PENNSYLVANIA WORKERS’ COMPENSATION COSTS PER CLAIM CONTINUE UPWARD TREND, SAYS NEW WCRI STUDY

HARRISBURG, PA, February 6, 2003– Workers’ compensation per claim costs in Pennsylvania continue to increase at a five percent rate, following several years of little growth, according to a new study by the Workers Compensation Research Institute (WCRI).

The study by the Cambridge , Mass-based WCRI found that average costs per claim rose five percent in both 1998 and 1999. This stands in sharp contrast to the lack of growth in the average cost per claim that occurred between 1994 and 1997.

In spite of this trend, at an average of $2,449 per claim, total costs per workers’ compensation claim in Pennsylvania are typical of the other states in a national study, CompScope™ Benchmarks:  Multistate Comparisons, 1994-2000.  The study of 12 states, representing 50 percent of workers’ compensation benefits paid nationwide, provides a meaningful comparison of key system performance measures.

The major factors behind the recent cost increases in Pennsylvania were growth in indemnity benefits per claim and higher expenses to manage claims. Medical payments per claim grew more slowly.

The cost of indemnity benefits per claim – wage replacement payments for lost-time injuries – rose six percent from 1998 to 1999 as of mid-2000, according to the study.  Growth in indemnity benefits for the more serious injuries – permanent partial disabilities (PPD) and lump-sum settlements – drove the increase. Although payments for scheduled PPD injuries (known as specific-loss benefits in Pennsylvania) and for lump-sum settlements are relatively infrequent under Pennsylvania’s wage-loss benefit system, PPD/lump-sum payments per PPD/lump-sum claim rose 31 percent in 1999 over the previous year.

Other factors included a 25 percent rise in lump-sum settlement payments per claim and a 13 percent increase in the duration of temporary disability for PPD/lump-sum claims.

Benefit delivery expenses per claim, such as defense attorneys’ fees, medical-legal exam expenses, ancillary legal expenses, and medical cost containment increased 13 percent.

In particular, the study reported that defense attorney fees have been growing at a sustained double-digit rate, rising 18 percent per year on average from 1994 to1999, the highest rate of growth among the study states.

At an average of $2,872 per claim (for claims with 36 months’ experience), defense attorney fees in Pennsylvania are nearly 50 percent higher than the median of the 12 study states.

In addition to Pennsylvania , the other states in the study are California , Connecticut , Florida , Georgia , Illinois , Indiana , Massachusetts , North Carolina , Tennessee , Texas and Wisconsin .

“Efforts to control rising workers’ compensation costs per claim in Pennsylvania should focus on growth in the costs of indemnity claims and benefit delivery expenses,” said Dr. Richard Victor, executive director of  WCRI.  “A close look should be taken at what’s behind the increases in PPD/lump-sum payments and benefit delivery expenses,” he said.

“Special attention also should be paid to increasing defense attorney costs,” Victor observed.  “ Pennsylvania has the highest rate of growth in defense attorney fees among the 12 states in the study, more than two and a half times faster than in most study states.”

The study also found that Pennsylvania has the second highest percentage of workers’ compensation claims reported to the claims payers within three days of employer notice (57 percent) in 1999, an increase of 5.4 percentage points per year since 1997.

Faster reporting may have contributed to an increase in the percentage of claims paid within 21 days of injury.

The study noted that public officials, insurers and employers have implemented actions within the past few years to improve time to first payment, although the full effect of those actions may not yet be reflected in the data.

The Workers Compensation Research Institute is a nonpartisan, not-for-profit membership organization conducting public policy research on workers’ compensation, healthcare and disability issues. Its members include employers, insurers, insurance regulators and state regulatory agencies in the U.S. , Canada , Australia and New Zealand as well as several state labor organizations.