Controlling workers' compensation medical costs: with workers' compensation costs rising for more than six years, state legislatures are getting involved. Worker's compensation claims must be managed and controlled at the corporate level in order to lower costs.

• Author: Sorenson, Stephanie A.
• Position: INSURANCE

Most employers have seen their workers' compensation costs continue to rise for more than six years, regardless of whether their programs are fully insured, guaranteed-cost or self-insured. So vexing are the problems that 35 states enacted reforms to their workers' compensation laws in 2006 alone.

In 2007, as of August, state legislatures had considered 104 pieces of workers' compensation legislation, and 30 had been signed into law. Nonetheless, most U.S. employers continue to see their workers' compensation costs escalate.

There are, however, steps that companies can take to keep their costs in check. Outlined later, these include strategies such as bill review, medical case management and employee involvement and activism, including employee choice of provider.

Among the factors underlying the climb in costs:

* Workers' compensation lost-time claims frequency continue to decline, with a cumulative decrease (from 1991-2004) of 45.8 percent, but workers' compensation costs are still escalating.

* Workers' compensation consumed 67 cents of every casualty dollar paid by employers in 2005.

* Workers' compensation medical severity has continued to grow faster than the medical component of the U.S. Consumer Price Index (CPI).

* Workers' compensation medical losses constituted more than half of total losses at 58 percent.

Medical Costs and Utilization

The medical costs of lost-time workers' compensation claims have been growing at a faster rate than the medical consumer price index, according to the National Council on Compensation Insurance (NCCI). This has caused a shift in the distribution of workers' compensation claims costs. According to NCCI's projections for 2006, medical costs accounted for 59 percent of the total claims costs; in 1986, they accounted for 45 percent of claims costs.

There are many theories as to why medical costs are increasing in workers' compensation claims. The causes may vary from one state to another, but some overarching trends are worth noting. These include:

HOSPITAL VS. NON-HOSPITAL SERVICES. In the search for medical cost drivers, researchers have investigated the utilization of hospital and non-hospital services. The results vary by state and by type of service. Drilling deeper into medical utilization data gives an employer details about the type of hospital services being billed.

Many hospital services are rendered on an outpatient basis, including laboratory, X-ray, ambulatory care and physical medicine. Knowing this can help an employer make better decisions about the choice of provider network and medical management intervention. Before implementing a solution, an employer would be well advised to benchmark its costs against a similar industry, job type and location.

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