Duration, Severity Drive Workers’ Comp Costs in Louisiana

Louisiana Workers’ Compensation Corp. (LWCC) was created by the legislature in 1991 in an effort to stabilize the state’s workers’ compensation system. Today, the private nonprofit mutual insurer is the largest workers’ comp carrier in Louisiana. LWCC President and CEO Kristin Wall recently shared some thoughts about the state of the workers’ comp insurance sector.

Insurance Journal: What are some of the major issues faced by workers’ compensation insurers both in your state and nationally?

Kristin Wall: High claim costs, driven primarily by increased medical costs and duration, continue to be a major concern nationally and especially in Louisiana. Although workers’ compensation rates have decreased over time, the reduction in rates is due to a reduction in the number of workplace accidents — frequency.

In most states and in Louisiana, this downward trend in frequency has masked a consistent upward trend in claim costs. At some point — and some say it’s now — frequency will flatten out or even begin to increase. This will have a negative impact on rates.

IJ: How has the recent economic downturn in the United States affected the business of workers’ compensation insurers and what changes do you foresee as the economy begins to recover?

KW: Believe it or not, studies continue to show that fewer workers are injured at work during an economic downturn since employers tend to hang on to their most experienced employees. And the most experienced employees are usually the safest employees, too. Once the economy begins to pick up, employers, especially new employers, start hiring new employees who typically are less experienced. So we’ll probably see more accidents and a rise in frequency.

IJ: To what do you attribute high claims costs in Louisiana and what are some possible methods of reining them in?

KW: Louisiana’s high claim costs are driven by two things — duration and medical severity. Duration is how long we pay a claim, and Louisiana is consistently ranked near the top when compared to all other states. Louisiana is one of the few remaining states that has a “wage loss” system in place rather than a “schedule” type system. Duration is typically longer under the wage loss system because the employer must identify actual jobs that are suitable and available to the injured worker. These issues are often litigated, thereby prolonging duration.

Medical severity includes medical inflation and utilization. In NCCI’s most recent study, through 2010, the average medical claim severity in Louisiana was $49,000 per claim as compared with the countrywide average of $28,000 per claim. That’s a 75 percent higher average claim cost in Louisiana.

Louisiana has recently adopted evidence-based Medical Treatment Guide-lines, and this will help. However, Louisiana remains one of only 12 states that allow injured workers to choose their treating physician without any limitations from the employer or carrier. Many states now allow employers or carriers to form medical networks and limit treatment to physicians within the network. Some states even allow the employer to choose the treating physician.