California has the most prolonged workers' compensation medical payouts of any state in the nation, according to a recent study from the Workers’ Compensation Insurance Rating Bureau of California (WCIRB).1
This study, entitled California Medical Payment Development Up to 30 Years Post-Injury, 2 revealed several sobering facts regarding California’s open workers' compensation (WC) claims—and the significant impact those claims have on California claims payers.
California’s Prolonged WC Medical Treatment
The WCIRB study found that medical treatment continues and claims remain open longer in California than in any other state. This is true despite the fact that California does not have more hazardous employment, older workers, more severe injuries, or worse medical conditions than other states. California’s flexible “cure or relieve” standard and the high number of cumulative trauma claims were referenced as two possible causes.
The study reported that 61 percent of ultimate California accident per-year medical payments are paid more than three years after the beginning of the year of injury—far higher than the national average of 33 percent.
Further, the study found that it currently takes about 11 years in California to settle 95 percent of indemnity claims arising from a particular year—far longer than any other state. In comparison, this figure is only 3.8 years in Florida, 4.6 years in Pennsylvania, and 6.0 years in Illinois.
Claims Impact: By the Numbers
To assess the actual impact on claims, the WCIRB examined medical payments issued over a 32-month period from July 1, 2012, through February 28, 2015. This case set included claims up to 30 years post-injury (dating back to January 1985). The study’s database included 1 million unique claims, 50 million paid transactions, and $4.4 billion in medical payments.
The analysis revealed several telling and troubling findings:
- Medical Payouts
Approximately 17 percent of claims in the study were receiving medical services more than three years post-injury, with those cases accounting for 35 percent of total medical payments during the study period. It was noted that the “intensity” of medical services generally increased with the age of the claim.
The study looked at the 5 percent of those claims that were more than ten years old and found the average paid per claim was $12,259—nearly three times the overall average of $4,532. Regarding those payments, it was pointed out that the expenditures reflected only the most recent medical services paid during the 32-month study period and, as such, represented only a small portion of total medical costs overall on these older claims.
It was also noted that as claims remained opened, claims payers issued payments for medical conditions related to general aging, such as cardiac problems, respiratory issues, and digestive conditions, which were likely unrelated to the original injury.
- Older Claims and Claimants
The study found that 15 percent of all medical payouts issued during the study period ($600 million) were provided to claimants over 60 years old—with the majority of those payments issued on claims ten or more years old. In light of the findings, the study noted the “potential magnitude” for WCMSAs in the future.
- Prescription Drugs
Perhaps not surprisingly, the study indicated that prescription drug costs accounted for a greater proportion of medical payouts as claims aged.
Notable findings include the following:
- Drug costs were roughly 40 percent of total medical payouts after three years. In contrast, those costs were less than 10 percent on first-year claims.
- Of the $1.5 billion spent on medical beyond the first three years post-injury, $456 million was spent on prescription drugs.
- Spending on narcotic drugs progressively increased as claims aged, with $102 million spent on narcotics alone during the 32-month study period. OxyContin accounted for more than 10 percent of drug costs for claims ten years or older, while analgesics represented more than 40 percent of drug costs on claims more than 20 years old.
Late-Term Claims: California vs. Other States
The WCIRB then compared California late-term claims (20 to 30 years post-injury) to a similar national cohort from a 2013 National Council on Compensation Insurance (NCCI) study of 35 other states.3
Similarities were noted in several key areas:
- Similar demographics existed between the two groups, although California’s late-term claimants tended to be slightly older than their national counterparts, with 53 percent of California late-term claimants being 60 years old or older compared with 47 percent in the NCCI study.
- Similarities were seen regarding primary medical conditions by gender.
- The two groups were comparable regarding prescription drug usage. With respect to the top ten prescribed drugs, the study noted that narcotics accounted for roughly 22 percent of drug costs in both California and the other states.
When the Dust Settles
The WCIRB’s alarming findings call to mind two long-standing claims mantras: “WC claims do not get better over time” and “The best case is a closed case.” The findings also drive home the very real and significant impact that prolonged WC claims are having on California claims payers. As the data demonstrates, open WC claims become far more expensive, complicated, and difficult to settle as they age.
This raises the important question of what claims payers (in and outside of California) can do to prevent claims from remaining open for long periods of time.
Here are a few thoughts to begin the discussion of how to improve the situation:
- Claims payers need a game plan from day one to prevent claims from spiraling out of control. Predictive analytics can play a vital role here, especially on newer claims. Over the past several years, tremendous strides in the areas of data and analytics have made predictive modeling more precise and more important than ever before.
- As the study indicates, drug costs are a main cost driver as claims age, and claims payers must examine this more closely. Some claims payers have developed in-house prescription programs to better manage drug costs. Private companies also offer prescription cost-containment services—ranging from simple review and recommendations to more involved approaches such as direct peer-to-peer intervention.
- Another important factor to consider is Medicare. Many older claims involve claimants who are now on Medicare—either due to age or through Social Security disability. This brings Medicare Set-Aside (MSA) issues into the equation, which some cite as preventing claim settlement in older or more complicated claims. However, parties are often too quick to write off settlement due to an MSA without first fully exploring (or understanding) what can be done to get the MSA into a reasonable range or what alternative options may be available.
This new WCIRB report is a cautionary tale, but steps can be taken to gain control. While 100 percent claim closure may not be possible in all instances, there is room for improvement when it comes to claims strategies to settle cases and prevent them from becoming permanent fixtures on the claims shelf.
1 The WCIRB is a licensed rating organization and the California Insurance Commissioner’s designated statistical agent. The WCIRB performs many functions, including collecting premium and loss data on every workers' compensation policy, examining policy documents, inspecting insured businesses, and conducting payroll and claims classification audits. More information on this important group can be obtained at www.wcirb.com.
2 G. Johnson, California Medical Payment Development Up to 30 Years Post-Injury, WCIRB, July 2015.
3 NCCI, Medical Services for Claims 20 or More Years Old, January 2013.