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Hospital Workers’ Compensation Benchmark Study P R E S E N T E D B Y B E E C H E R C A R L S O N I N S U R A N C E S E R V I C E S
Beecher Carlson is pleased to present this fourth edition of the
Hospital Workers’ Compensation Benchmark Study. We appreciate
the opportunity and strive to continuously demonstrate value and
support for the hospital industry through our efforts in developing this
analysis. We applaud and appreciate the efforts of all participants
and look forward to further discussions around the implementation
and execution of strategies driven by the findings of this Study.
Identifying the key elements that drive organizations’ total cost of risk
and developing strategies to reduce those costs are shared objectives
for the entire industry. We welcome the opportunity to discuss what
this information may mean for your company specifically and to
identify methods and opportunities for reducing claims. The frequency
and severity of claims are the key drivers of costs for workers’
compensation. This Study will provide a variety of methods to
measure and review both. Simply put, if you can have fewer claims
that cost less on average, you will reduce your organization’s overall
costs.
Beyond these foundational measurements, we begin to consider the
frequency of severe claims, as well as the other key performance
indicators specifically related to workers’ compensation costs overall.
SCOPE OF STUDY
The 2013 Benchmark Study includes claim information from 2007
through 2011 and valued in late 2012 representing:
Key Observations
Frequency of claims in
2007 compared to 2011
and as measured against
Payroll is down by 9.6%
and as measured by
Manhour is down by more
than 4%.
Frequency of claims
resulting in lost time from
work or indemnity
payments as measured
against Payroll is down by
33% and as measured by
Manhour is down by 20%
comparing 2007 to 2011.
Claim severity on average
is up by 10% for Non-
Zero Claims over the five
year period.
Claim severity increases
the later the claim is
reported to the carrier or
administrator. An
opportunity exists to
reduce the average cost
per claim by more than
13% by having them
reported within the first
seven days for Lost Time
Claims.
More than 600 hospitals in 41 states
Nearly 650,000 employees
155,000 Non-Zero Claims over the five year period
26,000 Lost Time Claims
More than $1 billion in incurred and $846 million in
paid workers' compensation losses
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The Data | Frequency
Frequency per $1 Million Payroll (Non-Zero)
The key factor in reducing the overall cost of workers’ compensation claims is to reduce the frequency at which
those claims occur. The chart above illustrates claim frequency relative to Payroll. Since claims are generally
reported within the same policy year, there’s less of an impact on the “newness” of the data and the typical
claims development as the accident-year matures.
While there is a nearly 28.6% reduction in the frequency of claims relative to Payroll over the five year
period, it is important to take into consideration the increase in Payroll over that same period of time. As the
rate of pay increases, the denominator would also increase thus possibly causing an apparent reduction in the
frequency rate per Payroll.
Frequency per 100,000 Manhours (Non-Zero)
In order to mitigate the impact of increased pay over the five year period, we measured frequency relative
to Manhours worked. This measurement shows a nearly 17% reduction over the five years in frequency of the
Non-Zero Claims. This reduces the likelihood increased pay was responsible for the downward trend and
supports a true reduction in frequency.
28.6% reduction
in frequency per
$1million Payroll
noted between
2007 and 2011.
16.7% reduction in
frequency compared to
Manhours reduces the
likelihood the increase in
pay has a significant
impact and illustrates a
reduction in the frequency
of claims.
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Frequency per $1,000,000 Payroll (Lost Time)
Due to the variability between reserving philosophies, reporting requirements and the numerous methods for
handling “medical only” losses, Non-Zero Claims can be a less than accurate measurement of frequency.
While it is important to utilize it for each individual organization, the following analysis of the frequency of
Lost Time Claims may be more helpful in order to provide the greatest insight from the figures considered.
During the same five years, we see a 33% reduction in the frequency of Lost Time Claims from 2007 to 2011
when measured against Payroll, moving from 0.21 Lost Time Claims for every $1 million in Payroll to 0.14
claims.
Frequency per 100,000 Manhours (Lost Time)
Just as with the earlier analysis against Payroll, it is important to consider the impact of increased pay during
that same period of time and measure frequency against Manhours worked.
Similar to the findings in the Non-Zero Claims, the rate of frequency for Lost Time Claims shows a similar
20.3% reduction from 0.59 claims for every 100,000 Manhours worked to 0.47 claims over the five year
period.
Over the same
five year period,
the frequency of
Lost Time claims
is down 33%.
When compared
to Manhours, the
reduction is only
20.3% thus
removing the
possible effect of
increased pay
during the same
time period.
