MEDICAL COSTS AND DURATION OF DISABILITY DROVE TEXAS’ HIGHER WORKERS’ COMPENSATION COSTS PER CLAIM, NEW WCRI STUDY REPORTS

Workers’ Compensation Costs per Claim among Highest in 12-State Study

CAMBRIDGE, MA, November 19, 2004 – Medical costs were higher and workers returned to work more slowly in Texas, according to a new study by the Workers  Compensation Research Institute (WCRI).

Workers’ compensation costs per claim in Texas remained among the highest of the states in the study between 2001 and 2002. The average cost per claim in Texas ($5,938) was 76 percent above the median in the study of 12 large states conducted annually by WCRI.         

Texas led the study states in medical costs per claim. At $3,301, medical payments per claim were highest among the 12 states and 21 percent higher than in Illinois, the next highest state.

Injured workers in Texas received temporary disability benefits 50 percent longer than injured workers in the other study states (26 weeks on average in Texas versus 17 weeks for the median of the non-wage loss study states.)

The study, CompScope™ Benchmarks for Texas, 5^th Edition, provides a meaningful comparison of the workers’ compensation systems in Texas and 11 other large states on key performance measures such as benefit payments and costs per claim, timeliness of payments, and defense attorney involvement by analyzing a similar group of claims and adjusting for industry mix, wage levels and injury type. These states represent more than 50 percent of the nation’s workers’ compensation benefit payments.

The other states included in the study were California, Connecticut, Florida, Illinois, Indiana, Louisiana, Massachusetts, North Carolina, Pennsylvania, Tennessee and Wisconsin.

The study reported that workers’ compensation costs per claim rose seven percent between 2001 and 2002, slower than the double-digit increases in the three prior years, but still reflecting rapid growth.         

The major drivers behind the seven percent increase in overall costs per claim were a five percent growth in medical payments per claim and a 20 percent growth in medical cost containment expenses per claim. Indemnity payments per claim (wage replacement payments for lost time injuries) remained relatively unchanged in 2002 after several years of rapid growth. The recent trend of indemnity payments per claim was primarily a result of a decrease in the duration of temporary disability per claim. 

According to the study, benefit delivery expenses per claim in Texas rose by 20 percent between 2001 and 2002 (for claims with more than seven days of lost time with these expenses), driven mainly by sustained double-digit growth in medical cost containment expenses. Benefit delivery expenses also include litigation-related expenses.

Medical cost containment expenses per claim in Texas were highest of the 12 study states at all claim maturities.

The study also found that average payment per claim to defense attorneys has risen by over 20 percent per year for the past two years (2001 and 2002), even though (more) defense attorney involvement was among the lowest of the states studied and has been stable. This trend may be related to an increase in permanent partial disability (PPD)/lump-sum claims and more disputes over medical issues.

“Legislation is being considered in the next legislative session in Austin. These metrics will help policymakers focus on the principal drivers of claim costs and provide baseline information for any future evaluation of legislative changes,” said Dr. Richard Victor, executive director of the Cambridge, Mass.-based WCRI. 

Other WCRI studies identified some of the factors behind higher medical payments in Texas – higher utilization of medical care for by all types of nonhospital providers (physicians, physical and occupational therapists, and chiropractors) and, especially higher use of chiropractic care than in the other study states.

Indemnity payments per claim were relatively unchanged between 2001 and 2002 and were close to the median of the study states. The study pointed out that the typical indemnity payments per claim in Texas resulted from several offsetting factors: a longer average duration of temporary disability and a higher frequency of PPD/lump-sum claims, but much lower average PPD/lump-sum payments per claim for these claims. Lump-sum settlements are agreements that typically end the employer’s liability for a workers’ compensation claim and result in a single payment to the worker.   

At 58 percent, Texas had the highest proportion of PPD/lump-sum settlement claims as a percentage of claims with more than seven days of lost time in non-wage-loss study states. For these claims, however, the average PPD/lump-sum payment per claim was 43 percent lower than the median of the nine non-wage-loss study states. (A non-wage-loss state system does not base payments for permanent partial disability solely on actual loss of wages, but includes impairment and disability concepts as well.)

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 administrative agencies in the U.S., Canada, Australia and New Zealand as well as several state labor organizations.