worker, regardless of his/her actual former income. Studies by the Workers Compensation Research Institute (WCRI) show that temporary total disability payments replace between 80 to 100 percent of the after-tax income of the majority of workers [WCRI, 1993]. Three percent to 44 percent of temporarily disabled workers receive less than 80 percent of their former after-tax income, and from 0 to 17 percent of such workers receive more than 100 percent of their former after-tax income. Unfortunately, WCRI does not provide estimates of the average wage replacement rates for all workers in a State. However, based on these data, it is reasonable to assume that, on average, workers receive no more than 90 percent of their after-tax income while on temporary disability. On the other hand, data show that permanent partial disability payments only replaced 75 percent of the income lost by a permanently disabled worker in Wisconsin, 58 percent of such income in Florida, and 45 percent in California [Berkowitz and Burton, 1987]. In this benefits analysis of the cost savings projected to accrue from implementation of the proposed ergonomics program rule, OSHA used the simple average of these three -- 59 percent -- to estimate the extent of after-tax income replacement for permanent partial disabilities.⁽²⁾

Therefore, based on the research by WCRI, OSHA calculated the total value of the after-tax income of workers partially and totally disabled as a result of MSDs preventable by the proposed ergonomics program standard by applying, as described above, the derived estimates for the distribution and size of indemnity payments. In sum, OSHA estimated that temporary total disabilities account for 31.5 percent of all indemnity payments replace 90 percent of after-tax income, and that permanent partial disabilities account for 68.5 percent of indemnity payments and replace 59 percent of after-tax income.

Value of Taxes and Fringe Benefits

In addition to after-tax income loss, the lost output measure includes the value of taxes that would have been paid by the injured or ill worker to the government and the fringe benefits that would have been paid to the worker by the worker's employer. After considering the variety and range of tax burdens currently deducted from worker pay, OSHA in this analysis estimated that total income-based taxes (individual Social Security payments, Federal income tax, and State income tax) paid were equal to 30 percent of total income. Fringe benefits, furthermore, were estimated as 39 percent of before-tax income, based on data provided by the BLS on employer costs for employee compensation [BLS, 1997].

Total Value of Lost Output

Table IV-4 applies the estimation factors detailed above to calculate the total value of the lost output potentially associated with the temporary total disability or with the permanent partial disability paid to avert one MSD claim with a value of $8,000. As shown, the average value per claim of the lost output associated with temporary total disability is $3,419 and that associated with permanent partial disabilities is $11,343, for a total value of lost output of $14,762.

Table IV-4. Value of Lost Output Associated with a Workers' Compensation MSD Claim

¹See text for explanation.
²Value of workers' compensation total temporary or permanent partial indemnity payment divided by .9 and .59, respectively.
³Value of after-tax income divided by .7.
⁴Value of before-tax income multiplied by 1.39.

Medical Costs

Medical costs paid by the insurer do not include any first-aid costs incurred by the employer or, in some cases, the employer's costs for transportation to a medical facility; however, most elements of medical costs are included in the medical share of payments paid out by workers' compensation. Based on research on workers' compensation claims [NASI, 1997], OSHA estimated medical costs to be 38.5 percent of the costs of claims. Applying this percentage to the average cost per claim for injuries and illnesses resulting from exposure to ergonomic hazards in workplaces lacking ergonomics programs, and multiplying the resulting per-incident medical cost by the total number of each type of incident, OSHA estimated that the average medical costs of an MSD-related claim are $3,080.

Value of Administrative Costs

Another area of cost savings estimated by OSHA captures administrative costs borne by private and public agencies when processing workers' compensation cases for injured workers. OSHA estimated the administrative costs of these claims as follows:

• Costs to private insurance companies were estimated, based on 1990 data, as 35.5 percent of the costs of incurred claims [Klein et al., 1993]. The total value of claims includes the value both of the indemnity and medical portions of insurance payments. Administrative costs include those for claims adjustment, sales, general expenses, taxes, licenses, and fees (historical data show that all of these elements of private insurance costs increase as the value of benefits paid out increases).

• Costs to state funds were estimated, based on 1990 data, as 17.8 percent of the costs of incurred claims [Klein et al., 1993]. These costs include those for claims administration and for costs labeled as "general costs."

• Costs to self-insured companies, estimated by the National Academy of Social Insurance to be 11.0 percent of the value of benefits paid in 1995 [NASI, 1997].

To estimate the aggregate value of the administrative costs of insurance, OSHA weighted these costs by the value of the benefits payments made by each type of insurer (i.e., private insurer, state fund, and self-insured companies). This calculation, shown in Table IV-5, below, resulted in an estimated administrative cost of 23.4 percent of the total value of claims. Applying this percentage to the total value of workers' compensation claims of $8,000, OSHA estimated that the administrative cost savings associated with a single MSD-related workers' compensation claim are $1,872.

