“Big jump in payouts for work injuries”
This was the title in an article in today’s Hobart Mercury Newspaper.
The newspaper article highlighted a 50% increase in lump sum compensation payments from $43.2M in 2012-13 to $63.6M in the 2013-14 year, an increase of about 50%. Apparently there was a single $10M common law claim from a 2005 injury that accounted for a proportion of that increase.
The figures appeared in the WorkCover Tasmania Annual Report for 2013/14.
What does a closer look at the figures tell us?
The number of actual claims has dropped from 8,417 in 2012/13 to 7,841 in 2013/14, a drop of about 7%, yet total claims payments have risen from $150.2M last year to $170.9M in 2013/14, an increase of about 13%.
Weekly Benefits payments have dropped in absolute terms, Lump Sum payments have increased as identified in the Mercury article, while Medical and Related Benefit payments have remained stable at about $46M, representing a small actual increase in medical costs per claim from about $5,400 per claim to $5,800 per claim, an increase of about 8%. This is not much above the annual average medical inflation rate of about 5% over the last 10 years.
It is difficult to interpret the increase in lump sum payments given these payments represent a combination of payments for future lost income and medical treatment in addition to payments for permanent impairment. The trend could indicate an increase in the desire to settle claims over long-term payment of compensation benefits or just reflect worsening outcomes and associated costs. Analysis of the components of these lump sum payments would be needed to interpret this increase.
The interesting figure is the increase in Legal & Investigation payments. The costs have increased from $ 11.6M to $13.5M, representing an increase from about $1,375 to over $1,700 per claim. An increase of 25%!
Legal and Investigation payments, in some ways reflect the failure of the system. In an ideal compensation system such costs would be minimal. These payments represent funds directed to lawyers and investigators that don’t benefit the injured worker, in terms of advancing their recovery, maintaining their income or providing compensation for permanent impairment.
It would be useful to understand the factors behind the increase in Legal and Investigation payments. Are increasing claims costs driving the insurers to utilise legal and investigation resources to contest liability or challenge medical costs of treatment in the hope of an overall reduction in the cost? Are legal fees rising at a rate greater than inflation? Is there an increase in the frequency of fraud? Are there more disputes over impairment assessments? I don’t know the answer, but it does seem clear that there isn’t a blow out in medical costs driving claims costs as is sometimes suggested, despite the increasing costs of medical technology and pharmaceuticals.
My view is that there is too much spent on legal and investigation costs. Better and cheaper outcomes could be obtained by enhancing expert medical and rehabilitation expertise in the early phase of a claim to overcome identified risk factors for poor prognosis and reduce the burden of chronic pain and depression and associated disability that seems too common an outcome in the cases that I see.
It would be interesting to hear the perspectives of the various insurer, legal, rehabilitation and medical practitioners on this issue to see if some conclusions can be drawn from these figures.
I look forward to comments.
Link to WorkCover Annual Report:
All I can add is that “Investigations” payments is really a misnomer as it really means initial claim assessment costs and ongoing costs during the active life of the claim. “Investigations” payments does not mean just private investigator costs which, whilst also included in this category, they will be insignificant in comparison to the other types costs included here.
So it includes everything from payments for IMEs and assessors reports, plaintiffs own medico-legal reports, fees paid to injured workers own doctors for reports (these costs are not usually included in “medical” payments which is only actual treatment costs), court appearance fees paid to workers doctors, IMEs, witnesses, subpoena fees paid out to doctors and alike for cost of responding to subpoenas or in responding to requests for information by the insurer. Would also be costs or fees charged by other agencies say Centrelink or ATO if they charged fees to confirm workers income etc or to locate/obtain info on the employer. Basically “investigations” costs is anything paid out to initially assess the claim or during the active life of the claim for its ongoing management.
The “legal” payments is not just legal fees paid out to Workcover/insurers own defence lawyers but will also include all awards for costs (legal fees) in favour of plaintiff/injured workers when successful in a proceedings or any entitlement that may exist under the scheme for the scheme to pay for a workers legal costs to obtain legal advice in certain circumstances, so the injured workers own lawyers costs are included also in “legal” payments. This will be the largest legal payment costs, legal fees paid out of the schemes to plaintiffs lawyers is always significantly larger than fees paid out of the scheme to Workcover/insurers own defence lawyers! Also given the Tasmanian scheme is such a small scheme and doesn’t have the volume of some of the larger State schemes, total legal fees costs can easily suddenly shoot up in a given year due to say one or two large common law judgement in the worker’s favour may result many 100s thousands paid out in legal fees awarded to a single plaintiff.
Whilst legal payments includes Workcover/insurers defence lawyers fees in defending any type of proceedings bought by workers, it will also include legal fees paid out by the scheme to its lawyers for legal advice that goes on in the background and is not part of a dispute or legal proceedings with the worker, say in obtaining initial legal advice in the assessment of a new claim that has complex legal issues e.g. is it a valid claim under the scheme, or are they legally a worker under the scheme, or is it a claim that belongs to another State’s workers comp scheme, who the correct employer is, etc. Legal payments will also include legal fees paid out to Workcovers lawyers for recovery proceedings against negligent 3rd parties (not the employer) who caused or contributed to the workers injury – Workcover pays the worker, Workcover recovers against the 3d party or another type of statutory scheme such as motor vehicle accident schemes or other insurers etc. These are legal costs incurred in the background to a claim that the injured worker would be oblivious to as they don’t concern or effect the claimant.
So “Legal and Investigation” payments is pretty much a meaningless bucket of costs unless a breakdown is provided by Workcover.
It’s not really reflective or an indication of the level of disputation within a scheme; there is too many varying factors or types of costs included that could be driving the increase.
According to WorkCover Tasmania these are the definitions:
For the analysis, payment types were grouped this way:
• Weekly benefits, including death benefits made as periodic payments to dependants
• Medical and related benefits – includes doctor payments, hospital payments, rehabilitation (including modifications to workplace, residence or vehicles), other medicals and miscellaneous payments (i.e. counselling services to dependants in the case of death of the worker, funeral expenses, road accident rescue, and the cost of travel to undertake treatment)
• Lump sums – includes common law, settlements, redemptions, impairment lump sums and death benefits.
• Legal and investigation costs – includes worker legal expenses, insurer legal expenses, and investigation expenses
While I accept that the reason for a jump in legal and investigation costs could relate to any number of factors, the amount spent does reflect money not spent on providing care or replacing lost income. My impression as a doctor working in the field is that there is more disputation.
It could well be due to a higher level of disputes. If that’s the case, it would be interesting to know what the drivers of it is – but I doubt that you would ever get that information out of WorkCover! The information behind the numbers of any of the WorkCover schemes always seems in sort supply.
“amount spent does reflect money not spent on providing care or replacing lost income” – Agree 100%
It is in many respects its dead money. The problem with things like workers comp schemes and a like is there is an irresistible large pot of money that everyone wants some of. Whole industries and professions spring up (on both sides) to drink from the workcover well.
Back in the late 80s/early 90s the old WorkCare system in Victoria the rate paid out in benefits (incl payments for treatments) fell below 50 cents in the $1 paid out against each claim – all the rest going to the “hang’er on’ers” in the system, which in effect meant employers were paying high premiums not just to insurer their workers but to provide a living and ongoing income stream to all these others that lived off the system.
Senior insurance company managers have told me that the increase in legal and investigation costs relates to increases in Common Law Claims.