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Rising Medical Losses Drive Up California Public Self Insureds' WC Costs

Despite a decline in the number of job injury claims reported by California public self-insured employers last year, for the fourth year in a row rising claim severity (average loss per claim), fueled by higher medical costs, drove up total workers' compensation claim costs for cities, counties and other public agencies in the state last year according to data from the Office of Self-Insurance Plans (OSIP).

OSIP's summary of public self-insured data for fiscal year 2009/2010, issued late last month, provides an initial glimpse at the volume of claims, total loss payments and total incurred (paid losses plus reserves) for the 12 months ending June 30, 2010. The state compiles the data annually from workers' compensation reports submitted by hundreds of public self-insured entities other than the state itself -- including cities and counties, local fire, school, transit, utility and special districts and joint powers authorities. The updated data show that these employers provided workers' compensation coverage to more than 21 million California public workers whose wages and salaries totaled nearly $96.9 billion in the 2009/2010 fiscal year.

A California Workers' Compensation Institute (CWCI) review of the data found that the number of employees covered by public self-insured employers last year was down 2.6% from the total noted in the FY 08/09 initial report, which helped reduce the number of reported claims, which fell 3.7% to 121,353 cases. Despite having fewer workers and fewer claims, however, public self-insureds' total claim payments at the first report rose to $318 million, $7.1 million (2.3%) more than the comparable figure for FY08/09, and $58 million (19.6%) more than the post-reform low of $260 million noted in the first report for FY 05/06 claims. Calculating the first report average paid losses by benefit type, CWCI traced most of the increase in public self-insured loss payments over the past four years to increased medical losses, which have jumped 28.5% from the post-reform low of $1,073 to $1,379 last year - well above the pre-reform level. In contrast, over the same period, average indemnity paid per claim as noted in the first reports has risen less than 12%, from $1,112 to $1,243.

The incurred data (paid losses + reserves for future payments) on public self-insured claims tell a similar story. Comparing initial report data for each of the last seven years, CWCI found that California public self-insured's incurred losses at first report have risen by $173 million from a post-reform low of $852 million ($369.4 million indemnity + $483.5 million medical) in FY 05/06 to more than $1 billion ($393.7 million indemnity + $619.8 million medical) in FY 08/09 - a 4-year increase of more than 20%. The public self-insured's total claim count for last year was up only 2 percent from the comparable figure for FY 2005/2006, so most of the growth in total incurred losses since the post-reform low can be ascribed to increases in the average amount incurred per claim - primarily on the medical side. Over the past four years, average incurred medical per public self-insured claim at the first report level has risen more than 25%, from $4,065 to $5,088, while average incurred indemnity has risen 8.3% from $3,106 per claim for FY 05-06 to $3,364 for FY 09-10.

CWCI has prepared a detailed report on OSIP's latest public self-insured data that tracks changes in the volume of California public self-insured claims, and in the total and average paid and incurred amounts for these claims. The report, with initial data on FY 09-10 claims reported to OSIP and more developed data (2nd, 3rd, 4th, and 5th reports) for the most recent seven years available, is in the Research section of the CWCI website, www.cwci.org. OSIP also compiles private self-insured claims data, but it is reported on a calendar year basis, so updated figures from California's private self-insurers will be released this summer. OSIP summaries for private and public self-insured employers are posted at http://www.dir.ca.gov/SIP/StatewideTotals.html.