Calif. Workers’ Comp Costs Per Claim Continue Rapid Growth

California workers’ compensation costs per claim in California continue to grow rapidly, increasing 15 percent from 2000 through 2001 (as of 2002) and are accelerating, according to a new study from the Cambridge, Mass.-based Workers Compensation Research Institute. California has more cost drivers and more persistent cost growth than any other state in the study of 12 large states.

The study noted that in California the average cost of a workers’ compensation claim with more than seven days of lost time is $29,745 – 28 percent higher than the median of the study states (1999 claims as of 2002, with 36 months of experience).

Significant cost drivers in California include:

*Medical costs per claim that were 20 to 52 percent higher than the 12-state median, resulting primarily from higher use of services, not higher prices.
*Duration of periods of temporary disability for injured workers that were three to eight weeks longer than typical of the study states.
*A higher percentage of claims with more than seven days of lost time (24 percent versus the study median of 21 percent).

“The upward trend in California workers’ compensation claims costs has not abated,” said Dr. Richard Victor, executive director of the Cambridge, Mass.-based WCRI. “There are a large number of cost drivers that make the California system so expensive.”

The recent rate of growth in California’s workers’ compensations cost per claim was driven by 17 percent growth in average medical costs per claim; 12.5 percent in indemnity benefits per claim (wage replacement payments for lost-time injuries) and 18 percent growth in allocated costs to manage claims, known as benefit delivery expenses.

Factors behind the growth in indemnity benefits per claim were a higher percentage of claims with more than seven days of lost time, longer duration of temporary disability and higher percentage of permanent partial disability (PPD)/lump-sum claims.

PPD claims represent the more serious and costly injuries. Lump-sum settlements are agreements that typically close out a workers’ compensation claim and result in a single payment to the worker.

The study of 12 states, which represent about 60 percent of workers’ compensation benefits paid nationally, also reported that expenses to manage claims in California for 1999 as of 2002 accounted for 12 percent of total claim costs, among the highest of the 12-state study.

These benefit delivery expenses per claim surged nearly 20 percent between 2000 and 2001 as of 2002, after moderating between 1998 and 2000 as the result of higher medical cost containment expenses per claim, rising expenses of medical-legal exams and higher defense attorney payments per claim.

Other states in the WCRI study, CompScope(TM) Benchmarks: Multistate Comparisons, 4th Edition, are Connecticut, Florida, Illinois, Indiana, Louisiana Massachusetts, North Carolina, Pennsylvania, Tennessee, Texas and Wisconsin.

“Despite high medical costs and use of medical management services in California,” Victor observed, “injured workers there report less satisfactory outcomes than in two states where the costs and quantity of medical care is lower,” referring to another WCRI study.

That study, Outcomes for Injured Workers in California, Massachusetts, Pennsylvania, and Texas, analyzed the workers’ perceived recovery of physical health and functioning, return to work, access to health care and satisfaction with health care in four important states.

The study reported that worker outcomes in all categories were generally less satisfactory in California than in Massachusetts and Pennsylvania, two states where the average medical costs per claim were 53 percent and 24 percent lower than California, respectively.

The Workers Compensation Research Institute (WCRI) is a nonpartisan not-for-profit membership organization conducting public policy research on workers’ compensation, health care and disability issues. Its members include employers, insurers and governmental entities, insurance regulators and state regulatory agencies, as well as several state labor organizations.

To purchase CompScope(TM) Benchmarks: Multistate Comparisons, 4th Edition (forthcoming, February 2004) (PDF file — $45 for WCRI members, government agencies, non-profit organizations; $95 for all others; book — $95 for WCRI members, government agencies, non-profit organizations; $195 for all others) contact WCRI at wcri@wcrinet.org (617-661-9274) or visit WCRI’s Web site at www.wcrinet.org.