While workplace injury and illness have continued a steady decline over the past many decades, medical advancements are helping severely injured workers survive catastrophic injuries.
Although this is a positive trend, insurers and self-insured employers can face massive long-term costs providing medical care and other resources to severely injured workers that can last decades.
Other factors that are driving the cost of catastrophic claims are employee comorbidities, such as heart disease, cancer or another chronic illness, and a rise in claims that have a mental injury component.
These catastrophic claims can lay waste to an insured employer’s experience modifier (X-Mod), driving up premiums substantially. Self-insured employers, however, can end up paying millions of dollars for years.
Catastrophic claims account for less than 1% of all workers’ compensation claims, but 20% of total workers’ comp losses, according to a white paper by the Casualty Actuarial Society.
In a March 2023 article on the <i>Insurance Thought Leadership</i> website, John Csik, president of specialty insurance provider Safety National, said: “Over the last three years, Safety National has seen frequency of severity like we have never seen before. This includes a 30% increase in claims with incurred over $10 million, along with a rise in claims with incurred of $5 million to $10 million. Although these large claims are infrequent, when they do occur, the costs are high and continue to escalate.”
Two typical markers of a catastrophic claim are medical and indemnity benefits that could potentially go on for life.
Cost drivers
Common catastrophic injuries include damage to the spinal cord or brain, as well as amputations, severe burns and loss of eyesight. Medical and indemnity (lost pay) benefits can last a lifetime for these types of claims.
It should be noted that overall, workers’ compensation rates remain low nationwide. However, there are a number of factors driving catastrophic claim costs:
Survival rates — Survival rates for catastrophically injured workers are increasing due to:
- Advancements in care and medical technology. For example, people who suffered burns to 80 to 90% of their bodies were likely to die in the past, but thanks to advances such as artificial skin, more of them are surviving their injuries.
- Better triage care at the scene of incidents.
- The use of air ambulances can quickly transport a severely injured person to a hospital.
- Improved high-level care at level-one trauma centers.
Injured workers are living longer — Thanks to better overall treatment and the factors improving survivability, injured workers are also living longer. Someone who might have died from their injuries 20 years ago, may instead live for 30 or 40 years after their injury today. That leaves the insurer on the hook for medical and indemnity payments that entire time.
Some care isn’t covered by fee schedules — States develop workers’ compensation fee schedules to limit what providers can charge for medical care, medical equipment and pharmaceuticals. However, these schedules often do not include many costs associated with treating a catastrophic injury, such as extended ICU stays, novel durable medical equipment and advanced care.
Psychological component — Catastrophic injuries can also severely affect a person’s mental health, and more high-cost claims include costs associated with treating psychological injuries resulting from the workplace injury. While not as costly as components for physical medical care, counseling and medication can add tens of thousands of dollars or more to the cost of a claim.
The takeaway
According to Safety National, the following are the top causes of catastrophic injury claims:
- Motor vehicle accidents (24%)
- Falls (24%)
- Struck by (20%)
- Act of crime (10%)
- Burns (8%)
Catastrophic injuries are more likely to occur in higher-risk occupations such as construction, agriculture, transportation, manufacturing, warehousing and health care. If your business is in a high-risk industry, you should have in place a robust workplace safety program that includes regular training and buy-in from management.
The way to avoid the cost of a catastrophic claim is to keep one from occurring in the first place.
Article Source: https://www.insurancenewsletters.com/