How Choice of Provider and Recessions Affect Medical Costs in Workers’ Compensation

By Richard A. Victor

June 1, 1990 Related Topics: Medical Costs, Provider Choice, Utilization

This report was a first step toward building a more thorough understanding of two important public policy issues: Does the choice of medical provider affect costs? And, does the utilization of benefits increase when unemployment rises?  The authors noted that the data presented in the report, although part of a growing body of evidence, are hardly conclusive. More work needed to be done.

Evidence bearing on the first question came from Illinois and Texas. Both states changed from employer to employee choice of initial physician, and in both states medical costs in the average case increased. Average medical costs in Illinois increased between 8 and 11 percent; in Texas they rose between 7 and 29 percent.

When national patterns are analyzed, medical costs per claim grow faster when the economy turns downward. Higher unemployment may increase the utilization of workers’ compensation income benefits as unemployed workers, seeking to retain income from whatever sources are available, use medical benefits to retain income benefits. In addition, when unemployment is higher, some employed workers with relatively minor injuries are more reluctant to file workers’ compensation claims, fearing they may be more vulnerable to layoff. Finally, when unemployment rises, the experience and injury mix of employed workers changes: Less experienced workers are laid off, and more experienced workers are retained. Less experienced workers tend to be younger; although they are injured more often, their injuries tend to be less serious. As a consequence, both average severity of injury and average medical costs increase.

How Choice of Provider and Recessions Affect Medical Costs in Workers’ Compensation. Dr. Richard B. Victor and Charles A. Fleischman. June 1990. WC–90–2.

Copyright: WCRI

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Research Questions:

  1. Does the choice of medical provider affect costs?
  2. Does the utilization of benefits increase when unemployment rises?

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