WCRI: Inflation Not a Big Deal for Workers’ Comp, Yet

By Jim Sams | August 4, 2023

While fast-rising prices in the past year drove up claim costs for auto and property insurers, inflation has been a more ho-hum affair for the workers’ compensation line and health care in general, according to a new report by the Workers’ Compensation Research Institute.

WCRI said it found no evidence that the cost of medical services grew more steeply in 2021 and 2022 than the 2% to 3% annual rate of inflation it has experienced in the past decade. The overall inflation rate, in the meantime, peaked at a 40-year-high of 9% last summer before slowing down to a 3% annual rate in the most recent report.

For workers’ compensation, the cost of medical care actually dropped in the past two years. Utilization declined because nonemergency surgeries were delayed and injured workers avoided health care facilities during the COVID-19 pandemic, the report says. As a result, the average medical cost per claim dropped 4% during the first year of the pandemic and another 2% during the second year.

That contrasts sharply with price increases as measured by the Consumer Price Index in 2022: 25% for energy, 10% for food, and 7% for housing. The American Property Casualty Insurers Association issued a warning last month that auto insurance rates have not kept pace with fast rising repair costs and theft rates. The APCIA put out a similar alert this spring about the impact of fast-rising prices for building materials on property insurers.

Health care, in general, hasn’t played a major role in the current spree of high inflation. Medical costs increased 4.3% in 2022 and 1.9% in 2021, according to the Consumer Price Index for All Urban Consumers. In the the preceding decade, the medical CPI increased an at annual average rate of 3.2%, compared the average overall inflation rate of 1.6%.

“Even though the annual rate of medical care price growth was somewhat higher in 2022 than in the earlier period from 2012 to 2010, it was nowhere near the inflation rate of the other major categories of consumer spending,” the report says.

For workers’ compensation, price hikes have been muted for the past decade. Overall, medical payments per workers’ comp claim increased 10.3% from Oct. 1, 2012 through Sept. 30, 2022, an annual growth rate of just 1.1%, according to the report.

The California Workers’ Compensation Institute has also noted that medical inflation appears to be firmly under control. CWCI spokesman Bob Young noted that the projected ultimate medical severity for accident 2022 claims, released by the Workers’ Compensation Insurance Rating Bureau last week, was estimated at $29,298, nearly matching a comparable figure from a decade earlier, $29,044 for AY 2013.

Young said a 2012 workers’ compensation reform bill mandated a transition to a Medicare-based fee schedule that increased fees for evaluation and management services. Other reforms included utilization review, independent medical review, stepped up fraud enforcement and elimination of separate charges for hardware used in spinal surgeries. He said as a result, insurers are paying for fewer surgeries and there is an increased focus on primary care.

The WCRI report notes that 44 states and the District of Columbia have adopted fee schedules to cap prices that can be charged for medical services.

The report says in fee schedule states, prices for medical professional services grew only 7.2% from 2012 to 2022, compared to 23.8% in states without fee schedules. The average annual growth rate was just 0.6% in the fee schedule states. Hospital outpatient and inpatient care prices both rose more than 2% annually during the same period.

Changes to fee schedule rates varied widely by state, ranging from a 4% decrease in Washington to a 10% increase in Virginia.

The report said there is evidence that health care price increases tend to lag behind inflation in the overall economy. This could mean price hikes may still be coming for workers’ comp. The report notes that hospitals have reported a critical staffing shortage that has been ongoing since 2020. Half of health care workers reported feeling burned out in 2021 and 2022, according to one national survey.

What’s more, the health care market is consolidating, with hospital systems acquiring hospitals and private practices. A WCRI study released earlier this year found that physician payments increase by about 10% after physicians become part of a hospital or health system.

The report can be downloaded for WCRI members or purchased by nonmembers here.

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