CONTENTS

3 4 5 5 6 7 10 COMPACT going online only Meeting notice: Prescription-drug costs in workers’ compensation Updated FROI, other forms available in online versions Multilingual QRCs, registered rehabilitation vendors The state of ergonomics in Minnesota Workers’ compensation system cost increases in 2001 Workers’ compensation family farm coverage where other insurance coverage requirements are met CompFact: Spotlight on actors, directors Minnesota Workplace Safety Report update online Hispanic focus-groups discuss experiences, attitudes about workplace safety Free publications available online

TABLES
7 7 8 8 9 System cost per $100 of payroll, 1984-2001 Benefit cost per $100 of payroll, accident years 1984-2001 Paid benefits per $100 of payroll, payment years 1993-2001 Paid claims per 100 full-time-equivalent workers, injury years 1984-2001 Average indemnity benefits per indemnity claim, adjusted for wage growth, injury years 1984-2001 Average medical benefits per claim, adjusted for wage growth, policy years 1984-1999 Average duration of wage-replacement benefits, injury years 1984-2001

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10 Family farm coverage 11 Injuries for indemnity claims, actors and directors, 1995-2000

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FORMS
19 Revised First Report of Injury form

CompFact: Spotlight on actors and directors

The state of ergonomics in Minnesota

Decisions

Summaries of

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D-1

Workers’ compensation system cost increases in 2001
By David Berry, Ph.D. Research and Statistics

After falling nearly in half from 1994 through 2000, the total cost of workers’ compensation turned upward relative to payroll in 2001 (Figure 1). Cost rose from $1.32 per $100 of payroll (revised) in 2000 to $1.44 per $100 of payroll in 2001, a 10 percent increase. The main reasons for this increase are:1 • Benefit payments are increasing. • Low investment returns of the past two years have reduced insurers’ earnings on invested premiums. • In a highly competitive environment, insurers reduced premiums to levels too low to cover benefits and other costs, and now need to raise premiums to adequate levels. The following figures present data about the first of these reasons – increasing benefit payments.
Benefit payments

Figure 1
System cost per $100 of payroll, 1984-2001 [1]
$2.50 $2.00 $1.50 $1.00 $ .50 $ .00 '84 '86 '88 '90 '92 '94 '96 '98 '00 1. Data from the Minnesota Department of Commerce, Minnesota Workers' Compensation Insurers Association (MWCIA), Minnesota Workers' Compensation Reinsurance Association (WCRA), the Minnesota Assigned Risk Plan (ARP) and the Minnesota Department of Economic Security (DES). Includes insured and self-insured employers. Numbers for recent years are based in part on preliminary data and will be revised in future releases.

Indemnity2 and medical benefits have increased relative to payroll during the past two years. According to accidentyear data (Figure 2),3 total benefits rose 13 percent relative to payroll from 1999 to 2001. For indemnity and medical benefits, the increases were 9 and 16 percent, respectively. A similar picture is shown by payment-year data (Figure 3, next page). Relative to payroll, paid medical benefits rose 22 percent from 1999 to 2001. Paid indemnity benefits, after declining steadily relative to payroll through 2000, turned upward by 4 percent in 2001. Note that the payment-year data include payments on both new and old claims (see note 1 in Figure 3). The changes in benefit payments relative to payroll reflect changes in claim incidence (claims per employee) and benefits per claim.
Claim incidence

Figure 2
Benefit cost per $100 of payroll, accident years 1984-2001 [1]
$2.00 $1.50 $1.00 $.50 $.00 '84 '86 '88 '90 '92 '94 '96 '98 '00 Total

Indemnity

Medical

1. Data from the MWCIA. Excludes self-insured employers, the ARP, and supplementary and second-injury benefits. Figures are projected to represent amounts at full claim maturity.

Claim rates continued their long-term decline in 2001 (Figure 4, next page). The total paid claim rate for 2001 was down 10 percent from 2000, while the indemnity and medical-only claim rates decreased 9 and 10 percent, respectively.4 The
Costs continues next page
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Costs continued ...

decreases in the medical-only and total claim rates were significantly greater than for any prior year since 1984. The indemnity claim rate, by contrast, showed decreases in several earlier years that were of similar magnitude to the 2001 decreases, although it was fairly flat from 1998 to 2000. The pronounced decreases in claim rates in 2001 may be related to the current recession, which began in 2001. Injury rates are likely to decrease during economic slowdowns because of slower production and relatively fewer inexperienced workers. Also, injured workers may be less likely to file a claim during a recession if they have a heightened fear that claiming will lead to layoff. However, a recession could cause an increase in claiming as injured workers respond to being laid off or to a belief that layoff is imminent. According to some studies, the net effect is for claim rates to decrease during recessions.5
Benefits per claim

Figure 3
Paid benefits per $100 of payroll, payment years 1993-2001 [1]
$1.75 $1.50 $1.25 $1.00 $.75 $.50 $.25 $.00 '93 '95 '97 Medical '99 '01 Total Indemnity

1. Data from DLI, MWCIA, WCRA and DES. Excludes supplementary benefits. Because paid benefits are for both new and old claims, payroll is calculated as an index of current and prior payroll.

