NCCI Unveils New, More Precise Workers’ Comp Medical Price Index

In recent years, workers’ compensation insurers have struggled to accurately gauge the precise trends in medical costs, and have had to rely on indexes that weren’t quite on-point: The U.S. Consumer Price Index is geared toward what patients pay and does not include Medicare’s reimbursement rates, which so many states now tie their workers’ comp fee schedules to.

And the Producer Price Index looks only at the paid prices of medical services, but not durable medical equipment, which makes up 15% of workers’ comp medical spending, nor prescription drug prices. What’s known as the Personal Health Care Index (PHC) gets closest to comp costs, but it is produced only once a year, with a nine-month lag time.

Comes now the National Council on Compensation Insurance with a new measuring stick, the Workers’ Compensation Weighted Medical Price Index. It was unveiled recently and has received favorable feedback from carriers, Stephen Cooper, NCCI’s executive director and senior economist, said in a webinar.

“By taking the PHC and its construction, we’ve gone and re-created a similar index using similar methodology,” Cooper said.

Adding bits and pieces from the other price indexes, along with information from NCCI’s own data calls with insurers, allows it to build a more accurate measure, and it is available quarterly. The data call is key because it includes all reported medical transactions in workers’ comp across 38 NCCI member states.

“We can see exactly where all of those dollars are flowing,” Cooper said.

The data is weighted toward workers’ comp medical treatments, unlike other indexes.

The Consumer Price Index, for example, is not a good reflection of comp costs because it is skewed by huge expenses that the general patient population sees, such as cancer treatments or lengthy hospital stays.

Workers’ compensation medical, on the other hand, is made up mostly of short-term treatment of relatively minor conditions, as well as doctor visits (40% of comp medical costs) and hospital outpatient services (27%). The NCCI also has thrown in long-term care costs, including home health services, hospice care and skilled nursing, Cooper explained.

The new window should provide a more precision tool for insurers. The change was necessitated in part by the COVID-19 pandemic.

Historically, actuaries could look at the CPI and simply add a couple of percentage points to get a good idea of medical inflation, Cooper said. But when the pandemic hit, everything changed. General inflation skyrocketed nationwide, but medical inflation rose only slightly in 2021 and 2022, Cooper said. That has required a new model to help insurers plan for loss costs and rates.

Although NCCI will compile its data on a monthly basis, it will be published quarterly.

“We don’t want to be too reactive to one month’s data,” he said.

The index cannot be broken down to show inflation in individual states. But carriers can utilize a spreadsheet to help build their own database with monthly updates. The new index is available to NCCI members on the council’s website, along with more reports about medical inflation.