Source: U.S. Department of Labor, OSHA, Office of Regulatory Analysis, based on Klein, Nordman, and Fritz [Klein et al., 1993] and Schmulowitz [NASI, 1997].

Value of Indirect Costs

Indirect costs is a term used to describe the costs of work-related injuries that are borne directly by employers but are not included in workers' compensation claim costs. Such costs are best estimated by looking at the costs an employer actually incurs at the time a workers' compensation claim is filed. These costs include a number of elements, such as payment of sick leave to workers for absences that are shorter than the workers' compensation waiting period, losses in production associated with the injured worker's return to work, losses in the productivity of other workers, and a wide variety of administrative costs other than those borne directly by the workers' compensation insurer, e.g., MSD management costs for the injured worker. Based on a 1991 study of the indirect costs of injuries in the construction industry,⁽³⁾ OSHA estimates that indirect costs constitute 35.4 percent of the value of workers' compensation medical and indemnity payments [Hinze and Applegate, 1991]. Applying this percentage to the value of a single claim of $8,000, the value of indirect costs per claim is $2,832.

Value of Direct Cost Savings per MSD

The estimated cost savings associated with averting a single MSD-related workers' compensation claim are thus $22,546, as shown in Table IV-6.

Table IV-6. Value of Direct Cost Saving per MSD Averted

TOTAL VALUE OF DIRECT COSTS SAVINGS RESULTING FROM IMPLEMENTATION OF THE STANDARD FOR 10 YEARS

Table IV-7 shows the direct cost savings associated with the year-by-year numbers of MSDs averted by the proposed standard (from Table IV-3). As Table IV-7 shows, the direct cost savings rise from $2.7 billion dollars in the second year to $10.8 billion in the tenth year, as more and more employees work in jobs that have been controlled. Over the entire 10-year period, the total value of the direct cost savings is $69.6 billion dollars.

Table IV-7. Direct Cost Savings of the Proposed Standard, Year-by-Year

Both the number of MSDs prevented and the direct cost savings associated with the proposed standard would continue after year 10 because ergonomics programs continue to yield benefits for as long as the job controls are maintained. However, because OSHA's cost estimates (see Chapter V) only present costs for the first 10 years of program implementation, the direct cost savings are also presented only for this period. This calculation shows that the proposed ergonomics program standard has annualized direct cost savings of $9.1 billion per year. (See appendix to this chapter for details of the calculation.)

SUMMARY

This chapter has presented OSHA's estimates of the benefits of the proposed ergonomics program standard and shows that the standard will generate substantial benefits both in terms of the number of MSDs averted and the direct cost savings employers will experience as a result of preventing these MSDs. In the first 10 years after implementation of the standard, an estimated 30 million problem jobs in general industry will be analyzed and controlled, which will, in turn, avert more than 3 million MSDs. By the end of the tenth year after program implementation, the overall rate of MSDs occurring in the covered population of workers will be reduced by 26% compared with the pre-standard rate. These reductions in the number and rate of MSDs will produce substantial direct cost savings for employers in general industry; the annualized value of the continuing direct cost savings resulting from the activities undertaken by employers during the first 10 years in which the standard is implemented are $9.1 billion per year.

REFERENCES

Adams, M., Franklin, G., and Barnhart, S. "Outcome of Carpal Tunnel Surgery in Washington State Workers' Compensation". American Journal of Industrial Medicine, 25:527-536, 1994.

Berkowitz, M., and Burton, J. Permanent Partial Disability Benefits In Worker Compensation. W. E. Upjohn Institute for Employment Research, Kalamazoo, Michigan, 1987. (Ex. 26-1605).

Bureau of Labor Statistics (BLS, 1997) "Employer Cost for Employee Compensation Survey"

Press Release. http://scripts.osha-slc.gov/PHP/redirect.php?url=http://www.bls.gov/ecthome.htm (Ex. 26-1591).

Cannon, L.J., E.J. Bernacki, and S.D. Walter. 1981. (Cannon, et al, 1981) "Personal and Occupational Factors Associated with Carpal Tunnel Syndrome." Journal of Occupational Medicine 23(4):255-258. (Ex. 26-1212).

ERG 1999 [Eastern Research Group]. Tabulations from OSHA's 1993 Ergonomics Survey. (Ex. 28-7).

Fine, L.J.., B.A. Silverstein, T.S. Armstrong, C.A. Andersen, and D.S. Sugano. (Fine, et al, 1986). "Detection of Cumulative Trauma Disorders of Upper Extremities in the Workplace", Journal of Occupational Medicine 28(8): 674-678. (Ex. 26-920).

