2004 Reforms Slow Tennessee Workers’ Comp Costs, Study Finds

Tennessee experienced a moderation in average workers’ compensation costs per claim among 14 study states, after two consecutive years of rapid cost growth and in the wake of reforms enacted in 2004, according to a Workers Compensation Research Institute study.

Workers’ compensation costs per claim in Tennessee grew just 2 percent in the early post-reform period, after faster growth of 10 percent in the period before the legislative changes. These results are based on an analysis performed by the WCRI to isolate the early post-reform effects.

The analysis compares results for the pre-reform period using the three quarters prior to the July 1, 2004, implementation date for many reform provisions with the same three quarters post-reform.

In the early post-reform period, Tennessee’s median permanent partial disability (PPD)/lump-sum payment per PPD/lump-sum claim decreased 19 percent compared to a 9 percent increase in the period immediately before the legislative changes.

The median lump-sum payment per claim with a lump-sum settlement in Tennessee fell 15 percent in the early post-reform period, compared to 8 percent growth in the pre-reform year. The frequency of lump-sum claims decreased 2 percentage points in the post-reform period, after a similar increase before the reforms.

The legislation addressed many areas in the system, including medical costs and the development of a medical fee schedule; PPD benefits; lump-sum settlements; temporary total disability benefit maximums; the independent medical examination process; dispute resolution; and timely first payment.

WCRI reported that most of the legislative provisions related to benefit delivery expenses (such as mandatory benefit review conferences and the IME registry) were effective as of Jan. 1 and July 1, 2005, respectively, and therefore WCRI did not expect to see a large effect in the early post-reform period.

The average expenses for delivering medical and indemnity benefits to injured workers increased 5 percent in the post-reform period compared to 10 percent growth in the pre-reform period.

WCRI reported that the study included some effects from the implementation of the medical fee schedule in Tennessee because the fee schedule applied to services delivered on or after July 1, 2005.

Medical costs per claim grew nearly 6 percent in the early post-reform period, after rapid growth (10 percent) immediately prior to the reforms.

Injured workers in Tennessee received their first indemnity payment slightly faster in the most recent year. The percentage of claims paid within 21 days of injury rose nearly 2 percentage points in 2005/2006 after two years of decreases of 2 percentage points per year.

The major driver of this improvement was faster injury reporting. The percentage of claims reported to the payor within 3 days of injury rose 3 percentage points in 2005/2006 and the percentage of claims paid within 14 days of payor notice improved slightly (1 percentage point).

In pre-reform Tennessee, overall costs per claim were typical of the study states, masking several offsetting factors. On one hand, Tennessee workers lost less work time than did workers in the median study state, with shorter duration of temporary disability and fewer workers off work for more than one week. Medical costs per claim were also typical.

On the other hand, indemnity benefits per claim with more than seven days of lost time were significantly higher than in most study states, driven by larger and more frequent lump-sum settlements.

Source: Workers Compensation Research Institute