By DAN REYNOLDS, senior editor of Risk & Insurance®
Medical costs as a percentage of total workers' compensation wage replacement and medical spend have established a new landmark, at least according to one set of researchers.
Data from the Washington, D.C.-based National Academy of Social Insurance reveals that, in 2008, medical costs eclipsed wage replacement for the first time in the history of record keeping about workers' compensation spending, and it probably won't be the last time.
According to the researchers, $29.1 billion was spent on workers' compensation medical costs in 2008, and $28.6 billion was spent on workers' compensation wage replacement, or indemnity. That establishes a ratio of 50.4 percent medical and 49.5 percent indemnity.
"I think, given the long-term trend of the last 40 to 50 years, it seems that this is not going to slow down," said Ishita Sangupta, a workers' compensation research associate with the academy.
It is too early for the academy to project where medical spending is going in 2009, but Sangupta's hunch is that it will continue to increase as a percentage of total spending.
The academy has a database going back to 1960 that allows it to track workers' compensation spending. In the 1980s, for instance, according to Sangupta, medical spending as a percent of workers' compensation costs was around 29 percent.
The academy, which has more than 800 members, describes itself as a nonpartisan think tank dedicated to the study of social insurance. In addition to workers' compensation, it delves into such things as Social Security and employee benefits.
EYES OFF THE BALL?
Fran Flowers, a senior vice president with Lockton Insurance Brokers and the head of the company's risk control and claims services group, said that, while she agrees that constant increases in medical costs are a problem, they may be a distraction from that portion of the workers' comp claim that employers do have more control over: the degree to which effective return-to-work programs can improve the cost of the indemnity piece.
"They are taking their eye off of the ball and off of that part of the claim," Flowers said.
Flowers also took issue with the academy's claim that 2008 was the first year that medical workers' comp costs eclipsed indemnity costs. She said data from the National Council on Compensation Insurance indicates that medical workers' comp costs eclipsed indemnity costs as early as 1997.
But regardless of whose data you look at, these days, medical costs are increasing even as the number of covered workers decreases. The increase in medical costs from 2007 to 2008 was 8.8 percent, according to the academy, which represents the largest reported increase it recorded since 2001.
Carriers, payers, pharmacy benefits providers and third-party administrators are struggling to maintain cost controls, hobbled by a patchwork of state regulations and medical providers and pharmaceutical manufacturers that have proven skilled at circumventing state-regulated fee schedules.
Nationally, total workers' compensation spending was down in 2008 due to the drastic market correction and layoffs that struck the global economy that year. The number of covered workers in 2008 was 130,643,000, while the number of covered workers in 2007 was 131,734,000. Employers paid a total of $78.9 billion in workers' compensation costs in 2008, which represented a decrease of 6.7 percent from the previous year.
With medical spend and wage replacement in 2008 totaling $57.6 billion in 2008, the $21.3 billion difference in total spending was largely made up of workers' compensation premiums and the costs of self-insurance, Sangupta said.
September 20, 2010
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