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The Data | Severity
Medical inflation, an aging workforce, pharmaceutical costs, Medicare Set-asides, increased obesity; the list
of challenges impacting our efforts to reduce the overall costs is long and difficult. While we strive to reduce
the number and frequency of claims, there is a long list of factors driving the individual costs for each claim
higher and higher.
It is important when evaluating your organization’s losses that all factors be considered. Any one benchmark
or measure considered alone can give a misconception of your loss prevention and mitigation efforts. For
example, some organizations can experience an unexpected increase in severity with few claims but find their
overall costs going down. Thus, none of the factors considered in this study or in your own organization’s
analysis should be evaluated without considering all factors.
In measuring severity, we first analyze the average cost per Non-Zero Claim. Over the five year period, this
figure is just under $7,000 per claim with 2011 being around $5,772. We would expect the most recent year
to be the lowest as these figures are undeveloped actual costs. This lower figure illustrates the “recency” or
“green” nature of the newest policy year.
Average Incurred (Non-Zero)
It is also important to consider the cost allocation between the three claim components; expense, medical and
indemnity. The ratio between these three components is rather consistent over the five years, except for the
indemnity in the most recent loss year. As claims are open longer, the payments tend to increase over time,
including any settlements or payments for lost wages. Thus, we can expect to see all components increase, but
the larger increases will likely be in the indemnity and medical portions.
To reduce the “recency effect” and compare loss years on an apples-to-apples basis, we have developed the
losses using country-wide loss development factors as provided by The National Council on Compensation
Insurance, Inc. (NCCI). The factors allow us to develop present day incurred figures to projected ultimates.
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Average Ultimate Severity Limited to $500K
In comparing the ultimate projected severity, there is a 10.2% increase from 2007 at $7,356 per claim to
$8,109 per claim in 2011. However, there is a slight reduction from 2010 to 2011 in the ultimate severity
for Non-Zero Claims.
Loss Rate per $100 Payroll by Year Limited to $500K
To illustrate the importance of the overall picture, we considered and analyzed severity of losses in
conjunction with frequency against a defined exposure base. For this analysis, we consider loss rates relative
to both Payroll and Manhours.
Over the last five years, the Study shows a 20.7% reduction in the rate per Payroll to an ultimate developed
rate of $0.69 per $100 Payroll for 2011.
The 2009 and 2010 projections are nearly identical to the projections in the prior Benchmark Study in 2011.
Average
ultimate severity
is up 10.2%
from 2007
figures; although
2011 is projected
to be slightly
lower than 2010.
While severity is
on the rise since
2007, the
projected
developed loss
rate per Payroll
is down 20.7%
since 2007.
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Ultimate Costs Per 100,000 Manhours (Non-Zero Claims)
Again, to mitigate the impact of Payroll increases and the possible dilution of a severity pattern due to higher
compensation, we analyzed a total of costs against 100,000 Manhours for Non-Zero Claims.
In considering loss costs per 100,000 Manhours worked, we find the average cost has gone from $25,149 to
$23,967 over the last five years when developed using NCCI loss development factors. This is a projected
reduction in severity of 7.6%.
There is a projected 7.6%
reduction in Ultimate Severity
over the five years when
measured against Manhours.
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94.2%
4.3% 1.5%
0-25K
25-100K
>100K
26.6%
32.6%
40.8%
0-25K
25-100K
>100K
The Data | Frequency of Severity Claims Percent of Total Claim Counts by Size of Incurred Loss (Non-Zero)
When addressing the overall cost of risk, it is essential to clarify and understand what claims are driving your
organization’s costs. In analyzing the losses for the Study, we found that 94% of all Non-Zero Claims had
total incurred values of $25,000 or less.
Incurred Percent of Total Incurred Loss by Size of Incurred Loss (Non-Zero)
This means approximately 6% of all
Non-Zero Claims having incurred
values greater than $25,000 account
for more than 73% of all costs!
As we develop strategies to reduce
costs, this shifts our efforts and focus to
identify the factors that can impact
and reduce the severity of that body
of claims.
Over 94% of all claims have incurred values
less than $25,000.
73.4% of incurred costs for the Non-
Zero claims comes from claims valued
greater than $25,000.
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Percent of Lost Time Claims to Non-Zero Claims
As we strive to further identify the body of claims
responsible for the greatest costs and offer the
opportunity to reduce the overall cost of risk, we
look to several key performance indicators that
assist in the analysis of an individual organization’s
loss experience.
