Study: Recession Impacts California Workers’ Compensation

More people in California stayed on disability longer because a fewer “light duty” jobs are available in the down economy, authors of a study on worker’s compensation said.

The impact of the recession on California’s workers’ compensation system was felt on indemnity costs per claim, which grew faster from 2007 to 2009 than in prior years, according to a study issued by the Workers Compensation Research Institute this week.

Indemnity costs per claim—payments for lost wages, loss of earning capacity, or permanent impairment or disability—grew at an annual rate of 7 percent between 2007 and 2009, after a drop of nearly 30 percent from 2002 to 2005 due to workers’ comp reforms, the report shows.

“This growth in indemnity costs per claim was faster than the average growth rate from 2005 to 2007, and indicated some impact of the recession in California,” the report states.

The average weekly wage of injured workers in California changed little from 2007 to 2009, slower than the 4 percent growth rate in prior years as wage growth declined during the recession, according to the study.

During the same period the average timespan of temporary disability benefits rose by nearly one week per year, “likely indicating the slower return to work because there were fewer jobs available,” the report states.

“It’s not that people are stretching it out,” explained Ramona Tanabe, deputy director and counsel for WCRI. Thanks to the recession, the workforce is slimmer, with fewer people doing more work. That has created a situation where it’s difficult to bring workers fresh off of disability into a “light duty” situation, she added.

“It’s harder to bring people back in a light duty situation when there are fewer workers to begin with,” she said. “You can only bring them back when there is appropriate work to do. We’re already operating in a lean employment situation.”

The study also reported that rapid growth in medical payments per claim to injured workers in California – 8 percent per year for claims with more than seven days of lost time – resumed since 2005, after large decreases from the reforms in earlier years. In addition, medical payments per claim grew rapidly in all regions in California after 2005.

Despite the recent growth in average medical payments per claim in California, the interstate ranking of the state shifted significantly due to workers’ comp reforms, from being the highest of the 16 WCRI study states pre-reform to being lower than typical post-reform, according to the study.

“Recent growth in medical payments per claim stemmed from multiple factors, including an increase in prices paid for office visits due to a fee schedule increase; growth in payments per service for facilities associated with surgical procedures; more complex office visits with higher prices billed more frequently; and moderate increases in services per visit for physical medicine,” the study states.

Medical-related expenses per claim also grew continuously over the study period, including the average medical cost containment expense per claim and the average medical-legal expense per claim, according to the study.

The shift in rankings can be credited with the reforms to the state’s workers’ comp system.

“That’s largely due to reforms,” Tanabe said.

Tanabe said the repeal of the primary treating physician presumption of correctness, removing the ability of the primary physician to have the presumption of doing referrals for any type of medical services, was one factor that weighed in on the rankings.

Another reform that boosted California’s rankings was the cap on physical medicine treatments of 24 per claim, requiring more authorization, she said.

“That really decreased the number of physical medicine visits,” she said.

The 2002-2004 reforms had the intended effect of reducing the overall costs, according to Tanabe. Even though workers’ comp has recently observed an increase of medical costs per claim, the overall utilization did not increase at pre-reform rates, she added.