In 2022, the California DIR commissioned the RAND Corporation to review the state’s Second Injury Fund, called the Subsequent Injury Benefits Trust Fund (SIBTF), to assess its financial impact on the California Workers Compensation Industry. With it, RAND was provided unparalleled access to the state’s EMR systems.
In 2024 RAND reported the results of their findings in a 180-page report. The highlight, a staggering $7.9 Billion estimated liability for the fund. This number sent shockwaves throughout the state of California and lawmakers felt the pressure to reform.
A Jacobi Journal investigative report concludes that the study’s $7.9 Billion SIBTF estimate included a series of highly questionable assumptions that when put together led to a massive $6.75 billion overstatement of the fund’s future liability.
RAND’s overstatement stems primarily from two critical flaws:
- Use of a non-representative, 42-case sample to assume a 91% benefit payment rate for all open cases (compared to the historical rate of 24-44%)
- Overstated cost of Total Disability awards (100% Disabled). The exaggerated cost of a Total Disability award resulted from the combination of an understated 3% discount rate with an elevated 3.9% COLA, while also ignoring the reduced life expectancy of disabled recipients.
The magnitude of the errors are so egregious that they could reasonably be considered fraudulent. It is clear to us that the specific intent of the study was to exaggerate the economic reality of California’s SIBTF liability for the purpose of bringing about a policy change at the state level.
RAND’S FRAUDULENT ASSUMPTIONS
1. The study assumed 91% of all open cases would result in benefits paid to the worker when the historical average ranges from 24-44%.
| % of SIBTF Cases That Paid Benefits | |||
| Sample | Time Period | Sample Size | Resolved w/ Benefits |
| All Resolved Cases | 2010-2022 | 14,611 | 44.40% |
| All Open and Closed Cases | 2010-2022 | 27,047 | 24.00% |
| RAND’s Prediction Algorithm | 2019-2022 | 42 | 91.24% |
2. The cost of Total Disability cases (where the applicant is found to be 100% disabled) was overstated by $453,933 per case due to several clearly false assumptions. This resulted in billions of dollars of inflated liability estimates.
| Assumption Error | RAND’s Assumption | Jacobi’s Corrected Assumption | Impact on $933k Estimate |
| Inflated COLA Rate | 3.9% annual COLA | 2.6% annual COLA (20-year historical average) | Reduces cost to $774,017 |
| Understated Discount Rate | 3% Discount Rate | 7% Discount Rate (Closer to public pension average of 6.7%) | Reduces cost to $489,619 |
| Overstated Life Expectancy | General population life expectancy | 17% Reduction (As admitted in RAND’s own addendum) | Reduces cost to $418,345 |
Jacobi Corrected Estimate: Total SIBTF Future Liability = $1.25 Billion
RAND study’s estimated California’s SIBTF liability to be $7.9 Billion. To arrive at that number, the study made a series of assumptions, many of which were questionable. For the purposes of simplicity we chose to focus on only two that we believed were the most impactful: the forecasted Benefit Payment Rate (91%) and the Total Cost of a Lifetime Income Award ($933,00). By simply adjusting these two factors to include assumptions that more properly reflect empirical evidence, the estimate of SIBTF liability is substantially reduced.
| Component | RAND Study Estimate | Jacobi Corrected Estimate |
| Resolved Cases (2010-2022) | $2,492,407,301 | $587,450,200 |
| Correction: Accurate Sampling Weights, COLA 2.6%, Discount Rate 7%, Corrected Life Expectancy, Reduced Life Expectancy, Sampling Adjustment | ||
| Projected Unresolved Cases | $5,454,644,236 | $664,141,517 |
| Corrections: Abandoned Cases Factored, Dismissal Rate of 70% used, COLA 2.6%, Discount Rate 7%, Reduced Life Expectancy | ||
| Total Estimated Fund Liability | $7,947,051,537 | $1,251,591,717 |
RAND was clearly hired to produce a report to help facilitate a material alteration of the SIBTF program. To do so, they decided to manufacture a fraudulent and deceptive narrative. As a result, lawmakers in the state of California appear to be under a false assumption as it relates to the future costs related to SIBTF. We anticipate that our Investigative Report will allow lawmakers to be better informed as they evaluate the future of a benefit program that serves the severely disabled.
