Medical Costs Driving Mass. Workers’ Comp

Workers’ compensation costs per claim in Massachusetts grew rapidly in the two most recent years, according to a new study by the Workers Compensation Research Institute (WCRI). The major factor driving these costs higher was rising medical costs per claim.

The study by the Cambridge, Mass.-based WCRI found that workers’ compensation costs per claim grew an average of 10 percent per year from 2000 to 2002, showing acceleration over the three earlier years in the study period when the growth rate averaged 5.5 percent per year.

The major cost drivers of growth in the most recent year were continuing double-digit growth in medical costs per claim and very rapid growth in benefit delivery expenses per claim.

Growth in indemnity payments – wage replacement payments for lost-time injuries – per claim with more than seven days of lost time appeared to have moderated in the latest year (5 percent), after double-digit growth in the prior year. The moderation reflects little change in the most recent year in the duration of time away from the workplace resulting from temporary disabilities, the study said. Wage growth in the state also slowed (3 percent in 2002 compared to 8 percent in 2001).

The very rapid growth in benefit delivery expenses per claim – costs associated with managing claims – was driven by a rapid rise in medical cost containment expenses per claim and increases in litigation expenses per claim in the latest year.

The study, CompScope Benchmarks for Massachusetts, 5th Edition, provides a meaningful comparison of the workers’ compensation systems in 12 large states on key performance measures such as benefit payments and costs per claim, timeliness of payments, and defense attorney involvement by analyzing a similar group of claims and adjusting for injury mix, wage levels and injury types.

The 12 study states are California, Connecticut, Florida, Illinois, Indiana, Louisiana, Massachusetts, North Carolina, Pennsylvania, Tennessee, Texas and Wisconsin. These states represent more than 50 percent of the nation’s workers’ compensation benefit payments.

The study also reported that average costs per claim in Massachusetts were typical compared with other study states, reflecting the offsetting effects of medical payments per claim that were the lowest among the 12 study states and the fact that Massachusetts had the highest percentage of claims with more than seven days of lost time.

“The continued increase in Massachusetts workers’ compensation costs per claim bears watching, especially medical costs,” said Dr. Richard Victor, executive director of WCRI.

The study reported that for claims with lost-time injuries of more than seven days, costs per claim in Massachusetts ($25,228) were 32 percent below the median of the study states for claims with 36 months of experience. The average indemnity payment per claim was 14 percent lower than the study median, while the average medical payment per claim was the lowest of the states studied – 53 percent lower than the median of the states studied.

Other WCRI studies found that the lower medical payments per claim in Massachusetts resulted from both lower medical prices and lower utilization of medical services.

The study also found that 55 percent of injured workers in Massachusetts were sent their first indemnity payment within 21 days of injury, the highest percentage of the 12 study states.

The proportion of workers who received their first indemnity payment within 14 days once the payor received notice was highest in Massachusetts at 59 percent, 15 percentage points higher than the 12-state median.

For more information, visit WCRI’s web site at www.wcrinet.org.