California Hospital Workers’ Comp Benchmarking Report

Workers’ compensation claim severity continues to increase, while claims frequency declines, according the latest California hospital report benchmarking workers’ comp costs by Milliman and Keenan Healthcare.

Data from 35 facilities (hospital systems and individual facilities) within California was aggregated to provide more than 3,500 claims for review. The report, in its second year, offers an in-depth look at key factors including claim frequency and severity, impact of reforms, medical and indemnity costs and allocated loss adjustment expense over the past 10 to 12 years. Also included is data on payroll and utilization, age, litigation status and future medical claims.

General trends identified in the report include:

• Overall losses per $100 of payroll remained flat over the 10 years ending 2014, with severity of claims on the rise while claim frequency declined.
• Estimates of costs per indemnity claim for accidents occurring during 2014 have decreased approximately 10% from 2013.
• Projected 2015 loss cost per $100 of payroll was at $2.20.

“California’s workers’ compensation environment is complex and always changing, and there are many challenges that employers and hospitals must contend with,” said Richard Lord, principal and consulting actuary with Milliman. “The information in this report can help both employers and hospitals make more informed decisions regarding workers’ compensation and can help them develop plans to improve their overall results.”

According to the report, the first notable trend is that severity per paid indemnity claim—i.e., indemnity, medical, and allocated loss adjustment expense (ALAE) combined—revealed an increase of almost 5.5 percent annually during the period between 2005 through 2014.

The report also notes that the the drop off in claim severity that occurred from 2003 to 2004 was due to reform laws enacted during that time. Indemnity claim frequency declined dramatically up until 2008.

The net effect of these two trends combined has been that overall losses per $100 of payroll have been largely consistent across the past ten years.

The decline in claim frequency has been seen both in claims that incur an indemnity payment and in medical-only claims, according to the report. the smallest component, ALAE costs long considered the smallest component, have increased as a percentage of overall claim costs in recent years.

Workers between the ages of 36 to 55 account for more than half of the paid indemnity claims. The report indicates that the share of overall losses for each age range is less than its share of overall claims for ages 30 and younger, which indicates lesser average severity of indemnity claims for younger workers. The report notes that “In addition to higher average costs per indemnity claim for injured employees over age 30, as workers age a given workers compensation incident is more likely to result in an indemnity payment.”

In addition the report states, “Younger workers, on the other hand, generally spend more in medical care relative to total costs, whereas older workers tend to have larger relative indemnity losses between 20 and 25 percent of claims with paid indemnity are litigated.”

While litigated claims contribute only 20 percent of the total claims with indemnity payment, they account for approximately 54 percent of total incurred losses, as litigated claims exhibit significantly higher average claim severity.

Source: Milliman/Keenan Healthcare