California Ranks Fourth Highest in Total Claim Cost, WCRI Study Finds

Friday, April 27, 2018 | 0

California ranked fourth-highest in terms of average claim costs among 18 states examined in a new study, and one contributing factor is the relatively high percentage of claims with more than seven days of lost time.

The California report is one of 16 CompScope Benchmark reports released Thursday by the Workers Compensation Research Institute. The WCRI updates its research on system performance of 18 state systems annually and releases separate reports on most of the states studied.

California’s average claim cost was $14,400, lower than in only three other study states. Illinois ranked the highest, with an average claim cost of $16,625, followed by Louisiana and New Jersey in the No. 2 and No. 3 spots, respectively.

For determining those figures, WCRI looked at claims arising in 2014 with experience through 2017. The average total claim cost included medical-only and lost-time claims, and costs for medical, indemnity and benefit delivery.

Three of the four states with the highest average claim cost also were in the top four when it came to percentage of claims with more than seven days of lost time. California was again fourth-highest, with 30.4% of all claims having more than a week of lost time. New Jersey and Illinois ranked No. 2 and No. 3, respectively, and Massachusetts took the top spot, at 31.9%.

University of California, Berkeley, researcher Frank Neuhauser noted that California has long stood out for having one of the longest average lengths of temporary disability. One contributing factor is that post-termination claims are less restricted in the Golden State, he said.

“Since the worker and employer are already separated, there is little to encourage return to work, particularly with modified work,” Neuhauser said.

Other factors contributing to longer temporary disability in California are cumulative trauma claims, commonly filed post-termination, Neuhauser said, and a “generous interpretation” of what gets compensated as a permanent disability.

The CompScope report examined the impacts of the Senate Bill 863 reforms in California, which were enacted in 2013. Total costs per claim with more than seven days of lost time have remained stable since SB 863 took effect, WCRI said, due to the balancing of a number of factors.

Among the study states, California saw a 5.8% per year drop in medical costs for claims with more than seven days of lost time. That figure compares claims arising in 2011, with an average maturity of 36 months, to claims arising in 2014.

California saw the biggest drop in medical costs measured in that manner. Five other states — North Carolina, Illinois, Arkansas, Georgia and Tennessee — saw decreases in medical costs over that time. But the remainder of the study states saw increases in medical costs, ranging from 0.4% per year in Minnesota to 5% per year in Wisconsin.

The decrease in California has placed the state's medical costs below the median among the WCRI study states. In contrast, the state’s costs for indemnity benefits remain relatively high, at $21,317 for 2014 claims, which was 20% higher than the 18-state median of $17,815.

And average benefit delivery costs per claim in California were among the highest in study states.

The average benefit delivery expense per claim of $10,164 in California was second only to Louisiana’s average benefit delivery cost of $10,510. The median among study states was $6,297.

California also stood out in terms of its spending on medical cost containment, which accounted for 25% of medical-related costs per claim, the highest among WCRI study states. In contrast, medical cost containment was only 9% of medical-related costs in Wisconsin, the lowest percentage found in the study.

Some of the findings from WCRI’s CompScope reports for other states include:

• In Illinois, the average total cost per workers’ compensation claim has grown 1% to 3% a year since 2012.
• In Virginia, the average total cost per workers’ compensation claim increased 4.8% per year from 2011 to 2016. Since then, the state has implemented a workers’ comp medical fee schedule that took effect on Jan. 1.
• Tennessee saw its average total cost per workers’ compensation claim decrease by 6% in 2015, driven by a 24% reduction in permanent partial disability and lump-sum benefit payments.

The CompScope reports, free to WCRI members and available for purchase to others, may be found here.