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Increase in Indemnity Claim Volume & Severity Drives Up California Public Self-Insured WC Costs

Oakland, CA - In the midst of the pandemic, the total number of job injury claims reported by California public self-insured employers edged down slightly last year, but a growing number of lost-time claims and rising claim severity (average loss per claim) fueled by higher indemnity costs drove up total workers’ compensation paid and incurred losses for cities, counties and other public agencies in the state according to a California Workers’ Compensation Institute (CWCI) analysis of data from the state’s Office of Self-Insurance Plans (OSIP).

OSIP’s summary of public self-insured data for fiscal year (FY) 2020/21, issued late last week, 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, 2021.  The state compiles the data annually from workers’ compensation reports submitted by hundreds of public self-insured entities, including cities and counties, local fire, school, transit, utility and special districts, and joint powers authorities.  The latest summary shows that in FY 2020/21 these employers provided workers’ compensation coverage to nearly 2 million California public workers whose wages and salaries totaled more than $139 billion. 

CWCI’s review of the data found that the number of employees covered by public self-insured employers last year declined 4.4% from the total noted in the FY 2019/20 initial report, though the total number of reported claims fell less than 1% to 107,161 cases.  Despite having fewer workers and slightly fewer claims, public self-insureds’ total claim payments at the first report increased by more than $30 million to $445 million, 7.3% more than the comparable figure for FY 2019/20, and $130.7 million (41.6%) more than the $314.3 million noted in the first report for FY 2013/14, which was the low point for the past decade and the first year following enactment of SB 863, the 2012 workers’ comp reform bill signed by Governor Brown.

Though overall public self-insured claim volume was down compared to a year earlier, CWCI noted that decline was completely due to a 19.7% drop in medical-only claims, which are relatively inexpensive, while the number of more costly lost-time claims increased by 8,957 claims (15.5%).  The average indemnity paid per FY 2020/21 lost-time claim at the first report was $4,256, so the addition of the 8,967 lost-time cases was the key factor fueling the increase in public self-insured payments last year.  According to CWCI, the recent increase in the number of indemnity claims in the public sector last year is likely due, at least in part, to the addition of COVID-19 claims to the claim mix, as the public self-insured work force includes many essential workers such as police, firefighters, prison guards, and state hospital workers who have a presumption of compensability if they contract the virus, and who were particularly hard hit by COVID last year.  The introduction of COVID claims into workers’ comp also coincided with a spike in public self-insured death claims, which according to the OSIP data more than doubled from 104 claims in FY 2019/20 to 220 claims in FY 2020/21.

The incurred data (paid losses + reserves for future payments) on public self-insured claims tell a similar story. Comparing initial report data for FY 2020/21 to first report data for FY 2019/20, CWCI found that California public self-insureds’ total incurred losses increased by $77.3 million (5.8%) from $1.33 billion ($629.6 million indemnity + $700.7 million medical) in FY 2019/20 to nearly $1.41 billion ($733.8 million indemnity + $673.8 million medical) in FY 2020/21.  Though the overall claim count was down, the addition of 8,987 lost-time claims had a major impact on public self-insureds’ total incurred last year as the average incurred indemnity per indemnity claim at first report was $10,987, so the additional lost- time claims alone added an estimated $98.7 million in incurred indemnity compared to a year earlier, more than offsetting the estimated $27.0 million decline in total incurred medical.    

In addition to the public self-insured data, 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 www.dir.ca.gov/SIP/StatewideTotals.html.