Franklin, G., Haug, J., Heyer, N., McKeefrey, S., and Picciano, J. "Outcome of Lumbar Fusion in Washington State Workers' Compensation." Spine, Volume 19, Number 17, 1994.

Hagberg, M., D.H. Wegman. "Prevalence Rates and Odds Ratios of Shoulder-Neck Diseases in Different Occupational Groups." British Journal of Industrial Medicine 44:602-610, 1987. (Ex. 26-32).

Hanrahan, Lawrence P. "Appendix E: A Comparison of the BLS Annual Survey to Workers' Compensation for Wisconsin in 1984 and 1985", Counting Injuries and Illnesses in the Workplace: Proposals for a Better System, National Academy Press, 1987 (Ex. 28-4).

Hinze, Jimmie and Applegate, Lisa Lytle. [Hinze and Applegate, 1991] "Costs of Construction Injuries." Journal of Construction Engineering and Management. 117, No. 3 (September 1991): 537-550. (Ex. 26-1589).

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Klein, R.W.; Nordman, E.C.; and Fritz, J.L. [Klein, et al., 1993] Market Conditions in Workers' Compensation Insurance. Interim Report presented to the National Association of Insurance Carriers Workers' Compensation Task Force. July, 9, 1993. (Ex. 26-1586).

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National Institute for Occupational Safety and Health (NIOSH). 1997. Musculoskeletal Disorders and Workplace Factors: A Critical Review of Epidemiologic Evidence for Work-Related Musculoskeletal Disorders of the Neck, Upper Extremity, and Low Back. USHHS, Centers for Disease Control and Prevention.

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Schmulowitz, Jack. [NASI, 1997] Workers' Compensation: Benefits, Coverage, and Costs, 1994-95. Prepared for the National Academy of Social Insurance. Washington, D.C. 1997. (Ex. 26-1587).

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Appendix IV-A: Formulas for Selected Calculations

This appendix explains the formulas used in several key calculations and estimates in this Benefits chapter.

Derivation of the Number of Employees Covered by a Full Program

The first step in this calculation is to determine the rate of MSDs among employees that have not previously been covered by a full ergonomics program. To determine this rate, OSHA started with the formula:

1)   R = RH x (1 - EP) + RH x E x EP,

Where

R = rate of MSDs;

RH = rate of MSDs among covered employees in establishments that do not have an ergonomics program;

EP = Share of employees already covered by a full ergonomics program; and

E = Estimated effectiveness rate of ergonomics programs in reducing MSDs.

Solving formula 1) for RH yields:

2)  RH = R / ( 1 - (1-E) x EP).

The number of MSDs incurred by employees in establishments without an ergonomics program in the first year is then equal to

3)  N = RH x (1-EP) x EMP

Where

N = Number of MSDs; and

EMP = Total employment.

Finally, to determine the number of employees covered by a full ergonomics program in the first year, the number of MSDs is multiplied by the average number of employees holding the same job as the employee who incurred the MSD:

4)  FP₁ = N x J,

Where

FP₁ = the number of employees newly covered by a full ergonomics program in Year 1; and

J = the average number of employees in the same job as the employee who incurred the MSD (these values are by industry and are presented in the Industrial Profile chapter (Chapter II) of this analysis).

The value assigned to the share of employees estimated to be covered by a full program is updated for each subsequent year according to the formula:

5)  EP_t = EP _t-1 + FP _t-1 / EMP,

Where

EP_t = Share of employees already covered by a full ergonomics program in year t;

EP _t-1 = Share of employees already covered by a full ergonomics program in year t-1; and

FP _t-1 = the number of employees newly covered by a full ergonomics program in year t-1.

Number of Covered MSDs Prevented

In any given year, the number of MSDs prevented is calculated as:

_t-1

6)  MSDP_t = (S (EP_t x EMP)) x RH x E
                     O

Where

MSDP_t = Number of MSDs prevented in year t.

Calculation of Annualized Direct Cost Savings

The calculation of annualized direct cost savings was conducted in two steps. First, OSHA determined the present value of the direct cost savings resulting from 10 years of reductions in the number of MSDs using the following formula:

Where

DCS_t = Present value in year t of total direct cost savings resulting from jobs fixed in year t.

D = Discount rate

CS = Direct cost savings of preventing a single MSD.

OSHA then used the value of these streams of cost savings resulting from 10 years of implementation of the program to calculate the present value for the entire 10 years. Finally, the present value was annualized over a 10-year time frame. These two steps use the following formula:

(8)  ADCS = (D/(1-(1+D^t ))) x S DCS_t x (1+D)^-t

where ADCS = annualized direct cost savings.