California: WC medical payments have grown significantly post-reform

Workers' compensation medical payments in California have grown significantly in the years after the enactment of comprehensive legislative reforms.

In a recent study by the California Workers' Compensation Institute, researchers found that since 2005, insurer payments for treatment, pharmaceuticals and durable medical equipment, med-legal reports, and medical management have increased at a rapid rate.

Using medical data on 2002 through 2007 claims -- including policy, claim, benefit and medical service detail, and medical payments through the third quarter of 2008 -- the CWCI calculated average medical payments at 12 and 24 months postinjury for all claims and for indemnity claims for each of the six accident years. Researchers said that while the results showed that medical payments declined immediately after enactment of the reforms in 2004, that decline was short-lived. Between 2005 and 2007, the study found that average medical payments for all claims at 12 months postinjury rose 23 percent (from $2,100 to $2,582) while average medical payments on more expensive indemnity claims climbed 28 percent (from $4,443 to $5,665).

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To better understand the impact of various medical components on the medical cost trends, the study tracked the growth in average amounts paid for treatment, pharmacy/durable medical equipment, medical management, and med-legal reports. Between 2005 and 2007, first year payments for all four medical components increased -- from 19.9 percent for treatment to 57.5 percent for med-legal reports. Similarly, between 2005 and 2006, average medical payments for all four medical components at 24 months postinjury also were up, with increases ranging from 12.2 percent for treatment to 26.3 percent for med-legal reports.

Reforms and insured medical cost savings. Despite these increases, however, the study estimated that the reforms -- which included medical management tools such as a medical treatment utilization schedule, mandatory utilization review, bill review, and medical provider networks -- were associated with billions in cumulative net savings in insured medical costs.

To assess the value of the medical management expenditures, the study compared the latest estimate of post-reform ultimate medical costs on insured claims to projected estimates of what insurers might have paid without the medical reforms and medical management tools made available by the reforms. The CWCI's low-range estimate assumed that without the reform, California workers' comp medical inflation would have continued at 8.2 percent per year -- half the pre-reform annual inflation rate. The high estimate assumed workers' comp medical inflation would have continued at the pre-reform rate of 16.4 percent a year -- the average annual inflation rate between 1999-2002.

Using these two scenarios, the CWCI estimated that without the reforms, ultimate medical costs on California workers' comp insured claims between 2004-08 would have totaled between $36.1 billion (low estimate) and $48.5 billion (high estimate). In contrast, the Workers' Compensation Insurance Rating Bureau of California projects that actual ultimate post-reform costs with the reforms in place will total $23.2 billion, which translates to an estimated cumulative net savings of $12.8 billion to $25.3 billion in insured medical costs between 2004 and 2008.

July 2, 2009

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