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Workers’ Comp Medical Cost Increases

By July 27, 2010Commentary

While people often think of workers’ compensation as a totally different animal from group health plans, trends in either sector can illuminate larger medical system issues.  The NCCI puts out excellent research on workers’ comp issues and a recent one examines factors influencing changes in medical severity.   (NCCI Report) Medical severity basically refers to the amount of medical costs per workers’ comp claim.  Overall medical costs have become a greater portion of workers’ comp than have indemnity payments, so much attention has been focused on understanding and controlling them.

The report separates its data examination into two periods, the last half of the nineties and the first part of the 2000s.   In the first time period, severity was up 51%, driven largely by more severe injuries, which typically incur more medical costs and by number of treatments per claim, or more utilization.  This latter factor accounted for over 60% of the total medical cost increase.  Unit price increases were responsible for about 20% of the rise, but the unit cost increase was actually less than the general uptick in medical CPI, probably because of the prevalence of workers’ comp fee schedules.

In the second time period, severity only increased by around 20%.  This time, however, more severe injuries only accounted for a small part of the rise and the number of treatments per injury actually declined, which might be due to greater use of utilization management for workers’ comp claims.  Almost 100% of the increase in medical costs was attributed to unit prices, which now were slightly higher than the rise in medical CPI.   This appears to mirror the trend in group health over the last few years; in which utilization is often under good control, but hospitals, physicians and other providers are receiving significant annual price increases.

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