Keys to Becoming King or Queen of Claims

By Peter Rousmaniere and Jon Coppelman

Published by June 6, 2018

Many us of need some basic information about employees reap the benefits. We need to understand where claims dollars are being spent.

This data is essential for planning, for training and, on the micro level, for contributing to spirited conversations around the water cooler. This column is designed to meet this need. Fortunately, there is a wealth of cost information in the Workers’ Compensation Research Institute’s (WCI’s) recent release of a new edition of its multi-state CompScope report.

While this report covers only 18 states, we think this is a big and diverse enough sample to support some (decidedly rough) rules of thumb for claims nationwide and even for state-specific markets. Most of the figures below are the median among the 18 states. We have added some NCCI and Bureau of Labor Statistics data, which helps us even more to understand just what is going on in the claims universe. (For a list of the participating states or to buy a copy of the report, visit WCRI’s.)

Let’s say that you heard about a work-related accident and that a worker was sent for medical care. That’s all you know. It might be resolved in single medical visit or lead to a lifetime in a wheelchair. As the median our 18-state sample, injuries cost about and range from a low of $6,233 (Minnesota) to a high of $16,290 (Louisiana).

Overall, of claims involve lost time. In 22 states indemnity payments start after the 7th calendar day of disability. In 22 other states they start after the 3rd day. (A few states fall in between.) There is some (inconsistent) evidence that an earlier trigger for indemnity benefits is linked to higher rates of lost time compensable claims. The highest LTC rate is the seven-day state of Indiana at 17%, and a seven-day state, Massachusetts is the highest at 34%.

The WCRI’s median figure for the average cost of LTC claims is $42,200, based upon claims with more than seven days’ lost time. The WCRI data shows a wide variance in cost: The lowest is Arizona ($31,987) and highest is Louisiana ($60,996). As a point of comparison, NCCI estimates that the average LTC claim in 2017 totaled $54,300, with the medical portion at $29,900 and the indemnity at $24,400. The NCCI figure may be a more fair estimate because NCCI has set the claim value at its “ultimate” value as gauged by its actuaries, whereas WCRI uses loss value at three years post injury set by insurers, which may not be fully “developed.” Most Medicare set-asides occur after the WCRI’s three year cut-off. Very roughly, the ultimate figure can be said to be 130% of the WCRI figure.

WCRI divides claims costs into medical, indemnity, and overhead expenses. The medical expense ranged from a low of $9,840 (Massachusetts) to a high of $24,805 in Wisconsin, which is one of a handful of states without a complete medical fee schedule. It’s worth noting that the NCCI figure for 2017 is $29,900, but this includes further reserve development and some overhead.

The median indemnity benefit for LTC claims ranged from a low of $10,744 (Indiana) to a high of $29,029 (North Carolina). This cost includes most of any lump sum settlements. Note that the NCCI figure for 2017 is $24,400, which, once again, includes more reserve development and some overhead.

In contrast with NCCI, WCRI clearly separates this out, and it is large. These expenses, often accounted for as allocated loss adjustment expenses, include defense attorney fees and medical-legal expenses, along with the costs associated with medical management of the claim. The lowest average cost, Arkansas, comes in at $4,504. The highest is Louisiana at $10,432, with California close behind at $10,135. California has the highest percentage of overhead to total LTC claims cost, at 23%. Wisconsin, reputed to have an efficient system, spends only 11% of its LTC claims costs on these expenses. Drawing from California experience compiled by the California Workers’ Compensation Institute, about 40% of overhead is medical management and about 40% is legal defense or medical/legal.

Overhead expenses grew over the past decades at a much faster pace than medical and indemnity outlays, perhaps driven by the presence of venture capitalism in workers’ comp. We have seen ever-expanding investments in outsourced business processing — in bill review, medical provider networks, pharmacy management, Medicare set-asides and other services designed to improve management of direct costs (medical and indemnity).

The average legal defense bill was $5,721. Litigation rates vary greatly among states: In the WCRI universe, attorney involvement was only 15% in Texas and Wisconsin, but 54% in New Jersey.

WRCI showed median duration ranging widely from 11 weeks in Wisconsin to 37 weeks in Louisiana. Data from the federal Bureau of Labor Statistics suggests that the among work injuries with at least one day of lost time, 43% return to work by the fifth calendar day of disability and 29% between the 6th and 30th day. Twenty eight percent are out of work longer than 30 days. Counting all lost time (even for one day), the median days of lost time is 8.

The median weekly wage ranged in 2016-2017 from $709 in North Carolina to $895 in Massachusetts. All states have a maximum amount (a cap) on weekly indemnity payments. In some states, such as Georgia, the cap is so low that over 20% of workers on disability are impacted by it. However, it appears that in most states the share of claimants adversely affected is very low.

As a proxy for making this determination, the WCRI looks at claims with at least 7 days’ lost time, not at LTC precisely. The percentage varies widely among states, from 5% in Texas to 48% in North Carolina, indicating that the laws and how they are carried out — such as attorney involvement — drive lump sum activity. In Wisconsin, a model for system efficiency, 18% of its claims ended in lump sum with an average of $34,521. In Texas the average lump sum was $15,514; in Pennsylvania, $61,148.

From WCRI’s estimates of the absolute number of all claims in its 18 states, we can conjecture that the median rate of participation in the workers’ compensation system is the equivalent of
For instance, we can extrapolate that for Colorado, a state outside of the WCRI sample: With a population of 5.6 million, there are about 61,600 claims a year, with roughly one quarter, or 15,400, involving lost time. The actual number probably falls within 30% higher or lower.

Can we draw any conclusions about which states are the most and least generous to injured workers? Which the most or least efficient? Answering these and related questions will have to wait until a future column.

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