WCRI Study Reports N.C. Workers’ Comp Costs Per Claim Low Among 12 States, But Rising

Workers’ compensation total costs per claim in North Carolina, lower than most of the states in a national study, are rising, according to the Workers Compensation Research Institute (WCRI).

The WCRI study of 12 states, representing 50 percent of the nation’s workers’ compensation benefits paid, reported that the average cost of a workers’ compensation claim in North Carolina was $2,373, 9 percent below the median of the study states.

The study reported that payments per claim for the medical care of injured workers, expenses to manage claims (benefit delivery expenses) and the share of claims with more than seven days of lost time were all lower in North Carolina than the median of the 12 study states, for 1999 claims as of mid-2000.

At the same time, the average indemnity benefit per claim – wage replacement payments for lost time injuries – for claims with more than seven days of lost time was 20 percent higher in North Carolina than the 12-state median.

The higher indemnity benefits per claim were driven by a longer duration of disability in temporary disability claims than the median state studied, higher permanent partial disability (PPD) payments per PPD claim – payments for the more serious injuries – (66 percent higher) and higher lump-sum settlements per claim (17 percent higher). Lump-sum settlements are agreements that typically close out a workers’ compensation claim and result in a single payment to the worker.

The other states included in the study are California, Connecticut, Florida, Georgia, Illinois, Indiana, Massachusetts, Pennsylvania, Tennessee, Texas and Wisconsin.

The study, CompScope Benchmarks(TM): Multistate Comparisons, 1994-2000, provides a comparison of the workers’ compensation systems in 12 large states based on key performance measures such as benefit payments and costs per claim, timeliness of payments, and defense attorney involvement by analyzing a similar group of claims and adjusting for interstate differences in injury mix, industry mix, and wage levels.

The average total cost per claim for all paid claims in North Carolina rose by 12.6 percent between 1999 and 2000 for claims with 12 months’ experience, according to the study.

The major factors behind the increase in per-claim costs were an 8 percent rise in payments for medical care and a 13 percent growth in the duration of temporary disability.

Less significant cost drivers included increases in PPD benefits per claim and lump-sum settlements, higher expenses to manage claims and growth in the share of claims with more than seven days of lost time.

“While North Carolina has lower average costs per claim than most of the other states studied, continued growth in costs per claim could change that position,” said Dr. Richard Victor, executive director of the Cambridge, Mass.-based WCRI. “Not only are medical costs rising, but so is the duration of temporary disability.”

The study cautioned that since the 12.6 percent increase in total cost per claim was unusually large for North Carolina, this jump in costs may be an anomaly.

In particular, the growth in PPD payments and lump-sum settlements may be overstated to the extent that more frequent and effective mediation may have resulted in faster resolution by lump-sum settlement, the study explained. Where this occurred, payments due in future years were accelerated into 2000 values. The result may reflect an acceleration of payments rather than an actual increase in costs per claim for these benefits.

The study also noted that benefit delivery expenses – such as defense attorneys’ fees and other litigation-related expenses and expenses associated with medical cost containment services – were one-third lower than the median of the 12 study states for 1999 claims evaluated as of mid-2000 (claims with more than seven days of lost time).

Among the factors explaining this difference were significantly lower medical cost containment expenses per claim (29 percent lower than the median of the 12 states), fewer claims with medical-legal reports (7 percentage points lower) and lower medical-legal expenses per claim (13 percent). Medical-legal expenses involve payments for examinations to determine disability benefits.

The study reported that 36 percent of injured workers in North Carolina received their first indemnity payment within 21 days of injury, one of the lowest percentages among the 12 study states. This is in contrast to Massachusetts and Wisconsin at nearly 60 percent.