At the 2019 Advisen Casualty Insights Conference a panel discussed the rapidly rising costs seen in workers’ compensation catastrophic injury claims. The speakers were:
- Mark Walls – VP Communications & Strategic Analysis, Safety National
- Michael Choo – Chief Medical Officer, Paradigm
- Thomas Ryan – Senior Principle National Practice Integrated Casualty Consulting, Willis Towers Watson
Workers’ compensation is different than other casualty lines right now in that it is both profitable for the carriers and rates have been declining for employers. This environment is due to significant declines in accident frequency. Since 2006 accident frequency has declined over 30%
While frequency has been the driver of declining rates and profitability, NCCI data shows that over the last 20 years indemnity costs have increased 31% higher than wage inflation and workers’ compensation medical costs have increased 114% higher than medial inflation. So far, these increases in costs have been offset by the declining frequency. However the rapidly increasing costs on high dollar worker’s compensation claims will eventually push rates upward.
NCCI data shows that the frequency of claims under $1 million incurred has been decreasing but the frequency above $1 million incurred is increasing. The frequency of these high dollar claims is increasing, and the costs are reaching levels never before seen.
These high dollar cases are being seen across industries and job classifications. Even the lowest risk job can become a catastrophic injury. With more people in the workforce now than ever before, that means there are more exposures for catastrophic injuries.
There are many factors causing these increased costs on the complex claims:
- Accident survivability – First responder training and equipment advances along with advances in trauma care in the emergency room means that the survival rate for severe accidents has increased. The increased use of air ambulances to expedite care is also aiding in accident survivability. For the most severe trauma cases, the mortality rate has reduced by over 18% since 2004.
- Intensity of care – Intensive care costs $30-50,000 per day. Burn centers costs $50-100,000 per day. Severe injury patients can spend weeks to months in these high cost intensive care units.
- Advances in treatment – New treatments not only save lives but they also increase function and life expectancies. However, these new treatments are very costly. A single small skin graft can cost $30,000 and a person could need dozens of these surgeries.
- Complications – Medical advances have reduced complications that reduce life expectancies for those catastrophically injured. But these same treatments can lead to significant and costly complications themselves.
What all this means is that the big claims are getting bigger…much bigger. It used to be a $5 million loss was huge and $10 million was rare. But now $10 million is increasingly common and individual claims are being seen as large as $40 million.
Unlike group health and Medicare, there is no limit to the amount of treatment that a person with a catastrophic workers compensation injury can receive. This includes things like lifetime long-term care, treatments that are considered experimental, and other high costs items these other insurance models do not cover. These new treatments and procedures are very costly. Because of this the expected trend is that these high dollar claims will become more frequent and more costly in the future.