Worker's Compensation Current Claims and Costs in California

Total costs of the California workers' compensation (WC) system consisting of medical care payments and wage replacements benefits to injured workers, along with administrative expenses and adjustments to reserves, more than doubled - growing from about $9.5 billion in 1995 to about $25 billion in 2002. In addition, workers' compensation medical expenditures skyrocketed from $2.6 billion to $5.3 billion. Based on current estimates for 2004, medical payments will account for two-thirds of all workers' compensation benefit costs.

There has been a decline in frequency of new workers' compensation claim filings, but medical costs continue to rise despite this decline in frequency of new filings. The current workers' compensation has few incentives for cost containment. Workers pay no premiums or share of medical costs and health care providers are compensated on a fee-for-service basis. Without incentives for cost containment, the current system in California will experience increases in workers' compensation costs. The rise in workers' compensation medical care costs in California can be attributed to a variety of factors. There have been substantial increases in medical costs per claim. The average medical cost per lost-time claim was $31,000 in 2002, and this is more than a three-fold increase since 1992. Another factor is the growth of outpatient surgery facility fees. These services are unlike other workers' compensation medical services because outpatient surgical facilities are not regulated. Workers' compensation hospital costs, of which outpatient hospital costs comprise about 60 percent, have increased from $595.1 million in 1998 to $1.1 billion in 2002. Another factor that is driving the increasing costs of workers' compensation is that the average number of medical visits per workers' compensation claim is increasing. In fact, a California workers' compensation instituted study found that the average chiropractor visits per claim with chiropractic care rose in the first two years after injury from 16.7 in 1993 to 28.4 in 1998. This increase in the average chiropractor visits per claim with chiropractic care is a 70 percent increase. In addition, the growth in pharmaceutical services has raised costs, which have grown 243 percent from $86.4 million in 1997 to $296.6 million in 2002.

In California, employers experience higher costs for workers' compensation medical care than employers in other states. In support, California ranks highest in workers' compensation premium rates. The major reason for this difference in premium rates is due to the high utilization of specific kinds of medical services in California's WC system. Workers in California tend to use more medical services per claim than workers in other states. In fact, the median number of medical visits per workers' compensation claim in California is more than 70 percent greater than other states. Table one shows the difference of service utilization in California versus other states. The average visits per claim in California is 29.7 and 17.4 in other states.

Table 1: Service Utilization in California vs. Other States
CA 12-State Median Difference
Average Payment
Per Claim
Services Per Visit
Average Visits
Per Claim
Average Price
Per Visit

Thus, the 70 percent difference in the amount of average visits per claim is one of the factors driving up workers' compensation costs in California. The higher utilization is primarily due to workers who have higher rates of visits to particular types of services. Workers in California are utilizing these services more, and they consist of physical medicine, psychological therapy, and chiropractic care. Therefore, employers in California end up with higher costs for workers' compensation medical care than employers in other states. Employers in California are also paying more for workers' compensation in the form of higher premiums than if provided by employer-sponsored health insurance and Medicare. Under workers' compensation, total medical costs are estimated to be 50 to 100 percent higher than if treatments were paid for by private health insurance. Under workers' compensation, prescription medication costs were 40 to 45 percent more than drugs purchased by employer-sponsored health plans. In addition, the average charged amounts for WC hospital admissions in California are 4 percent higher ($26,072) compared to admissions ($25,047) paid for by group health. Average payments are 30 percent higher ($9,637) for WC inpatient admissions than for group health admissions ($7,428). Therefore, medical costs are more under workers' compensation than if provided by other forms of health coverage.

There are numerous strategies that state agencies, health care providers, insurers, employers, and employees could utilize to help manage and lower costs for workers' compensation while still providing high quality health care. Utilization of fee schedules for all medical services and linking them to the Medicare payment system can lower costs and potentially reduce administrative burden. Currently, certain types of services such as outpatient surgical procedures, ambulance services, emergency room visits, and home health care are not covered by the Official Medical Fee Schedule (OMFS). If the scope of the OMFS were expanded to regulate these services then costs could be lowered. Another strategy is to utilize managed care techniques, which typically restrict care to a network of designated providers, negotiate fee arrangements with participating providers, case manage, and use treatment guidelines. Managed care can lower the costs of medical care by as much as 20 to 30 percent. Furthermore, another strategy to help manage workers' compensation costs is to mandate comprehensive guidelines for WC cases, which would expand their use and potential applicability in WC legal proceedings. Currently, the California Industrial Medical Council (IMC) has developed advisory medical treatment guidelines to assist in making decisions about the appropriate type of care for the different types of work-related injuries. However, the benefit of mandating a set of comprehensive guidelines would help lower costs by setting requirements on certain treatments to be provided for each individual case. Thus, guidelines would reduce the costs of unnecessary medical procedures by limiting the amount of discretion that providers have in choosing different types of medical care to provide. Another strategy is to closely coordinate or combine WC medical care with the general medical care provided to patients by group health insurers. This strategy should help to reduce overall administrative costs and increase the efficiency of providing health care in the system.