The workers’ compensation sector remains a relatively stable and profitable segment of the commercial insurance industry, but some claims are becoming more expensive and seriousness concerns are growing.
As a years-long focus on workplace safety and legislative changes have helped contain workers’ compensation costs and claims frequency continues to decline, experts say a confluence of factors is driving up the costs of claims in the event of an accident at work.
“The gravity trend has been pretty steady,” said Jason Beans, CEO of Chicago-based Rising Medical Solutions LLC, a company that provides medical cost-containment services.
The aging workforce, medical inflation spurred in part by expensive medical technology, and rising wages leading to higher claims costs are among the reasons claim severity is increasing, according to experts. The severity of catastrophic injuries is also a factor, although less of a concern, as debilitating events are rare (see related article).
The changing workforce – from older workers who take longer to recover to less experienced workers who injure themselves more often – and rising medical costs, resulting in part from medical inflation, innovations in treatment and hospital consolidations, were considered the top concerns of industry comp workers in a survey this year of 100 insurance executives by the National Board of Compensation Insurance in Boca Raton, Florida.
“Ultimately, we’re still watching gravity,” said NCCI chief actuary Donna Glenn, who said other offsetting factors could offset the steady increase (see related story).
The Cambridge, Mass.-based Workers’ Compensation Research Institute has also been monitoring rising spending per claim. “Is this medical inflation? Is it the aging workforce? Are these comorbidities? Yes, to everything,” said Ramona Tanabe, executive vice president.
Complicating the issue, she said, is that “every state has a reason to raise.” WCRI publishes annual reports for 18 states, representing data for more than half of compensation claims nationwide. The latest numbers, released in late April, show a steady increase in lost time claims for most states. Those states without fee schedules experience a steeper climb.
Most experts agree that an aging workforce is one of the main causes of these increases.
In 2000, 32.4% of the US population aged 55 or older worked; by 2020, that share had risen to 39.2%, according to the U.S. Bureau of Labor Statistics. In 2021, 23% of the U.S. workforce was over age 55, up from 13% reported by the BLS in 2000.
“An aging workforce is clearly a factor,” said Russell Pass, Itasca, Ill.-based chief information officer, executive vice president of product development, at third-party administrator Gallagher Bassett Services Inc. “Workers aged 55 and over account for more than a fifth of lost time injuries and 31% of costs.
Virna Rhodes, Cherry Hill, senior vice president, New Jersey-based workers’ compensation claims for Liberty Mutual Insurance Co., said older workers are more likely to have comorbidities. “It is likely that their treatment will cost more than that of a young worker,” she said.
“Comorbidities are starting to influence the issue of severity (and) it has a lot to do with the health of our society,” said Max Koonce, Fayetteville, Arkansas-based claims director for third-party administrator Sedgwick Claims Management. Services Inc.
While about 80% of workers’ compensation claims are medical-only, compensation claims, which compensate for lost wages, are where the seriousness will come into play, Koonce said.
For an older worker, “it takes a little longer to bounce back” from an injury, Mr Beans said, referring to age-related claims cost data. It’s a “clear straight line” upwards as workers age and costs rise, he added.
“In many cases, older workers are more likely to have certain comorbidities such as diabetes, heart disease, or mental health issues, and these comorbidities may contribute to an increase in the severity of a workers’ compensation injury. workers’ compensation,” said Mary Beth Pittinger, Whitehouse Station, executive vice president, New Jersey-based workers’ compensation, Chubb Ltd.
“A slower healing process, more complex and expensive treatments, and prolonged absence from work can all occur when a worker with a comorbidity is injured,” she said.
Tammy Bradly, Birmingham, Alabama-based senior director of clinical product marketing for comp services conglomerate Enlyte Group LLC, goes even further: “It’s not just an aging workforce ; that’s the whole workforce. We are not a healthy population. Advocacy for injured workers and worker welfare (see related article) has been a best practice in alleviating the gravity overall, she said.
Although younger workers do not have the same incidence of comorbidity issues, they may also result in more costly claims.
As many employers report labor shortages, some may hire less experienced staff, whose lack of training may make them more susceptible to injury, Ms. Pittinger said.
“Some industries affected by labor shortages, such as construction and manufacturing, are more susceptible to incidents that could result in catastrophic injury; such as falls from heights, burns and accidents related to machinery or driving,” she said.
A more difficult factor to manage is medical inflation.
In workers’ compensation, medical inflation soared to 6.6% in 2021 from a three-year average of 6.4%, said Mr Beans of Rising Medical Solutions. Increased utilization, or more treatments per injured worker, accounted for 2.8% of the increase, he said, adding that 85% of the rest of the inflation was due to an increase in services rendered in hospital environment.
“The majority of the change is going to more expensive care,” Mr Beans said. Outpatient “outpatient” hospital services, rather than procedures performed in a doctor’s office, also drive up costs, as payers must pay expensive incidental fees depending on facilities, he said.
Mr Pass of Gallagher Bassett said mergers between medical institutions and the consolidation of medical practices are also adding to rising costs.
“The fewer (facilities), the more bargaining power they have,” he said.
“From a severity perspective, from a cost perspective, claims are going to cost more,” Koonce said of medical inflation, adding that some states have seen fee schedules increase in recent years. years, as part of the normal process federal increases in Medicare costs, which help establish compensation schedules in most cases by law.
Emerging technology is also affecting claims costs, said Ms. Tanabe, who cited advances in medical imaging as an example.
“An MRI machine has more ability to see things than 20 years ago; things will be picked up and processed,” she said.
“The technology has improved, but it is more expensive. Equipment is more expensive; treatment is more expensive,” Ms. Tanabe said.