It is essential in measuring the frequency of severe
cases to consider those that result in time lost from
work or indemnity payments relative to those that
are medical only, or Non-Zero Claims without
indemnity.
For this year’s Study, we find the ratio to be rather
consistent with prior years’ results. Seventeen
percent of all Non-Zero Claims are Lost Time
Claims where some indemnity dollars were either
paid or incurred.
Percent of Lost Time Costs
It is just as important to recognize the impact those
17% of all claims have on the overall costs.
Approximately 85% of the costs from the five year
period are tied to the Lost Time Claims.
This nearly inverse measure falls very much in line
with the “80-20 Rule” and should assist in directing
efforts for mitigation and cost reduction.
Organizations seeing their ratio of Lost Time
Claims go up can expect overall costs to increase
as well.
Only 17% of the claims involve
Lost Time, but they drive 85% of
all incurred costs.
17%
83%
Lost Time Non-Zero
85%
15%
Lost Time Non-Zero
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Average Incurred Losses by Reporting Lag
In addition to the benefits evident in returning employees to work or, just as importantly, keeping them at
work to mitigate the overall cost of risk, there is a clear trend over the last four Studies that indicates the
importance of prompt claims reporting. Every year has provided evidence that claim costs increase
significantly for losses with greater lag time reporting than those addressed early and promptly.
This result is in direct contrast to the expectation that the most catastrophic claims are known and reported
almost immediately. The trend indicates a 22% higher incurred cost for claims reported on day’s three to
seven at $6,709 versus those reported in the first two days which average $5,588.
More importantly, there is at least a 13% increase in the average cost of claims reported in weeks two
through four compared to those in the first seven days. This means nearly 18% of the claims (almost one out
of five) are incurring costs more than 13% higher on average.
While the industry should celebrate that more than 90% of all claims are reported to either the carrier or
Third Party Administrator (TPA) within the first 30 days, this illustrates a population of 10% of claims that
might be less costly if identified and reported earlier. The potential savings should be evaluated by each
organization when you consider that those claims average more than $8,000 in costs each.
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The Data | Causation Cause Type Analysis |
Comparison of Total Incurred to Number of Claims By Causation Group
We performed our analysis of accident causation using claims occurring between 1/1/2007 and
12/31/2011. The workers’ compensation cause codes which are captured in Carrier/TPA claims systems are
notorious for presenting systemic data quality issues, and our data quality assessment for this analysis
revealed that reputation to be warranted. The complete set of claims data that we received contained tens of
thousands of different causation codes, many of which were either free-form text, null-valued or
indecipherable. To begin converting this raw data into a more useable format, we eliminated from
consideration all claims which had missing, null or indecipherable values. We then further filtered our dataset
so as to exclude any sources which had provided purely free-form text values for the cause code field.
We recruited the assistance of our loss control consulting team in the code grouping effort. This resulted in the
manual assignment of 790 unique cause code values into one of the following groups: Cut/Puncture,
Environmental, Exposure Incident, Fall/Slip/Trip, Other/Not Specified, Patient Movement, Security/Other
Person, Strain - Cumulative, Strain - Other, Struck by/Struck Against, Tools/Equipment.
A summary of the total incurred values for the five most frequently observed cause groups is displayed in the
table below. We can see from the exhibit below that for the groups shown, patient movement has resulted in
the highest average cost per claim.
Cause Strain-Other Fall/Slip/Trip Patient
Movement
Exposure
Incident
Struck
by/Struck
Against
All Other
Count 23,727 23,242 18,871 14,301 13,203 34,106
Total $229.8M $228.4M $191.1M $12.1M $52.2 $199.3M
Average $9,686 $9,827 $10,127 $844 $3,955 $7,536
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Employee Age Analysis
The data we received which is required for computing the employee age variable was fairly complete, and
appeared to be of a reasonably high quality. For this portion of our analysis, we eliminated from
consideration any claims with missing age values as well as any claims which we felt likely had miscoded
employee age values (specifically, those claims with an employee age less than 16 or greater than 89).
We performed our employee age analysis by generating the following trend breakdown by accident year.
Since we defined employee age as being “(date of loss – employee date of birth)/365.25”, we can assume
that these values are decisively known at the time of reporting and therefore do not need to be developed in
any manner to provide valid inferences.
2007 2008 2009 2010 2011
Median 42.95 43.07 43.3 43.78 43.95
Mean 42.48 42.62 42.86 43.29 43.56
41.5
42
42.5
43
43.5
44
44.5
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Average Claimant Age by Accident Year
To investigate the spread of employee ages and how they interact with the different cause types, we
generated the following exhibit. This table shows the mean employee age by cause group (defined using the
methodology described earlier) , along with the 25th, 50th and 75th employee age percentiles for each group.
