State Workers' Comp Costs Climbing At Double Digit Rates

June 25, 2003 ( - Workers compensation costs in Texas, California, Massachusetts and Illinois continued to climb at double-digit rates during recent years and spurred increases in overall costs per claim.

Factors that contributed to this result include higher per claim costs for medical care, higher indemnity benefits – wage replacement payments for lost time injuries – per claim, a higher proportion of claims with more than seven days lost time, a higher frequency of permanent partial disability (PPD) claims and longer duration of temporary disability, according to the Workers Compensation Research Institute (WCRI) Study CompScope Benchmarks: Multistate Comparisons, 1994-2000.

Lone Star Costs

The study of 12 states’ workers compensation costs , representing 50% of workers’ compensation claims nationwide, found that workers compensation costs per claim rose 11% between 1998 and 1999 as of mid-2000 in Texas, following a 10% increase between 1997 and 1998. This trend stands in sharp contrast to the more modest growth in costs per claim of 4% in previous years, but is due to the growth of 11% in medical payments per claim and an increase in temporary disability duration of more than one week (a 7%-increase).

Also, the study found that the Lone Star State had the dubious distinction of the highest average benefit payments per average workers compensation claim ($4,169), and in both medical and indemnity benefit costs per claim. At $2,508, medical payments per claim were 24% higher than in Illinois, the next highest state. Indemnity payments per claim were $1,661.

Further, Texas has the highest rate of PPD claims, which as of mid-2000 accounted for 36% of claims with more than seven days of lost time in the state. Overall, almost nine out of 10 (89%) claims with more than seven days of lost time have payments for medical cost containment services, slightly more than the 12-state median and the percentage of claims with more than seven days lost time is high in Texas at 25%, second only to Massachusetts at 28%.

While not quite at the top, expenses associated with delivering benefits to injured workers are higher in Texas than in a majority of the states surveyed. Benefit delivery expenses per claim are $341 in Texas, nearly 20% higher than the median of the 12 study states. These expenses grew 11% between 1998 and 1999 as of mid-2000, about the same growth rate as from 1997 to 1998.

Bear Of A Cost

However, Texas was not alone at the top of the cost pyramids. Despite a lower maximum weekly benefit, California ‘s indemnity benefits per claim are among the highest of the study states and are growing rapidly. Between 1997 and 1999, medical and indemnity benefits per claim grew by double digits annually. Indemnity benefits were the stronger cost driver, due largely to an increase in the duration of temporary disability.

Overall, aggregate workers compensation costs per claim in California continued to grow rapidly, increasing 10% per year over the three year period 1997 through mid-2000, outpacing the 7% per year increase during the previous three-year period. The Golden State’s rise in cost per claim was driven, in part, by a two-week increase in temporary disability duration. Other factors behind the higher than typical costs per claim in California:

  • higher medical payments per claim
  • more frequent PPD claims
  • greater use of vocational rehabilitation
  • higher benefit delivery expenses.

Benefit payments for the generally more serious and costly PPD claims grew at a more moderate rate (4%) from 1998 to 1999, after rising 7% per year during the previous two-year period. Growth in medical benefits per PPD claim also slowed a bit, up four percent from 1998 to 1999 as of mid-2000, compared with a seven percent increase in the previous 12 months.

Additionally, the study noted that the average cost of a claim with more than seven days of lost time was $25,235 in California, one-third higher than the median of the study states. Greater use of vocational rehabilitation and higher benefit delivery expenses, in particular, continue to keep California a state with high costs per claim, the study said. In addition, payments per temporary disability claim are higher than the typical study state due to the longer duration of these claims in California – 16 weeks, compared with the 12-state median of 13 weeks for 1999 claims as of mid-2000.

Overall, California’s benefit delivery expenses accounted for 12% of total claim costs. Growth in benefit delivery expenses appears to be moderating as these costs grew 6% between 1998 and 1999 as of mid-2000 after rising 17% per year between 1995 and 1998. The lower growth rate of benefit delivery expenses was the result of slower growth in medical cost containment expenses, the study found. The study reported that benefit delivery expenses (at $1,291 per claim with more than seven days of lost time) are fairly typical among the 12 states.

Benefit Noise in Illinois

California’s numbers were very similar to trends seen in workers’ compensation costs per claim in Illinois, increasing 10% between 1998 and1999, at about the same rate that the 11% growth experienced between 1997 and 1998. Increases in medical payments per claim were cited as the strongest and most consistent factor behind the ongoing rise in overall costs per claim, up an average of 10% per year from 1997 to1999. The study noted that Illinois is one of four states among the 12 states studied that does not have a medical fee schedule to control costs.

Additionally, workers’ compensation claim costs in Illinois averaged $3,376 per claim in 2000, 30% above the median of the 12 study states. Medical payments per claim were the major cost driver – 43% above the median.

Further, Illinois had a slightly higher percentage of claims with more than seven days of lost time, 22% versus the 12 state median of 20%. PPD claims accounted for more than one-half (53%) of claims with more than seven days of lost time and 35% had lump-sum settlements.

The study reported that medical payments per claim were a major cost driver. At an average of $2,015 per claim in 1999 of mid-2000, medical payments per claim in Illinois were 43% above the median of the 12 study states, second only to Texas. Additionally, indemnity benefits averaged $1,065 per claim for 1999 claims, 11% higher than the 12-state median.

However, the study pointed out that Illinois had lower to typical benefit delivery expenses – medical cost containment expenses, defense attorney payments, medical-legal expenses, and other litigation-related expenses – compared with the other states studied.

Baying Costs

The study also reported that Massachusetts’ costs per claim are typical compared with other study states, reflecting the offsetting effects of medical payments per claim that are the lowest among the 12 study states ($1,039 in 2000) and the fact that Massachusetts has higher duration of disability – the highest percentage of claims with more than seven days of lost time (28%) and longer duration of temporary disability than typical of the states studied.

Running contrary to the national trends, following a very rapid increase from 1997 to 1998, growth in workers’ compensation costs per claim in Massachusetts has slowed to a more moderate rate. The study found that workers’ compensation costs per claim grew at a modest 5% rate between 1998 and 1999 as of mid-2000. By contrast, costs per claim rose 9% between 1997 and 1998.

One key component of the slowdown was seen in indemnity benefits which rose 6.5% and are a stronger contributor to this per-claim growth than medical payments, which grew just 2%. The study also found that nearly 60% of injured workers in Massachusetts were sent their first indemnity payment within 21 days of injury, the highest percentage of the 12 study states.

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