Helping Customers Manage Increasing Medical Inflation

Medical inflation is reshaping the workers’ compensation marketplace, driving up claim costs, and challenging traditional care models. As economic pressures mount and workforce demographics shift, independent insurance agents and their customers must navigate a more complex environment, one where increases in medical expenses require smart strategies and strong partnerships with carriers.

One of today’s most pressing challenges in the workers’ comp market is the rising cost of claims. A market report from Conning reveals the average claim size has increased by 32% since 2017, driven largely by medical inflation. Understanding the forces behind this trend–and how insurance carriers are responding–can help agents deliver greater value to their clients.

Medical Inflation?

Three key factors are contributing to increased medical costs.

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Technological advancements. Medical innovation continues to improve care and outcomes for injured workers, but often at a significant cost. Treatments such as robotic surgeries, advanced imaging, and specialized therapies are becoming more common and more expensive. According to the Workers’ Compensation Research Institute (WCRI), medical payments per claim increased by approximately 5% annually in most states from 2021 to 2024, largely due to rising costs for healthcare providers and facility services.

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Healthcare consolidation. As hospitals and healthcare systems continue to merge, market competition declines. This consolidation often leads to increased service utilization and gives larger systems greater leverage to negotiate higher payment rates. A WCRI study found that market consolidation has contributed to medical payment increases of 0.9% to 4.5% per claim, depending on the state and level of integration.

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An aging workforce. The demographic shift toward an older workforce is also having an impact. Older employees tend to face longer recovery times and more complex medical needs. The U.S. Bureau of Labor Statistics projects the number of workers aged 75 and older will grow by 96.5% by 2030, significantly increasing demand for healthcare services. Pre-existing conditions and slower healing rates make early intervention and personalized care plans even more critical.

Carrier Response

To navigate this shifting landscape, some insurance carriers are combining clinical expertise with advanced technology to optimize outcomes and control costs. Here’s how.

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Harnessing AI to manage medical costs. Artificial intelligence is transforming claims management. By analyzing billing data in real time, AI enables carriers to identify and access the most cost-effective care options within their provider networks. This technology helps payors pinpoint the best unit cost for each type of medical care, resisting upward pricing pressure while ensuring injured workers receive quality treatment. Streamlining billing accuracy and optimizing provider selection supports better outcomes and more sustainable cost control across the lifecycle of claims.

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Investing in clinical expertise. Expert oversight is essential to optimizing medical care and recovery. Some carriers have invested in medical directors–licensed physicians who collaborate with nurse care managers and medical providers to identify and resolve barriers to recovery and re-employment. For complex claims, carriers may deploy specialized catastrophic claims teams and develop care plans that include access to centers of excellence, specialized treatment, and nationally recognized experts.

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Taking a holistic approach to claims management. Recovery from workplace injuries involves more than physical healing. Biopsychosocial factors such as mental health, financial stress, and social support can significantly influence an injured worker’s ability to heal and return to work. The best carriers in this space are leveraging predictive analytics so they can rapidly identify and address these underlying risks. Early intervention enables claims professionals to develop personalized recovery plans, supporting more effective injury resolution and sustainable return-to-work plans.

Why It Matters

Partnering with a carrier that prioritizes enhanced claims services and proactive care management gives agents a meaningful way to differentiate their offerings. By working with carriers that are committed to delivering appropriate and high-quality care for injured workers, agents can provide greater value to their clients. This positions agents as trusted advisors, provides customers with high-quality coverage, and helps build stronger agent-customer relationships.

Sharp is senior vice president, casualty claims at The Hanover. Contact: linkedin.com/in/carmensharp/

Topics Trends