Objective: This study highlights the serious consequences of ignoring reverse causality bias in studies on compensation-related factors and health outcomes and demonstrates a technique for resolving this problem of observational data. Study Design and Setting: Data from an English longitudinal study on factors, including claims for compensation, associated with recovery from neck pain (whiplash) after rear-end collisions are used to demonstrate the potential for reverse causality bias. Although it is commonly believed that claiming compensation leads to worse recovery, it is also possible that poor recovery may lead to compensation claimsda point that is seldom considered and never addressed empirically. This pedagogical study compares the association between compensation claiming and recovery when reverse causality bias is ignored and when it is addressed, controlling for the same observable factors. Results: When reverse causality is ignored, claimants appear to have a worse recovery than nonclaimants; however, when reverse causality bias is addressed, claiming compensation appears to have a beneficial effect on recovery, ceteris paribus. Conclusion: To avert biased policy and judicial decisions that might inadvertently disadvantage people with compensable injuries, there is an urgent need for researchers to address reverse causality bias in studies on compensation-related factors and health.