Where the Workers’ Compensation Dollar Goes

By Richard A. Victor, Carol A. Telles

August 1, 2001 Related Topics: Indemnity Benefits, Medical Costs, System Overview

This study reviews claims in 8 large states representing about 40 percent of the nation’s benefits: California, Connecticut, Florida, Georgia, Massachusetts, Pennsylvania, Texas and Wisconsin. These states are diverse, both geographically and in the designs of their workers’ compensation systems.

Among the major findings are:

  • Massachusetts gets a much greater share (53% vs. 40%) of the total claim cost to injured workers in the form of income benefits, compared to most states studied.
  • Benefit delivery expenses absorb a higher share of claim costs in California (12%) and Massachusetts (11%).
  • Texas and Wisconsin pay a higher share of claim costs for medical treatment.
  • Vocational rehabilitation services in California (3%) account for triple the share of the next highest state.
  •  California pays a higher share (7%) of total claim costs in litigation and claims adjusting expenses.

In most states studied, medical cost containment services account for 3.5% to 4.5% of total claim costs.

Income Benefits. Massachusetts gets a greater share of the total claim cost to injured workers in the form of income benefits. In five of the eight states, income benefits comprise a remarkably consistent 39-42% of total claim costs. In Massachusetts, income benefits are 53%. By contrast, in Wisconsin, income benefits comprise 33% of total claim costs.

Expenses. Benefit delivery expenses absorb a higher share of claim costs in California (12%) and Massachusetts (11%) than the other states – and compare to 6% in Texas and Wisconsin. The California expense driver is litigation and claims adjusting expenses (7%) that are the highest among the eight states.

Medical Treatment. Texas and Wisconsin pay a higher share of claim costs for medical treatment (54% and 61% respectively) than the majority of states studied. Four of the eight states studied pay 49-52% of claim costs. Massachusetts and California pay the smallest share of claim costs – 36% and 41% respectively.

Rehabilitation. Vocational rehabilitation services in California (3%) account for triple the share of the next highest state (1%). In five of the eight states, vocational rehabilitation services comprise less than one-half of one percent of total claim costs.

Litigation and adjusting. Litigation and claims adjusting expenses comprise an unusually high share of claim costs in California (7%) – roughly double the typical state (3-4%). These costs represent less than 2% in Texas. Payments for defense attorneys comprise 2-3% of claim costs in California, Florida and Georgia.

Medical cost containment. In five of the eight states, medical cost containment expenses are 3.5% to 4.6% of total claim costs. 

The study uses data from over 450,000 claims from 1997 with experience through mid-1999. This choice is a good balance between more recent data and more mature claims. The data are reasonably representative of the workers’ compensation systems and come from WCRI’s Detailed Benchmark/Evaluation (DBE) database. The measures reported here are derived from the most recent WCRI CompScope™ study [Telles, Liu, Kowalczyk and Tanabe. CompScope™ Benchmarks: Multistate Comparisons, 1994-1999. August, 2001.]

The measures reported above used comparable definitions across states and are adjusted by WCRI to standardize for interstate differences in industry mix, injury mix and wage levels. They are what is likely to result if each state system had a similar mix of injuries and workers – hence, they are the most meaningful interstate comparisons available.

The measures of benefit delivery expenses are akin to what insurers call "allocated loss adjustment expenses" and understate the total benefit delivery expenses in two ways. First, they do not include "unallocated" expenses – those that are incurred to handle claims, but not charged to individual claim files (e.g. claim adjusters’ salaries, rent, etc). Second, they include payments to defense attorneys, but not fees and expenses paid for workers’ attorneys.

This study was prepared by Richard A. Victor and Carol A. Telles. For further information contact the authors at www.wcrinet.org. The full citation for this study is: Richard A. Victor and Carol A. Telles, Where The Workers’ Compensation Dollar Goes. August 2001. Workers Compensation Research Institute. Cambridge, MA. FR-01-01.

Where the Workers Compensation Dollar Goes. Richard A. Victor and Carol A. Telles. August 2001.

Copyright: WCRI

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Research Questions:

  1. Where does the workers’ compensation dollar go?
  2. What share goes to workers?
  3. What share to medical providers for medical treatment? What share is spent for the expenses to deliver benefits?"

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