Rising legal, medical costs and speedy payments mark region’s WC systems

While medical and litigation expenses are causing workers compensation insurers’ costs to creep up in the Northeast, there are some positive signs amid the claims trends for insurers and injured workers in several key states.

Average total costs per workers’ compensation claim in Pennsylvania showed steady growth, increasing more than 8 percent for claims evaluated in mid 2004 with 12 months’ maturity, according to the Cambridge, Mass-based Workers Compensation Research Institute (WCRI).

But the WCRI study also reported that costs per claim in Pennsylvania were around 10 percent lower than the median of 13 states studied.

Also, the 8 percent rate of growth in costs per claim in Pennsylvania was similar to the median growth rate of the 13 states in the WCRI study. In the most recent period studied, medical payments per claim and indemnity benefits–wage replacement payments for lost-time injuries–per claim with more than seven days of lost time showed moderate growth (5 to 6 percent), the report said.

One reason for Pennsylvania’s lower costs per claim was that there were fewer claims with more than seven days of lost time from the workplace. In Pennsylvania, only 18 percent of workers’ compensation claims involved more than seven days of lost time, compared to 21 percent for the 13-state median.

In addition, average medical payments per claim with more than seven days of lost time were 16 to 18 percent lower in Pennsylvania than the median of the study states. Lower medical costs per claim were mainly the result of lower medical prices and lower utilization of physician services, according to other WCRI research.

Within 21 days of their injury, 45 percent of Pennsylvania workers received their first indemnity check –typical among the 13 study states. The speed of injury reporting was faster than typical of the 13 states, but the speed of payments once the payor received notice of injury was slightly slower than typical.

On a negative note, double-digit growth in claims management expenses continued in Pennsylvania. Expenses to manage claims including litigation were 13 percent higher in Pennsylvania than the 13-state median for the more mature claims.

The study, CompScope Benchmarks for Pennsylvania, 6th Edition, is part of a WCRI research series that compares the workers’ compensation systems in 13 states: Arkansas, California, Florida, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Pennsylvania, North Carolina, Tennessee, Texas and Wisconsin. These states represent more than 50 percent of the nation’s workers’ compensation benefit payments.

Massachusetts results
The WCRI Massachusetts study shows that the costs per claim rose 8 percent for claims evaluated mid 2004 with an average of 12 months’ maturity. This contrasts with more rapid annual growth of 9 to 11 percent in the two prior years.

The recent Massachusetts trend in overall costs was due to a noticeable increase in the proportion of claims with more than seven days of lost time and a slower rate of growth in medical costs per claim with more than seven days of lost time, the report said.

Growth in indemnity payments per claim with more than seven days of lost time showed little change in the latest year (less than 1 percent) after 7 to 11 percent growth in the two prior years.

A small increase in the average wage of injured workers (1.6 percent) offset a slight decrease in the duration of temporary disability (1.8 percent or 0.2 weeks), the study said. Wage growth in the state also slowed (1 percent decrease in the latest year compared to 7 to 11 percent increase in each of the three prior years).

In Massachusetts, benefit delivery expenses were slightly lower than typical among the 13 study states, largely because of lower medical cost containment expenses per claim.

The study also reported that average total costs per claim in Massachusetts were typical compared with other study.

The average indemnity payment per claim was 11 percent lower than the study, while the average medical payment per claim was the lowest of the states studied — 54 percent lower than the median.

Other WCRI studies found that the lower medical payments in Massachusetts resulted from both lower medical prices and lower utilization of medical services.

The speed at which injured workers in Massachusetts were sent their first indemnity payment continued to improve; the state already had the fastest time from injury to first indemnity payment among the 13 states.

Maryland issues
WCRI also reported on Maryland, where costs per claim grew very rapidly, with medical costs and an increase in the proportion of claims with more than seven days of lost time cited as the major causes.

Maryland’s workers’ compensation costs per claim grew an average of nearly 14 percent per year, showing acceleration over the two previous years when the growth rate averaged 5 to11 percent.

Growth in Maryland’s indemnity payments per claim with more than seven days of lost time rose in the latest year (6 percent), after little change in the previous year. The main driver of that increase was a rise in the average permanent partial disability (PPD)/lump-sum payment per claim of 17 percent, the study said.

Average total costs per claim in Maryland were typical compared with other states.

In terms of positive news in Maryland, the average medical payment per claim with more than seven days of lost time was 41 percent lower than the 13-state median for the more mature claims. Only Massachusetts was lower.

However, the study also found that the average time it took for an injured worker to receive the first indemnity payment was among the slowest of the 13 study states. The main reason for this was that the speed of payments once payors received notice of injury was the slowest among the 13 states studied. Claims were reported to payors faster than in most study states, however.

The average benefit delivery expense per claim with more than seven days of lost time rose just 3 percent in 2003 claims as of 2004, much slower than the annual growth of 8 to 15 percent in the four previous years. Medical cost containment expenses continued to rise, and litigation expenses were higher than typical.

The Workers Compensation Research Institute is a nonprofit organization of employers, insurers, insurance regulators, state administrative agencies and labor organizations. It can be found online at www.wcrinet.org.