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8 Factors Contributing to Record Workers’ Compensation Claims Severity

The frequency of smaller workers’ compensation claims may be improving, but that is definitely not the trend in the frequency and costs of large death and permanent total disability claims. We take a look at many of the cost drivers influencing it.

July 1, 2024

Rising medical costs on catastrophic workers’ compensation injury claims are creating never-seen-before levels of severity despite the industry’s reputation as a stable property and casualty line for several years.

“Rating bureaus like NCCI are typically used as benchmarks for workers’ compensation trends, but this data can be missing certain details – especially that of costly developmental and catastrophic claims,” said Mark Walls, Vice President of Client Engagement at Safety National. “These rating bureaus focus their research on the first-dollar market and cap loss severity in their analysis to exclude claims that are open past 10 years. This approach does not accurately account for the long-tail development and payout associated with catastrophic claims. In addition, self-insured employers that represent a significant percentage of the U.S. workforce, especially in segments such as public entities, hospitals, educational institutions and other large employers, generally do not report loss information to NCCI or state rate-making bureaus.”

Other industry data does illustrate that high costs are rolling through the system. For instance, a recent study published by actuaries from a large brokerage firm reported an estimated 6.6% increase in the workers’ compensation cost index, which is the highest since 2009. As one of the nation’s largest excess and high deductible workers’ compensation carriers, Safety National’s claims over the last six years show that claims at $2 million incurred increased by 91%, and claims with $10 million incurred increased by 183%.

Several factors are serving as cost drivers resulting in this claims severity.

1. Medical Technology

Advances in medical care, along with the increased use of artificial intelligence in medical equipment, are dramatically changing accident survivability and prolonging life expectancies for severely injured workers. These advances are also significantly improving their quality of life and independence. While this is great, all of this progress in medicine and technology comes at a price. New technology is very expensive, which contributes to increasing costs of medical services. In addition, the medical devices used for these services seem to have shorter lifecycles and require constant improvements and replacements, often adding to the increase in costs.

2. Accident Survivability

Catastrophic cases require higher medical costs early on due to the complexity and intensity of the injuries. Medical care at the accident scene has significantly advanced over the years, leading to better chances of survival. Air ambulances are deployed faster and the care provided by Level 1 trauma centers has vastly improved. Injured workers are now, thankfully, surviving accidents that would have been fatal five years ago, yet significant costs are associated with this initial treatment.

3. Life Expectancy

Severely injured individuals are living much longer with advances in medical technologies, timely intervention, medical care access, specialists, and home health. Complications that previously would significantly reduce life expectancies can now be prevented. This means that a person with quadriplegia in their twenties could live 30-40 years, all while requiring round-the-clock professional nursing care. Long-term exposure can be significant for catastrophic claims when the injured worker requires lifetime medical care and equipment.

4. Fee Schedules

The large cost drivers associated with catastrophic injury claims are often not covered by fee schedules. These services include extended intensive care unit stays, durable medical equipment, prosthetics, transportation, and professional home nursing. These costs are increasing at rates far greater than average medical inflation. For example, some home healthcare rates have more than doubled in the last 10 years.

5. Presumption Laws

Legislative expansion of benefits is also a contributor, including cancer presumption laws in the public entity market. These laws presume that certain types of cancer contracted by first responders are the result of duty-related exposure. Varying by state, these benefits continue to expand, with changes ranging from the types of cancers that will be covered by workers’ compensation to the extension of filing periods. These claims often take time to develop and can have an extremely long tail. It is also common to see a claim with an incurred well under the policy retention suddenly jump in value because of a recurrence of the cancer years after the original diagnosis. Due to cancer presumptions, these losses are also showing up in workers’ compensation.

6. The Job Market

A strong labor market in the last few years has led to a struggle to hire and increased turnover. This adds a potential for hiring new employees with less experience, causing a rise in injury frequency. When filling open positions is critical, employers may also be tempted to make concessions during onboarding procedures rather than setting a strong standard of safety from the start of employment. A recent study from the Workers’ Compensation Insurance Rating Bureau of California (WCIRB), reported that 40% of workers’ compensation claims resulted from injuries sustained by workers employed for less than a year and employees with less than one year of tenure in a physical labor industry were more than three times as likely to have a claim.

7. Vendor Labor Shortages

Attendant care is already a large cost driver in claims. Long-term care can cost several hundred thousand dollars per year. Home health care, which is increasing in demand, is also getting more expensive. The labor shortage is only exasperating these costs as providers struggle to find and keep staff. This is trickling over into their rates for service. Attendant care will often be required in older employees since spouses may be unable to provide care, and additional comorbidities may cause complications through infections, diminished overall strength, and further surgeries.

8. Comorbidities & COVID-19

A severely injured worker enters a claim with every pre-existing illness, injury, or health issue. Those comorbidities must be treated alongside the injury to avoid adverse claim affects. Co-morbidities like high blood pressure, arthritis, and type 2 diabetes have been common for years. With an increasingly aging workforce, along with the prevalence of obesity in the workplace, co-morbidities are now present in a majority of claims. In addition, the long effects of COVID-19 continue to exist in claims with some of the more considerable and costly treatments including lung and heart transplants.