Use this button to switch between dark and light mode.

CWCI Quantifies California Workers’ Comp Medical and Indemnity Payment Growth Rates

August 26, 2013 (3 min read)

Average amounts paid for California workers’ compensation medical expenses and indemnity benefits have risen sharply since accident year (AY) 2005 – the first year after the 2004 reforms – but in a hopeful sign that medical inflation may be abating, initial data from AY 2011 and 2012 claims show slight declines in the average amounts insurers pay for medical services in the early stages of a claim.

The latest outcomes come from a CWCI study based on data on 1.9 million California work injury claims from AY 2002 through the 3rd quarter AY 2012. The data set included policy, claim, benefit and medical service detail, and medical payments through the end of last year, and the author of the study calculated the average amounts paid for medical services and indemnity benefits at seven different valuation points: 3, 6, 12, 24, 36, 48 and 60 months post injury for indemnity claims and for all claims (including med-only cases) from each year. The latest results confirm earlier studies which showed average medical payments declined briefly after the 2002-04 legislative reforms were enacted, but then began to rebound. For example, between AY 2005 and AY 2011, the study notes average medical payments on indemnity claims at 12 months post-injury rose 73.5% (from $5,381 to $9,338); while average medical payments on all claims were up 64.9% (from $2,087 to $3,442). To measure the effect of different types of medical expenses on the overall medical growth trends, the study also calculated the growth in the average amounts paid for four medical sub-categories: treatment, pharmacy/durable medical equipment, medical management and med-legal reports. The results show that between AY 2005 and 2011, first-year payments increased for all four medical sub-categories (ranging from a 60% increase for treatment to a 188% increase for pharmaceuticals and durable medical equipment). Likewise, between AY 2005 and AY 2010, average medical payments for all four medical components measured at the 24 month valuation also were up sharply, with increases ranging from 62% for treatment to 159% for pharmaceuticals and durable medical equipment.

The growth in indemnity payments followed a similar pattern through 2010, but unlike the payments for medical services, the preliminary results from accident year 2012 suggest the average amount of indemnity paid per claim is continuing to increase. Over the 10-year period ending in 2011, average first-year indemnity payments rose 37%, from $4,631 to $6,354. As was the case with medical development, the average amount of indemnity paid per claim at the 12-month benchmark fell in AY 2005, right after the 2004 reforms took effect, but began trending up again by AY 2006, climbing 34% over the next 6 years. Average indemnity benefit payments at the 3- and 6-month valuation points also declined for the AY 2005 claims, while the average amount of indemnity paid at the 24-, 36-, 48- and 60-month benchmarks declined for both AY 2004 and AY 2005 claims, likely due to the lower permanent disability payments produced by the 2004 reforms, as well as changes in temporary disability (TD) caps included in the reforms. Despite the post-reform declines, the data show that since bottoming out in AY 2005, average indemnity payments at all valuation points have been trending up, ranging from a 20 percent increase in indemnity paid at 60 months to a 49 percent increase in indemnity paid at 6 months.

Taking a closer look at indemnity trends, the study also examined TD payment data to measure the effect of the 2-year cap on TD benefits that took effect in April 2004. Following this reform, average TD paid per claim, measured at 12 and 24 months after the first payment and adjusted to control for statutory benefit increases, remained below pre-reform levels for more than 3 years. But, beginning with AY 2008 claims, the average amount of TD paid at the 12- and 24-month benchmarks surpassed the pre-reform levels, and by AY 2010, the average TD paid at 12 months was 5.1% above the 2004 pre-reform level, while the average amount paid at 24 months post injury was 8.0% higher. Comparing average TD paid on all pre-reform claims (2002 to April 19, 2004 injury dates) to all post-reform claims (April 19, 2004 through 2011 injury dates) shows that the average amount paid in TD benefits in the first 12 months after the first payment fell 4.0% under the reforms (from $6,125 to $5,880), while at the 24-month benchmark, the average paid in TD fell 2.5% (from $8,569 to $8,358).

The new study, “Pre-Reform Trends in California Workers’ Compensation Medical and Indemnity Benefit Payments” has been released as a Research Update report,” which is available to CWCI members and subscribers who log in to the Research section of the Institute’s website at www.cwci.org.