Does workers’ compensation pay more for medical care than group health insurance?

A recent report by the Workers Compensation Research Institute indicates that workers’ compensation plans have to pay out more on the whole for treatment than employer-sponsored group or private health plans. The independent think tank is based in Cambridge, Massachusetts and looked at sixteen states for this study. In over two-thirds of them, medical payouts on workers’ comp procedures were much higher than the exact same procedures for private plan holders. They sometimes climbed to greater than fifty percent -a startling figure, for sure– more, in fact.

Research was based on data from medical care given in 2008. Richard Victor, executive director of WCRI, believes these findings will be of interest to insurance and health care professionals, union leaders, workers, and state officials.

“In every state I know of, they are interested in what they can do to increase job creation,” Victor said. “If workers’ compensation costs are unusually high, that puts that state at a disadvantage.”

Workers’ compensation insurance is purchased by employers to provide benefits to employees who become ill or injured while on the job. Coverage includes both medical costs and a partial replacement of an injured worker’s income while they are out of work. The premium employers pay for this insurance is based on the size of their payrolls as well as the volume and degree of severity of injuries and illnesses in their particular industry.

There are two ways that payment to providers can be approached: Regulated and unregulated. In the regulated scenario, amounts paid out on workers’ compensation claims are often regulated by states or are negotiated between insurers and health care providers. In unregulated states there are no set fee schedules for procedures. In three of the four unregulated states -New Jersey, Iowa, and Virginia– costs associated with workers’ comp treatments were extremely high.

Knee and shoulder injuries are some of the most common injuries in workers’ compensation cases. In reviewing these types of cases, the WCRI found that the average workers’ comp payment for shoulder surgery in New Jersey was $7,323 while group health plans paid only $4,583 on average, making the group plan procedure 37 percent less. Knee surgery via workers’ compensation insurance cost $5,547, 42 percent higher than payments through group health plans, to include the co-payments and deductibles paid by patients themselves.

According to a separate study by Oregon’s department of consumer and business services, New Jersey ranked seventh-highest among all fifty states for workers’ compensation premiums paid by New Jersey employers last year.

In Virginia and Iowa, shoulder surgery was more than twice the group health average cost of $5,279 and fifty percent more for workers’ compensation procedures at $8,586, respectively.

In several states where hospital fees are not regulated, workers’ compensation insurers have less bargaining power in price negotiations with hospitals than private group insurers, which lay claim to a much larger portion of the market than workers’ comp insurers. This is a contributing factor to high costs.

Massachusetts and California, which are both states with fixed payment amounts that hospitals can charge in workers’ comp cases, payments were lower than payments made via group health plans. Shoulder surgery in Massachusetts was an average of $2,636 under workers’ comp, while group health plans for the same surgery paid out an average of $4,592. In California, workers’ compensation payments were an average of 16 percent lower than group plans.

Hopefully, studies such as these can be used to 1) further evaluate and adjust medical costs in workers’ compensation claims and 2) encourage quality physicians to “take on” workers’ compensation claimants as patients!