Why Are Benefit Delivery Expenses Higher in California and Florida?

By Carol A. Telles

December 1, 2002 Related Topics:

Benefit delivery expenses – the expenses incurred when administering workers’ compensation claims, managing medical care and resolving disputes – represent a significant portion of the total cost of a workers’ compensation claim. In California alone, benefit delivery expenses represent about 13 percent of total claim costs for claims with three years of experience as of 1999. Money currently paid out for these expenses is potentially available to increase benefits to injured workers or to ease the costs paid by employers.

Lowering benefit delivery expenses is not an end in itself. There may be a trade-off between tailoring benefits to injured workers on the one hand and predictability and efficiency on the other. Multistate comparisons of benefit delivery expenses suggest that there may be “win-win” options, where benefit delivery expenses can be lowered without adversely affecting worker outcomes.

Key Findings:

  • Benefit delivery expenses per claim in California and Florida were almost triple those in Connecticut and Wisconsin . These higher expenses were driven by both higher litigation/claims adjusting expenses (more than triple those same expenses in Connecticut and Wisconsin ) and higher medical cost containment expenses (more than double the costs in Connecticut and Wisconsin ). See Figure A.
  • Higher defense attorney payments in California and Florida drive the higher litigation and claims-adjusting expenses in these states. Among claims with defense attorney involvement, the average expense in California ($2,698) and Florida ($2,701) was almost four times higher than in Connecticut ($695). The complexity of California ’s system for rating permanent partial disability and the design and implementation of Florida’s system for determining permanency benefits result in a greater need for attorney involvement in these state and more work (hours) to resolve cases.
  • Higher medical cost containment expenses in California and Florida are mainly due to differences in bill review expenses, driven by (1) more visits to and services from medical providers, (2) longer treatment, (3) more disputes about medical issues and (4) more changes in medical providers. In Florida , lower fee schedule reimbursement levels also contribute to higher bill review fees when these fees are based on a percentage of savings.

Why Are Benefit Delivery Expenses Higher in California and Florida? Duncan S. Ballantyne, Carol A. Telles, with the assistance of Pinghui Lui. December 2002.WC-02-06.


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