Because claim incidence has decreased, the rise in benefits relative to payroll must be caused by higher benefits per claim. Benefits per claim have indeed increased. The latest data from DLI indicates that, after adjusting for average wage growth, indemnity benefits per indemnity claim rose 23 percent from 1998 to 2001 (Figure 5, next page); almost half the increase was from 2000 to 2001. DLI does not keep medical payment data. The latest figures from the Minnesota Workers’ Compensation Insurers Association (MWICA)6 indicate that, after adjusting for average wage growth, medical benefits per claim rose 9 percent from policy year 1998 to 1999 (Figure 6, next page).7 No doubt, workers’ compensation is affected by the cost increases occurring in general medical care. To a large degree, the increase in indemnity benefits per claim is attributable to an increase in disability duration. The average duration of temporary total disability (TTD) benefits rose 24 percent from 1998 to 2001 (Figure 7, next page).8 Temporary partial disability (TPD) duration, after a period of stability from 1995 through 1999, was 8 percent higher for 2000 through 2001 than for 1998 through 1999. Another factor, though less important, is the indemnity benefit increases enacted by the 2000 Legislature, effective for injuries on or after Oct. 1, 2000.9 DLI estimated these increases would raise

Figure 4
Paid claims per 100 full-time-equivalent workers, injury years 1984-2001 [1]
10 8 6 4 2 0 '84 '86 '88 '90 '92 '94 '96 '98 '00 Indemnity claims Medical-only claims Total claims 1. Data from DLI, MWCIA and DES. Figures are projected to represent paid claim rates at full maturity.

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• COMPACT • November 2002

Figure 5
Average indemnity benefits per indemnity claim, adjusted for wage growth, injury years 1984-2001 [1]
$20,000

Figure 6
Average medical benefits per claim, adjusted for wage growth, policy years 1984-1999 [1]
$3,000

$16,000 $12,000 $8,000 $4,000 $0 '84 '86 '88 '90 '92 '94 '96 '98 '00 1. Data from DLI. Figures are projected to represent amounts at full claim maturity. Benefit amounts are adjusted for average wage growth between the respective year and 2001.

$2,500 $2,000 $1,500 $1,000 $500 $0 '84 '86 '88 '90 '92 '94 '96 '98

1. Data from the MWCIA. Includes indemnity and medical-only claims. Excludes self-insured employers. Figures are projected to represent amounts at five-year claim maturity. Benefit amounts are adjusted for average wage growth between the respective year and 2001.

total indemnity benefits by 4.6 percent.10 Although significant, this figure accounts for just 20 percent of the 23-percent increase in indemnity benefits per claim between 1998 and 2001 (Figure 5).
Notes
1

Figure 7
Average duration of wage-replacement benefits, injury years 1984-2001 [1]
30 25 Average weeks 20 15 10 5 0 '84 '86 '88 '90 '92 '94 '96 '98 '00 Total disability [2] TPD

See “Explaining Recent Workers’ Compensation Premium Increases,” DLI Research Reporter, September 2002, www.doli.state.mn.us/ reporter.html. Indemnity benefits (sometimes called cash benefits) are paid to the injured worker (or dependents) to compensate for lost wages, permanent functional impairment or death. In accident-year data, benefits are tied to the year in which the accident occurred, regardless of when the benefits are paid. Indemnity claims are paid claims with indemnity benefits; these claims typically have medical benefits as well. Medical-only claims are paid claims with medical benefits but not indemnity benefits. For example, Brooker, A., and T. Sullivan, “Workers’ Comp and the Business Cycle,” in On Workers’ Compensation, 3(9), November 1994.

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1. Data from DLI. Numbers are projected to represent duration at full claim maturity. '2. Total disability includes TTD and permanent total disability (PTD) benefits. TTD and PTD are not distinguished in the DLI database.

6

The MWCIA is Minnesota’s workers’ compensation data service organization and rating bureau.

7 In policy-year data, benefit amounts are tied to the year in which the policy covering the injury took effect, regardless of when the benefits are paid.

8

This figure also includes permanent total disability duration.

9

The Legislature raised permanent partial disability benefits, minimum and maximum weekly wage-loss benefits and dependency benefits (death cases).

The published estimate was that the benefit increase would raise total system cost by 1.7 percent. The two figures are related by the fact that indemnity benefits were estimated at 37 percent of system cost, the remainder being medical benefits and other costs, such as administrative expenses (1.7% = .37 x 4.6%). The MWCIA estimated the 2000 law change would raise total benefit costs (indemnity and medical) by 4.2 percent.
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