Cause
Employee Age
25th Percentile 50th Percentile
(Median) 75th Percentile Mean
All Other 32.6 43.4 52.4 42.8
Struck by/Struck Against
32.3 43.5 52.8 42.8
Exposure Incident 28.4 36.4 47.0 38.3
Patient Movement 32.1 41.0 49.9 41.3
Fall/Slip/Trip 39.0 49.5 56.6 47.7
Strain—Other 33.0 43.5 52.2 42.8
**We can see from the table above that the Fall/Slip/Trip peril affected a significantly older population of
claimants than did any of the other accident cause types (50% of the Fall/Slip/Trip claimants were over 49.5
years old, and 25% of the Fall/Slip/Trip claimants were over 56.6 years old).
**We can also see that the claimants suffering from Exposure Incident injuries tended to be younger than
other claimants, with 25% of them being younger than 28.4 years old.
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The Data | Jurisdiction
Ultimately, many organizations face challenges specific to their individual jurisdictions and locations. Pay
rates, compensation laws, compensability issues and the court system can further impact results and costs.
While there are opportunities still to address all the prior elements, all must be tempered with an awareness
and understanding of the laws and statutes of each state.
To consider the possible impact of each state’s laws, we calculated the average claim severity for all Non-
Zero and Lost Time Claims. Each state’s figures are broken down into paid and outstanding for a total
incurred value and then ranked from highest to lowest in average severity.
Average Non-Zero Incurred (2005-2011)
It is essential that severity, just like in prior discussions, not be considered alone or factored in as one element.
Further, due to the limited volume of claims data in certain states, we have only included states in this analysis
where we had at least 500 Non-Zero Claims and 50 Lost Time Claims.
$2,725 $2,844 $3,177
$2,799 $3,029 $2,957
$3,516 $3,533
$4,080 $4,503
$4,096 $4,305
$4,761 $4,243
$4,834 $4,642
$5,309 $4,919 $5,252 $5,630 $5,768
$5,234 $5,858
$6,428 $7,326 $7,282 $7,316 $7,373
$7,001 $7,188
$9,056 $9,157
$11,179 $8,563
$12,360 $5,437
$104 $353
$315 $767 $557 $665
$317 $575
$550 $163
$588 $737
$388 $1,006
$455 $751
$295 $689
$601 $644 $534
$1,165 $552
$723 $457 $867 $1,027 $1,134
$1,656 $2,287
$1,355 $3,175
$1,268 $4,714
$1,148 $1,172
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000
TX
NV
WV
KY
AR
KS
AZ
UT
TN
CO
MS
MI
CT
NM
FL
MO
IN
PA
AL
VA
GA
SC
ID
WA
NH
OR
MD
LA
OK
NY
MN
IL
WI
CA
AK
ALL
Average Paid Average Outstanding
Average cost of Non-Zero Incurred
claims for all states noted is $6,609.
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To eliminate the impact of reserving differences based on specific claims handling criteria in certain regions
and organizations as well as to address those Lost Time Claims driving a majority of the costs, we also
reviewed and analyzed the average costs for Lost Time Claims over the five years.
Average Incurred Lost Time Claim (2005-2011)
$14,747 $17,207 $17,929 $17,185 $17,734
$19,903 $20,968 $20,050
$22,404 $21,456
$23,785 $21,681
$25,940 $25,126 $24,813 $26,692 $27,503 $27,566
$25,640 $24,892
$31,006 $32,871
$28,697 $36,648
$35,487 $30,965
$36,362 $28,511
$36,875 $41,774
$34,968 $44,679
$41,135 $56,110
$26,237
$1,745 $1,833 $2,298 $3,254 $2,720
$2,602 $1,997 $2,983
$2,811 $4,341
$2,784 $5,325
$1,886 $4,279 $5,097
$4,633 $3,955 $4,428 $8,609 $9,392
$5,084 $3,248
$8,461 $1,687 $4,432
$9,343 $6,450
$16,687 $9,622
$7,124 $13,980
$5,023 $10,089
$8,485 $6,634
$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000
WA
WV
OR
MI
MD
AZ
CT
DC
WI
MO
ID
MT
IN
NV
UT
MS
AL
MN
NY
KY
TN
AK
KS
CO
FL
NM
LA
CA
OK
PA
IL
GA
SC
VA
ALL
Average Paid Average Outstanding
The average incurred Lost Time
claim value is $32,871.
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