NCCI just published the first of four installments in NCCI’s series on inflation and workers compensation medical costs. It explores price and utilization trends in medical services, and how each contributes to workers compensation costs in the four US geographical regions. This article also provides state-specific results.

As the first installment in NCCI’s Inflation and WC Medical Costs series, this article provides insight into the drivers of overall WC medical costs and trend differences by US region. Future installments will expand on each of the different types of medical services discussed here – physicians, facilities, and prescription drugs. Subsequent articles in the series will include more in-depth regional differences in cost changes, and details about the make-up of the underlying services.

Key Observations:

– – Medical inflation in WC has been moderate for the past decade. But with the recent dramatic rise in consumer prices, concerns have emerged about medical inflation rising at similar levels.
– – Two factors drive changes in medical claims costs: the price of medical services and utilization, which measures the mix and number of services provided to an injured worker.
– – NCCI’s most recent medical data shows that drug costs are declining, physician costs are up slightly, and facility costs are rising in the WC system.
– – In recent years, facility services are the dominant contributor to changes in WC medical costs across regions – most prominently in the Southeastern region.

In August 2022, the US Bureau of Labor Statistics (BLS) published an updated Consumer Price Index (CPI) for All Urban Consumers, which increased by 8.3 percent over the previous 12 months. That number was down from the largest year-over-year change in four decades reported back in June (9.1%).

The CPI has a Medical Care component (CPI-M) that measures price inflation for medical care services, medical care commodities, and health insurance. An alternative measure of price change is the Producer Price Index (PPI), which has a healthcare component. In simple terms, the PPI measures what is paid to service providers.

NCCI’s review of price indexes indicates that the price index that most closely reflects medical cost distributions in WC is the Personal Health Care (PHC) index, which is a mix of the two and calculated by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS).

Between 2012 and 2019, WC paid costs increased at a relatively stable rate of 1.5% annually. The year 2020 experience reflects the exceptional drop in new WC claims due to the pandemic.

Subsequent experience in 2021 shows that paid medical costs per claim rose at 2%, slightly above the eight-year average preceding 2020. The CMS Actuary projects the PHC to run higher at 3.7% in 2022. In fact, the CMS Actuary projects Personal Health Care (PHC) to revert to something in the 2.5% to 3% range beyond 2022.

However the WC paid medical trends have been increasing at a slower pace than the corresponding regional CPI-M indexes. This is particularly the case in the Northeastern and Western regions.

WC medical costs in the Southeastern region have increased at a slightly faster rate than the countrywide average.

Trending below countrywide, the Northeastern and Western regions have experienced a more modest increase. However, in 2021 WC medical costs in the Northeastern and the Southeastern regions each increased by an estimated 3%, while the Western and Midwestern regions increased by 2% and 1%, respectively.

Every region except the Midwestern region had a slightly larger increase in 2021 WC medical costs relative to those observed between 2012 and 2019.