STATE OF CALIFORNIA John Garamendi, Insurance Commissioner

DEPARTMENT OF INSURANCE

(916) 492-3500

(916) 445-5280 (fax)

www.insurance.ca.gov

California Workers’ Compensation Medical Cost Factsheet

Workers’ Compensastion System

Ø California’s workers’ compensation system has grown exponentially in recent years, evolving from a $9 billion system in 1995 to an estimated $29 billion system in 2003.

Medical Cost vs. Indemnity

Ø From 1997 to 2002, average medical costs per claim jumped from $13,845 to $31,120 per claim, an increase of 125% from 1997 levels or a 17.6% annual average. In 2002 alone, medical cost per claim increased by an average of $6,041 or 24%.

Ø By contrast, from 1997 to 2002, average indemnity benefits per claim (injured workers’ lost wages) rose from $15,874 to $21,022 per claim, an increase of only 32% from 1997 levels or a 5.8% annual average. In 2002, indemnity costs per claim increased by an average of $939 or 4.8%.

Ø In 1999, medical and indemnity each accounted for 50% of total workers’ compensation claims costs in California. By 2002, medical increased to 60% while indemnity shrank to 40% of total claim costs.

Ø This rapid medical cost inflation has a strong negative impact on insurance companies’ reserves and surplus and consequently the overall financial health of insurance companies.

Ø The frequency of workers’ compensation indemnity claims in California have declined in nine of the last eleven accident years dating to 1991. Claims declined by an annual average of 5% over this 11-year period.

Workers’ Compensation Medical Inflation

Ø Total incurred medical costs per accident year in California’s workers’ compensation system have nearly tripled in the past seven years, rising from $3.5 billion in 1995 to $9.9 billion in 2002. The WCIRB anticipates this cost will rise to $12.2 billion in 2004.

Ø Workers’ compensation medical costs have increased by more than 250% over the past decade (1992-02), with the majority of this growth coming in the past five years. By contrast, national medical inflation has grown by only 49% over the same time period.

Medical Utilization

Ø Overutilization of medical services is a major cost driver that does not necessarily aid injured workers, extends injury claims, and wastes medical treatment resources.

Ø Numerous interstate comparisons and California-specific studies have demonstrated that overutilization of medical treatment is a serious problem within California’s workers’ compensation system. While California’s price per medical service is comparable to other states, California far exceeds other states in both the number of services per visit and visits per claim.

Ø According to a Workers’ Compensation Research Institute 12-state intrastate comparison, the number of visits per claim in California’s workers’ compensation system is 71% higher than the 12-state average (30 visits/claim vs. 17). This trend holds true in California’s workers’ compensation system for physicians (11.6 visits/claim in California vs. 7.8 in other states), chiropractors (34 visits/claim vs. 17), and physical therapists (17 visits/claim vs. 12).

Ø In 2001, payments to professional providers accounted for nearly 57% of paid medical costs in California’s workers’ compensation system. Hospitals accounted for 26%; direct payments to patients represented 7%; pharmacy 7% and medical-legal evaluations 3%.

Ø Chiropractors are the largest medical specialty group in California’s workers’ compenation system, accounting for 17% or $195 million of medical payment to professional providers. They are followed by physical therapists (16% or $182 million), clinics (13% or $147 million), orthopedics (11% or $125 million), and general/family practice (11% or $123 million).