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July 19, 2001
Worker's Comp: Double-Digit Increases
A s
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tudy of worker-compensation claims in eight large state shows that claim costs grew by 11 percent in 1997 and 1998, the most recent years available for review.

The study, by the Workers Compensation Research Institute, indicates that medical costs and income benefit costs grew significantly.

In addition, a larger number of cost drivers were found in California than in any of the other seven large states studied. Among these cost drivers were:

  • High and lengthening time away from work.

  • A high and growing share of claims receiving permanent disability payments or lump sum settlements.

  • Benefit delivery expenses, including litigation, claim adjusting, medical cost containment expenses.

  • Frequent use of relatively expensive vocational rehabilitation services.

  • Growing litigation.

More than 50 percent of claims in California from 1996 as of mid-1999 had lump sum payments or payment for permanent disabilities, creating a tie with Texas for the highest percentage among the eight states.

That percentage has jumped 6 percentage points since 1994. The other states in the study, which represent 40 percent of the nation's workers' compensation benefits, are Connecticut, Florida, Georgia, Massachusetts, Pennsylvania, Texas and Wisconsin.

The average duration for a temporary disability claim in California is 14 weeks, a two-week increase since 1995, and nearly double the duration in Wisconsin and Connecticut, study states with the lowest per-claim income benefit costs.

The percentage of claims with more than one week of lost time increased two percentage points from 1996 to 1998.

"California's cost drivers are numerous and complex," said Dr. Richard Victor, executive director of the Cambridge, Mass.-based WCRI. "The growth in duration of disability and permanency benefit costs are central to the story," he said. "Although the study does not determine what caused this growth, we can speculate that either growing injury severity or growing dysfunction in the way the system handles return to work, termination of benefits, and award of permanent disability benefits are the leading explanations.

"Other evidence raises questions about whether growing injury severity is an important cause, suggesting that policymakers focus their inquiry on improving the functioning of the system in resolving issues about return to work and permanent partial disability benefits."
The study noted litigation is frequent and growing in California as measured by the percentage of claims involving defense attorneys - 26 percent of 1996 claims as of mid-1999, up five points from 1994 claims.

California has the highest use and cost of vocational rehabilitation services. Qualified workers in California are entitled to these services, while they are provided voluntarily in most other states. The average vocational rehabilitation expense in California is 30 percent higher than the average costs in the next highest state studied.

The study found that 25 percent of California claims involve medical-legal exams, tied with Massachusetts as the highest-use state. The cost of the exams also is highest in California, more than double the average costs in Georgia, the study state with the lowest medical-legal expenses per claim.

The Workers Compensation Research Institute is a nonpartisan, not-for-profit membership organization conducting public policy research on workers' compensation, health care and disability issues. Its members include employers, insurers, insurance regulators and state regulatory agencies as well as several state labor organizations.
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