Inflation Contributes to Rising Medical Costs and Workers’ Compensation Expenses
Inflation is causing rising medical costs and WC expense. A report from the National Council on Compensation Insurance (NCCI) found that the current inflationary environment has contributed to rising medical costs and workers’ compensation expenses across the country. Specifically, while medical costs paid per workers’ compensation claim increased by a relatively stable percentage for much of the past decade, such costs have risen at an above-average rate in recent years, in line with the latest price index trends. These costs reflected several types of medical services and featured treatment patterns that varied based on claim maturity. Read on for more key findings from the NCCI report.
Price Index Trends
Two factors influence medical costs paid per workers’ compensation claim: price (the price paid per unit of medical services) and utilization (the quantity and mix of these services). To determine whether inflation affected medical costs, it’s best to compare these costs to various price indexes, including:
- The consumer price index for medical care (CPI-M), which measures the inflation of the price of medical services and commodities
- The producer price index (PPI), which measures the inflation of medical costs paid by health care service providers
- The personal health care index (PHC), which reflects a combination of the CPI-M and PPI
Between 2012 and 2019, medical costs paid per workers’ compensation claim increased at a consistent rate of 1.5% each year, with a significant drop in 2020 due to limited claims at the initial onset of the COVID-19 pandemic. In 2021, however, costs paid per claim jumped by 2%, rising above the past decade’s average. Although the CPI-M increased at a higher rate during this time period, both the PPI and PHC closely aligned with the rise in costs paid per claim, suggesting that inflation has played a role in climbing workers’ compensation expenses. Further, industry experts anticipate the PHC to increase by an additional 2.5%-3% in the years ahead, paving the way for ongoing inflation concerns.
Medical Services and Treatment Patterns
Multiple medical services were reflected in the increase in medical costs paid per workers’ compensation claim. Namely, physician and facility services accounted for nearly 80% of these costs in 2021, while drugs and other services (e.g., medical equipment and home health care) accounted for the remainder. From 2012 to 2021, the average annual change in medical costs by type of medical service was 0.6%, 1.2% and 0.4% for physician, facility and other services, respectively. On the other hand, the average annual change in medical costs for drugs was negative (-0.2%) during this time period. Taking a closer look at treatment patterns based on claim maturity, physician and facility services made up the largest proportion of medical costs during the first year of an injury. As the years went on, these services took up a smaller share of medical costs, whereas prescription drugs and medicine saw an increase.
For More Information
This data represents countrywide findings. Read the full NCCI report for regional data. Contact us today for more workers’ compensation resources, contact TIG Advisors today or visit our TIG Advisors blog.