A new CWCI study on changes in California workers’ compensation medical payments finds that since accident year (AY) 2005 – the first year after the last round of workers’ compensation reforms – the average amounts insurers pay for medical services on work injury claims have jumped sharply, including average payments for treatment, pharmaceuticals and durable medical equipment (DME), med-legal reports, and medical management. In addition, the study finds that average amounts paid per claim for indemnity benefits to compensate injured workers for lost time and permanent disabilities, have followed a similar pattern, declining briefly in the first year after the reforms were enacted, but then climbing steadily thereafter.

Using data from claims from AY 2002 through the 3rd quarter AY 2011, including policy, claim, benefit and medical service detail, and medical payments through the end of 2011, CWCI calculated the average amounts paid for medical services at five valuation points: 3, 12, 24, 36, 48 and 60 months post injury for indemnity claims and for all claims (including med-only cases) from each year. As in earlier studies, the latest findings show average medical payments declined briefly following enactment of the 2002-2004 reforms, but that decline was short-lived, and since AY 2005, average medical payments have climbed steadily. For example, between AY 2005 and AY 2010, average medical payments on indemnity claims at 12 months post-injury have risen 81% (from $5,461 to $9,902); while average medical payments on all claims are up 79% (from $2,283 to $3,815). To gain a sense of the impact of various medical components on medical payment trends, the study also tracked the growth in average amounts paid for treatment, pharmacy/DME, medical management and med-legal reports. The analysis of those four medical sub-categories showed that between AY 2005 and AY 2010, first-year payments for all four of these medical components increased (from 64% for treatment to 152% for pharmaceuticals and durable medical equipment). Similarly, between AY 2005 and AY 2009, average medical payments for all four medical components at 24 months post injury also jumped sharply, with increases ranging from 57% for treatment to 123% for medical management.

The analysis of indemnity payments found a similar pattern. Comparing results for AY 2002 claims to those for AY 2010 claims, the study noted that over that 9-year span, average first-year indemnity payments had increased 56.9 percent, from $4,604 to $7,222. As with the medical payments, the average amount of indemnity paid per claim did decline briefly in 2005, immediately following the 2004 reforms, but then began a steady uptrend, and by AY 2010, average first-year payments were up more than 50 percent from the post-reform low in AY 2005. There were reductions noted in average amounts paid for indemnity at the 24, 36, 48 and 60 month benchmarks for older indemnity claims (from AY 2002 to 2005), which likely reflects the lower permanent disability payments that resulted from the 2004 reforms, though claims from more recent years have all shown a pattern of increasing indemnity payments, even in the later stages of development.

The Institute study has been released in a CWCI Research Update report, "Medical Development Trends in California Workers’ Compensation: Accident Year 2002 – 2011." The report includes graphics and texts showing the growth in overall medical payments, in four medical expense subcategories, and in indemnity payments for lost-time claims, with appendices showing the results for all claims (lost-time cases as well as medical-only claims). The report is posted online under "Research" at www.cwci.org.