CALIFORNIA WORKERS’ COMPENSATION TOTAL COST PER CLAIM CONTINUES TO GROW AT RAPID PACE, SAYS NEW WCRI STUDY

SAN FRANCISCO, CA, January 22, 2003 – Workers’ compensation costs per claim in California continue to grow rapidly, increasing 10 percent per year over the three year period 1997 through mid-2000, outpacing the seven percent per year increase during the previous three-year period, according to the Workers Compensation Research Institute (WCRI).

The rise in cost per claim was driven, in part, by a two-week increase in temporary disability duration.

Other factors behind the higher than typical costs per claim in California were higher medical payments per claim, more frequent permanent partial disability (PPD) claims, greater use of vocational rehabilitation and higher benefit delivery expenses.

The study of 12 states, which represent 50 percent of the nation’s workers’ compensation benefits, reported that despite a lower maximum weekly benefit, California ’s indemnity benefits per claim are among the highest of the study states and are growing rapidly. Between 1997 and 1999 (for claims evaluated as of mid-2000), medical and indemnity benefits per claim grew by double digits annually.

Indemnity benefits – wage replacement payments for lost-time injuries – were the stronger cost driver, due largely to an increase in the duration of temporary disability.

Other states in the WCRI study, CompScope™ Benchmarks:  Multistate Comparisons, 1994-2000, are:  Connecticut , Florida , Georgia , Illinois , Indiana , Massachusetts , North Carolina , Pennsylvania , Tennessee , Texas and Wisconsin .

“Prior to the recent reforms, indemnity costs per claim in California were rising rapidly,” noted Dr. Richard A. Victor, executive director of the Cambridge, Mass.-based WCRI. “When compared to other study states, California ’s indemnity costs per claim were nearly 40 percent higher than the typical state studied.”

In post-reform years, the gap between California and the other study states should widen even more as the effect of the benefit increases are felt, said Victor. It appears to be very important to effectively implement the measures adopted in the reform legislation, such as new programs targeting quicker return to work, to mitigate the rise in indemnity costs, he added.

Benefit payments for the more serious and costly injuries – permanent partial disability (PPD) claims – grew at a more moderate rate (four percent) from 1998 to 1999 (evaluated as of mid-2000), after rising 7 percent per year during the previous two-year period.

Growth in medical benefits per PPD claim also slowed a bit, up four percent from 1998 to 1999 as of mid-2000, compared with a seven percent increase in the previous 12 months.

Growth in the costs of indemnity benefits for PPD claims moderated as well, up (more) four percent between 1998 and 1999 through mid-2000, down from a six percent increase from 1997 to 1998.

The study said that the increase in benefit delivery expenses may be slowing, driven by moderating cost growth for medical cost containment expenses and little change in expenses associated with medical-legal exams.

“While some claim costs are moderating, the upward trend in system costs in California has not abated,” said Victor.

The study noted that the average cost of a claim with more than seven days of lost time was $25,235 (1997 claims as of mid-2000), 33 percent higher than the median of the study states.

Greater use of vocational rehabilitation and higher benefit delivery expenses, in particular, continue to keep California a state with high costs per claim, the study said.

In addition, payments per temporary disability claim are higher than the typical study state due to the longer duration of these claims in California .  The duration of TD claims in California is 16 weeks, compared with the 12-state median of 13 weeks for 1999 claims as of mid-2000.

Benefit delivery expenses in California are among the highest of the study states, accounting for 12 percent of total claim costs.

Average per-claim expenses for medical cost containment services, defense attorneys, and medical-legal expenses are higher than in most study states.  Medical-legal examinations and defense attorneys also are used more often in California .

Growth in benefit delivery expenses appears to be moderating as these costs grew six percent between 1998 and 1999 as of mid-2000 after rising 17 percent per year between 1995 and 1998.

The lower growth rate of benefit delivery expenses was the result of slower growth in medical cost containment expenses, the study found.

The study pointed out that many more claims in California have vocational rehabilitation services than in any other state studied. For 1997 claims as of mid-2000, 16 percent of injured workers received vocational rehabilitation maintenance payments and 28 percent received vocational rehabilitation services.

In addition, for these claims, the average vocational rehabilitation provider cost per claim of $3,320 in California is the second highest among the states studied for 1997 claims as of mid-2000.

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.