COMPACT

The Newsletter for Workers’ Compensation Professionals November 2001

Minnesota Department of Labor and Industry 443 Lafayette Road N. St. Paul, MN 55155

Inside ...
Articles
Rehab provider conduct and accountability outcomes ........................ 5 Interest rate update ............................. 5 Update: Danny’s Trannys vs. State of Minnesota ........................................ 5 Update: Roy vs. Gas Supply Inc. (WCCA, Aug. 6, 2001) ........................... 6 Customers happy with hotline service ...... 7 Work comp family farm coverage ............. 8 Minnesota work comp insurance costs continue decline ................................... 9 Latest data shows slight increase in indemnity costs ................................. 10 Exposure-related occupational disease ..... 13

Tables
Customer Assistance hotline survey ......... 7 Family farm coverage ............................ 8 Average indemnity and medical costs of insured claims, policy years 1984-1998, adjusted for wage growth ...................... 11 Average indemnity cost of indemnity claims, 1984-2000, adjusted for wage growth: Insurance data vs. DLI data ...... 12 Number and percentage of occupational disease indemnity claims, 1996-1999 ....... 13

Forms
Subscription renewal ............................. 4 Publications order form .......................... 15 ‘Rule 101’ order form ............................. 17

Summaries of decisions
Workers’ Compensation Court of Appeals ........................................... D-1 COMPACT is a publication of the Minnesota Department of Labor and Industry. Its purpose is to provide department news and workers’ compensation case information to professionals who work within Minnesota’s workers’ compensation system. Correspondence should be sent to: COMPACT editor, Minnesota Department of Labor and Industry, 443 Lafayette Road N., St. Paul, MN 55155; by e-mail at DLI.Communications@state.mn.us. Subscription requests should be sent to Customer Assistance Publications, Workers’ Compensation Division, 443 Lafayette Road N., St. Paul, MN 55155; by e-mail at DLI.brochure@state.mn.us. Visit www.doli.state.mn.us/compact.html to view this publication on the Web. Upon request to the editor, COMPACT will be made available in alternative formats such as Braille, large print or audiotape. Minn. Supreme Court decisions................ D-21

Latest data shows slight increase in indemnity costs
By David Berry, Research Scientist Research and Statistics

This article presents the latest data from the insurance industry and the Department of Labor and Industry (DLI) about workers’ compensation claim costs. Average claim costs are adjusted for wage growth to give a constant-dollar measure.1 Both the insurance data (through 1998) and the DLI data (through 2000) indicate general stability since 1995. The DLI data, however, indicates a slight increase in adjusted indemnity costs2 since 1998. These figures are important because of their effect — along with that of claims incidence — on overall workers’ compensation cost.
Insurance data

The insurance data is shown in Figure 1 (see page 11). For all claims combined (Panel C), adjusted average costs per claim declined steeply between policy years3 1990 and 1995 — by 58 percent for indemnity cost, 32 percent for medical cost and 48 percent for total cost. Between 1995 and 1998, these costs were essentially stable though with a slight decline. During these later years, although unadjusted average claim costs were rising, they were doing so more slowly than wages, so that adjusted claim costs (shown in the figure) were slightly falling. For indemnity claims4 (Panel A), the cost trends are similar to those for all claims combined, which is expected since indemnity claims account for most of total claim cost (90 percent in 1998). The adjusted average cost of medical-only claims (Panel B) fell somewhat between 1991 and 1994, but was then stable through 1998. Between 1990 and 1995, average costs declined more steeply for all claims combined than for indemnity claims or medical-only claims. This is because the more expensive indemnity claims made up a decreasing proportion of the total number of paid claims, falling from 27 percent in 1990 to 20 percent in 1995.
Insurance data and DLI data compared

Figure 2 (see page 12) shows the adjusted average indemnity cost of indemnity claims from the insurance data (from Figure 1, Panel A) and the DLI database. (DLI does not collect medical cost data.) The DLI data follows the insurance data closely, with a slight decrease between injury years5 1995 and 1998. The 1999 and 2000 DLI figures, however, suggest adjusted indemnity costs may again be on the increase for the first time since the late 1980s. The 2000 DLI figure is 7 percent higher than 1998, meaning average indemnity costs rose this much faster than the average weekly wage. More years of data will be necessary to determine whether this is a temporary fluctuation or the beginning of an upward trend.
1

In addition, all claim costs are “developed,” meaning they include projection factors to represent what costs will be at full claim maturity. Indemnity costs are cash benefits paid to the injured worker or survivors to compensate for lost wages, permanent functional impairment or death. The policy year is the year of issuance of the insurance policies under which the claims and costs arose. Indemnity claims are claims with indemnity costs. The injury year is the calendar year in which the injuries giving rise to the claims and costs occurred. 10 November 2001

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COMPACT

Figure 1
Average indemnity and medical costs of insured claims, policy years 1984-1998, adjusted for wage growth [1]
A: Indemnity claims $30,000 Average cost per claim $25,000 $20,000 $15,000 $10,000 $5,000 $0 '84 '86 '88 '90 '92 '94 '96 '98 Indemnity Total Medical Policy year 1984 1990 1997 1998 Indemnity cost $15,310 18,220 9,860 9,510 Medical cost $6,220 9,600 8,000 7,770 Total cost $21,530 27,820 17,860 17,280

B: Medical-only claims $600 Average cost per claim $500 $400 $300 $200 $100 $0 '84 '86 '88 '90 '92 '94 '96 '98 Policy year 1984 1991 1997 1998 Medical cost $319 523 479 481 Total cost $319 523 479 481

C: All claims $10,000 Average cost per claim $8,000 $6,000 $4,000 $2,000 $0 '84 '86 '88 '90 '92 '94 '96 '98 Indemnity Total Medical Policy year 1984 1990 1997 1998 Indemnity cost $4,270 5,000 1,960 1,870 Medical cost $1,960 2,980 1,970 1,910 Total cost $6,230 7,980 3,930 3,780

1. Data is from the Minnesota Workers' Compensation Insurers Association, 2002 Minnesota Ratemaking Report. The figures include the voluntary market and Assigned Risk Plan, and exclude supplementary benefits and second-injury claims. To standardize the cost of benefits over time, the numbers are adjusted for growth in the statewide average weekly wage (from unemployment insurance data) between the respective policy year and 2000.

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November 2001

Figure 2
Average indemnity cost of indemnity claims, 1984-2000, adjusted for wage growth: Insurance data vs. DLI data [1]
Average indemnity cost $20,000 $16,000 $12,000 $8,000 $4,000 $0 '84 '86 '88 '90 '92 '94 '96 '98 '00 Insurance data (policy year) [1] DLI data (injury year) [2] 1984 1990 1998 1999 2000 Insurance data (policy year) [1] $15,300 18,200 9,500 [3] [3] DLI data (injury year) [2] $14,900 17,000 9,900 10,100 10,600

1. The insurance data is from Figure1 (Panel A). It excludes supplementary benefits, second-injury claims and self-insured employers. 2. The DLI data differs from the insurance data in that it excludes vocational rehabilitation costs but includes supplementary and second-injury benefits, those medical costs that are part of stipulated settlements, and both insured and self-insured employers. 3. Not available at time of publication.

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November 2001