California Multi-Year Workers' Compensation Reforms Show Impact on System Costs, WCRI Study Reports

Business Wire, March 21, 2008

CAMBRIDGE, Mass. -- California continued to experience the largest decrease in average workers' compensation costs per claim among 14 study states in 2005/2006, similar to the prior year (2004/2005), after years of double-digit cost growth and in the wake of reforms enacted in 2002 through 2004.

Workers' compensation costs per claim in California dropped by 15 percent in 2005/2006 (2005 claims evaluated in 2006), driven by rapid decreases in both medical costs per claim (14 percent) and indemnity benefits per claim with more than seven days of lost time (8 percent).

California's proportion of claims with more than seven days of lost time fell by 2-3 percentage points annually in the two latest years in the study, after several years of small increases. These decreases were larger than in any other study state during the same period.

Medical costs per claim with more than seven days of lost time dropped 10 percent in 2005/2006 following a 22 percent decrease in 2004/2005, a 4 percent increase in 2003/2004, and double-digit growth in earlier years of the study period.

These were among the findings of a new study by the Workers Compensation Research Institute (WCRI), which examined evidence of the impact of multi-year workers' compensation reforms in California.

The WCRI study, Monitoring 2002-2004 Reforms in California: CompScope[TM] Benchmarks, 8(th) Edition, provides a baseline for evaluating the impact of the reforms enacted in 2002 through 2004 and evidence of the impact of certain reforms up through the first quarter of 2006.

Other states included in the study were Arkansas, Florida, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, North Carolina, Pennsylvania, Tennessee, Texas and Wisconsin.

The major legislative provisions included: increasing the maximum statutory weekly benefits for temporary and permanent disability; repeal of the treating physician presumption of correctness; revisions in the medical fee schedule for physician services; setting inpatient hospital fees and outpatient surgery facility fees to 120 percent of Medicare fees; setting pharmaceutical prices to 100 percent of Medi-Cal prices; limiting the number of visits to chiropractors and physical therapists to 24; requiring the use of utilization guidelines; the replacement of vocational rehabilitation benefits with the Supplemental Job Displacement Benefit; revision of the permanent disability schedule; and the approval of Medical Provider Networks.

WCRI reported that several factors contributed to the 8 percent decrease in indemnity benefits--payments for lost wages--per claim with more than seven days of lost time in 2005/2006. This included a 9 percent (or 1.5 week) drop in the duration of temporary disability, a 6 point decrease in the frequency of permanent partial disability (PPD)/lump-sum claims, and a decline of more than 14 percent in the average PPD/lump-sum payment per claim. These decreases in PPD/lump-sum frequency and payments per claim were the largest ones among all states in the study period.

WCRI noted that these decreases may reflect some early impact of the revised permanent disability schedule and other relevant provisions under SB 899, most of which were effective January 1, 2005. However, additional years of data are needed to see the full impact of the reforms.

WCRI reported that expenses per claim for delivering medical and indemnity benefits to injured workers remained stable in the two latest years, following three years of double-digit growth. Medical cost containment expenses per claim changed little in 2004/2005 and increased 6 percent in 2005/2006--less than half of the growth rates in the earlier three years in the study period.

The Workers Compensation Research Institute is a nonpartisan, not-for-profit membership organization conducting public policy research on workers' compensation, healthcare and disability issues. Its members include employers, insurers, insurance regulators and state administrative agencies in the U.S., Canada, Australia and New Zealand as well as several state labor organizations.

The report can be ordered from the WCRI web site: www.wcrinet.org.