The average amounts paid for medical expenses and indemnity benefits on California workers’ comp lost-time claims climbed sharply after accident year (AY) 2005 – the first year after the 2004 reforms – but a new CWCI study shows average medical and indemnity payments during the initial stages of a claim declined in AY 2014 – a sign that the 2012 workers’ comp legislative reforms are having an impact.

The new study is based on data from more than 2.1 million California workers’ comp claims for injuries that occurred between 2002 and the 3rd quarter of 2014, with medical and indemnity payments on those claims totaling $33.8 billion as of the end of last year. Grouping the data by accident year, the Institute tracked the payment trends by calculating and comparing the average amounts paid for all medical services and for all indemnity payments at 3, 6, 12, 24, 36, 48, and 60 months post injury. In addition, 12- and 24- month results were broken out for four medical payment sub-categories: medical treatment, pharmaceuticals/durable medical equipment (DME), medical/legal and medical cost containment, as well as for average TD payments and the average number of paid TD days. Key findings:

• Average amounts paid per indemnity claim for all medical services (excluding medical cost containment) at 3 and 6 months post injury for AY 2014 claims declined by 5.7 and 7.0 percent respectively compared to AY 2013 claims. The average paid for these services at 12 months rose a modest 3.8 percent over AY 2013 claims.
• Payments for medical treatment fell to 68.9 percent of total medical expenditures at 12-months post injury on AY 2013 claims and 66 percent of total medical spend at 24 months on AY 2012 claims.
• In the last six years, the share of medical payments going toward medical cost containment has been relatively stable, ranging between 16.4 percent and 17.2 percent of first-year medical payments, and between 13.6 percent and 14.8 percent of medical payments at 24 months. The percentage of medical payments going toward med-legal reports also has been fairly stable, accounting for 3.5 to 4.7 percent of first-year medical payments and 6.1 to 7.1 percent of total medical spend at 24 months.
• Pharmaceuticals and DME continue to consume an increasing share of total medical expenditures, accounting for 10 percent of first-year medical payments in AY 2013 and 13.6 percent of medical payments at the 24- month benchmark – both percentages about double what they were in AY 2005. Over the same period, the average amount paid for prescription drugs and DME at 12 months post injury more than tripled from $281 to $936 per indemnity claim, and more than doubled from $1,003 to $2,333 at 24 months, making prescription drugs and DME the fastest growing workers’ comp medical cost component since AY 2005. The latest 24-month results underscore the growth of this component, as total pharmacy/DME payments per indemnity claim at 24 months rose 24.3 percent between AY 2010 and AY 2011, then climbed another 24.8 percent between AY 2011 and AY 2012.
• Early returns show the initial amounts paid for indemnity benefits on lost-time claims declined between AY 2013 and AY 2014. Average paid indemnity at 3 months post injury fell to $2,287 (-8.1 percent) and average paid indemnity at 6 months fell to $4,276 (-6.3 percent).
• The reductions in average temporary disability payments that followed the 2004 reforms have eroded over time. After adjusting for the statutory benefit increases that took place over the past 12 years, average first-year TD payments on AY 2013 claims hit a record $7,245, up 35.4 percent from the post SB-899 low, while the average amount of TD paid in the first 24-months post injury on AY 2012 claims also reached an all-time high of $10,986, up 46.3 percent from the AY 2004 low of $7,510. At least some of that increase is due to longer periods of temporary disability, as the average number of paid TD days at 12 months post injury jumped 14.8 percent from 75.5 days on AY 2005 claims to 92.4 days on AY 2013 claims, while average paid TD days at 24 months post injury jumped 26.9 percent from the post-reform low of 108 days on AY 2005 claims to 137.1 days on AY 2012 claims.

The new study, ““California Workers’ Compensation Medical & Indemnity Benefit Trends, AY 2002 – 2014” has been released as a Research Update report, which has been posted in the Research section of the Institute’s website at www.cwci.org.