Surprising Share of Workers' Comp Cases Involve 'Adverse Surprise' Costs
August
8, 2005
Workers' compensation cases with significant unanticipated medical care and
costs are most common in California and Texas, and can represent as much as 30
percent to 40 percent of medical costs in most states, according to a new study
by the Workers Compensation Research Institute. These so-called "adverse
surprise" cases involve those where medical conditions and costs worsen
beyond what insurers originally estimated. They often involve back injuries.
"Cases with adverse surprises are the ultimate 'lose-lose' for workers and
employers," said Dr. Richard A. Victor, executive director of the
Cambridge, Mass.-based WCRI.
"In these cases, workers' medical conditions may have become chronic, a
result that was not anticipated earlier in the case. The costs to employers may
have significantly exceeded expectations, compared to how the medical condition
presented at an earlier point in the case," Victor explained.
After California and Texas, the states where adverse surprise costs are highest
include Florida, Louisiana and North Carolina.
The study found that in some of the 12 large states reviewed, the frequency of
these adverse surprise cases was increasing more rapidly than in others. The
other states in the study were Connecticut, Illinois, Indiana, Massachusetts,
Pennsylvania, Tennessee and Wisconsin.
Among the other findings of the study, Adverse Surprises in Workers'
Compensation: Cases with Significant Unanticipated Medical Care and Costs:
Victor said that while specific actions to prevent adverse surprise cases are
not identified in this study, it is likely that some improvement in public
policies and medical management are part of the answer.
In other recent research, the National Academy of Social Insurance reported
that employers' costs for workers' compensation grew faster than combined cash
benefits for injured workers and medical payments for their treatment. The cost
increase in 2003, the most recent data available, continues a trend that began
in 2000, when workers' compensation costs and benefits relative to wages were
at their lowest point in the last 15 years.
"The fact that employer costs rose faster than payments for benefits and
medical care reflects broader developments in the insurance industry,"
according to John F. Burton Jr., of Rutgers University, who chairs the panel
that oversees the report. "Employer costs reflect rising premiums insurers
charge to cover future benefit costs. The recent rise in costs appears to be
part of a longer cycle of ups and downs in the insurance market."
Total workers' compensation payments for injured workers rose by 3.2 percent to
$54.9 billion, while employer costs rose by 9.6 percent to $80.8 billion. When
shown relative to aggregate wages of workers, payments rose by just one cent
for every $100 of wages in 2003--or from $1.15 to $1.16. The costs to
employers--which include the premiums they pay for workers' compensation
insurance (or their administrative costs if they self insure)--rose by 12 cents
per $100 of wages, to $1.71 in 2003.
Since the low point in 2000, employer costs per $100 of wages rose by 39 cents,
from $1.32 to $1.71, while total payments on workers' behalf rose by 12 cents
from $1.04 to $1.16 per $100 of payroll. Despite the recent rise in costs, both
costs and benefits in 2003 remain far below their peak levels relative to
wages. Total payments for cash benefits and medical care combined peaked in
1992 at $1.69 per $100 of wages, which is 52 cents higher than in 2003. Costs
to employers peaked in 1993 at $2.16 per $100 of wages, which is 45 cents
higher than in 2003.
According to Burton, "The decline in employer costs in the 1990s occurred
as favorable investment returns led insurance companies to cut premiums in
order to expand their market shares. Since 2000, low interest rates and poor
stock market returns led insurers to raise premiums in order to cover future
benefit costs."
Since 2000, the growth in payments on workers' behalf is due largely to
increased spending for medical care. Of the 12-cent increase per $100 of wages
between 2000 and 2003, nine cents was due to increased spending for their
medical treatment, while three cents were increased payments to replace lost
wages.
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