Medical Benefits Biggest Cost in Calif. Workers’ Comp System

September 28, 2010

The sagging economy took a toll on California’s covered work force and payroll in 2008, but the California workers’ compensation system remains the largest in the United States, accounting for more than 1 out of 9 covered workers, more than 1 out of 8 dollars in covered wages, and 1 out of 6 benefit dollars paid under state and federal programs.

New data from the National Academy of Social Insurance (NASI) annual “Workers’ Compensation Benefits, Coverage and Costs” report show that between 2007 and 2008, the U.S. covered work force (insured, self-insured and federal employees) fell 0.8 percent to 130.6 million workers, while in California the recession took an even heavier toll, as the number of covered workers fell 1 percent to 15.2 million employees, or 11.7 percent of the nationwide total.

Despite the work force reductions, covered payroll in the United States rose 1.7 percent to $5.95 trillion in 2008, while in California payroll rose 0.9 percent to nearly $782 billion – still more than 13 percent of the U.S. total.

Meanwhile, NASI reports that medical and indemnity benefits paid under state workers’ compensation programs rose 4.5 percent to $54.2 billion in 2008, with benefits under federal programs adding $3.4 billion to push aggregate payments nationwide to $57.6 billion — up 4.4 percent for the year, and the second year in a row that benefit payments were up nationwide. Indemnity payments rose just 0.3 percent to $28.6 billion (49.6 percent of total workers’ compensation benefits paid in the U.S. in 2008), while medical payments jumped 8.8 percent to nearly $29.1 billion (50.4 percent of benefit payments nationwide).

With workers’ compensation benefits rising much faster than covered payroll, benefit costs as a percentage of payroll edged up for the first time in five years in 2008, rising to 0.97 percent of covered wages, up from 0.94 in 2007. The recent bump up in the ratio of benefits to payroll nationwide was driven by increased medical benefits, which rose from $0.47 to $0.50 per $100 of wages. In California, however, benefits paid per $100 of wages fell from $1.23 in 2007 to $1.21 in 2008 – though that was still well above the nationwide level and higher than in 42 of the 49 other states.

As usual, California led the nation with $9.4 billion in benefit payments in 2008 – 16.4 percent of the nationwide total, down from 17.2 percent a year earlier. Fourteen other states also had at least $1 billion in workers’ compensation benefit payments in 2008, though aggregate payments in California were more than 2-1/2 times the total for second-place New York, and nearly equaled the combined payments of the second through fourth ranked states (New York, Pennsylvania, and Illinois).

Private insurers accounted for 52 percent of all workers’ compensation benefits paid nationwide, self-insured employers made 24 percent of the payments, state funds paid 18 percent, and 6 percent of all benefit payments came from federal programs. In the California system, just under half of the benefit payments came from private carriers; nearly 20 percent came from State Fund, while self-insureds paid almost 31 percent.

Medical payments remained the biggest benefit cost component in California, as medical reimbursements climbed 5.5 percent to $5.1 billion for the year, while indemnity benefits fell 7.5 percent to $4.3 billion. Thus, in California medical benefits consumed 54 cents out of every benefit dollar paid in calendar year 2008 (versus 52 cents for all states), while indemnity benefits consumed 46 cents (versus 48 cents for all states).

NASI also estimates that nationwide, employers’ 2008 workers’ compensation costs, including insurance premiums, payments under deductible plans, self-insured benefit payments and administrative costs, totaled $78.9 billion, down 6.7 percent from 2007. Employers covered by private carriers accounted for 59 percent of that total, those covered by state funds accounted for just over 15 percent, self-insureds represented 20 percent, and federal programs paid 5-1/2 percent of the total employer costs. That translates to an average employer cost of $1.33 per $100 of covered payroll, down from $1.44 in 2007, and the fourth year in a row that the nationwide employer cost ratio has declined. Much of that decline was fueled by a 12.1 percent drop in employer costs in California, which the average employer cost per $100 of payroll fell from $1.83 in 2007 to $1.59 in 2008.

The NASI report, Workers’ Compensation: Benefits, Coverage, and Costs, 2008, uses data from state agencies, A.M. Best, the Department of Labor, and the Social Security Administration, with estimates based on losses paid during each calendar year, regardless of the year in which the injury occurred. The September 2010 report is online at www.nasi.org/usr_doc/Workers_Comp_Report_2008.pdf.

Source: CWCI

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