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A new California Workers’ Compensation Institute study finds that average paid losses on California workers’ compensation lost-time claims fell immediately after legislative reforms (SB 863) took effect a decade ago, but then gradually increased up until the pandemic hit.

Currently, average paid losses on claims at all valuation points within 60 months of injury are above their post-reform lows, with only the most developed data on older claims — 72-month data on accident year (AY) 2016 claims — still showing declines in loss payments in the wake of the 2012 reforms.

Using data from CWCI’s Claims Monitoring Application on nearly 570,000 indemnity claims for injuries that occurred during the 10-year span ending in December 2022, the study tracks average paid losses at 6, 12, 24, 36, 48, 60 and 72 months post injury, breaking out the results by accident year to identify growth trends.

In addition to average total losses, the study notes the average medical and indemnity payments at each level of development and compares the loss payments for claims from 5 key industry sectors and from different regions of the state.

Average total paid losses within the first year of injury fell immediately after the 2012 reforms took effect but bottomed out in AY 2014 and started to trend up in AY 2015, continuing to increase through AY 2020. Average 24-month loss payments bottomed out in AY 2016, then trended up through AY 2019, the latest year for which 24-month data are available.

For the first time in 7 years, the 6- and 12-month average paid losses fell slightly in AY 2021 (the second year of the pandemic) while the 6-month payments on AY 2022 claims edged up slightly, so average total losses in the initial months after injury have changed little since the pandemic began.

Unlike the 6-, 12- and 24-month data, there are no COVID claims in the 36-, 48-, 60- and 72-month results as data at those levels of development is not available beyond AY 2019 and the pandemic began in AY 2020. More developed data on older claims show average total losses declined through AY 2016, but beginning with AY 2017 claims, paid losses at 36, 48, and 60 months began to rise, so the 72-month trendline, which now runs through AY 2016, is the only one that is still declining from the post-SB 863 level.

A review of average 24-month paid medical losses shows they declined from AY 2013 through AY 2016, but between AY 2017 and AY 2020 they jumped by 16.6%, which helped fuel the increase in the 24-month total loss trend. Much of that increase occurred in AY 2019 (+4.5%) and AY 2020 (+6.2%), and notably, 24-month data on claims from both those years included payments for medical services delivered during the pandemic.

Temporary disability comprises most of the indemnity paid in the first 2 years after a job injury, and despite some year-to-year fluctuations, the average indemnity paid at 6 months increased 40.6% from AY 2013 to AY 2022, the average indemnity paid at 12 months rose 27.7% from AY 2013 to AY 2021; and the average indemnity paid at 24 months fluctuated from AY 2013 to AY 2017 but increased for AY 2018, AY 2019, and AY 2020 claims, resulting in a 22.7% net increase between AY 2013 and AY 2020.

In the first few years after SB 863 took effect, the 36-month trendline for indemnity payments tracked with those at the shorter development periods, first fluctuating in a narrow range then gradually trending up to a peak in AY 2019. Average indemnity payments at the longer-term valuations, which are more affected by PD, were flatter, with a net increase of 3.4% in the 48-month payments from AY 2013 to AY 2018; a net decrease of 1.3% in the 60-month payments from AY 2013 to AY 2017; and a net decrease of 1.8% in the 72-month payments between AY 2013 and AY 2016.

The Institute study also examines differences in 24-month total loss trends for AY 2013 to AY 2022 indemnity claims from 5 industry sectors (construction; health care; clerical; food service; and agriculture); and for claims from injured workers living in 7 distinct regions of the state (San Diego, the Inland Empire/Orange County; Los Angeles County; the Central Coast; the Central Valley, the Bay Area, and the North Counties/Sierras), as well as for claims from out-of-state workers.

CWCI has published its study in a Research Update report, “California Workers’ Compensation Claims Monitoring: Medical & Indemnity Development, AY 2013 – AY 2022.