December 12, 2008
Did you know...?
Inflation is Key Driver in Medical Share of Workers' Compensation Costs
The National Council on Compensation Insurance (NCCI)
reported Wednesday December 10, 2008 that inflation has played the key role in
pushing medical costs to nearly 60% of total losses in the workers'
compensation system.
NCCI examined losses and trends over the past two decades and reported that the
medical share of total losses jumped from 46% in 1987 to 59% in 2007, based on
preliminary estimates for last year. The data is based on states where NCCI
serves as rate maker and tracks medical costs, in some instances dating back to
1980. The study compares medical and indemnity severity and mirrors NCCI's
loss-cost reports in recent years for most of the states in which it recommends
loss costs or rates.
While the growth in indemnity severity – the cost of all indemnity payments
divided by the number of lost-time claims – appears to be slowing, medical
severity continues to rise.
Both medical and indemnity costs per claim averaged less than $5,000 in 1980,
the beginning of the study period. But the rise in indemnity severity began
slowing in 2001. By the end of 2006, indemnity severity had reached around
$17,000 per lost-time claim, according to a graphic included in the report. Medical
severity had surpassed $25,000 per claim by the end of 2006.
NCCI found the share of costs attributable to medical treatment appears to
fluctuate based on the age of each claim. For paid reported data examined by
NCCI, medical care accounted for 75% of total costs for the initial year of the
accident and about 42% after 19 years.
NCCI concluded that inflation accounts for more than half of the increases in
medical costs.
While average week wages across the United States increased by 103.2% between
1986 and 2006, the Medical Consumer Price Index (CPI) increased by 175.2%
during the period. Using the same measure, indemnity average costs per claim
increased by 156.5%. But NCCI said the explanation doesn't end there. While
the Medical CPI increased by 175.2%, medical costs per claim jumped by 344.1%.
The rate maker said the difference represents increased utilization, which also
played a major role in rising costs attributed to medical benefits.
The full report is available at https://www.ncci.com/nccimain/IndustryInformation/ResearchOutlook/Pages/MedicalBenefits08.aspx
*Please feel free to forward this information to any member of management in your company who would benefit from it.*
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