Positive trends in workplace safety and medical treatment are helping more employees survive catastrophic injuries at work but the increase in survival rates has knock-on effects for employers and workers compensation insurers that require careful management.
Self-insured employers and insurers can face significant long-term costs in providing medical care and other resources to severely injured workers.
While preventing the injuries from happening in the first place is seen as the primary means of reducing catastrophic workers comp claims, various financial tools can be used to manage the costs when big claims occur, experts say.
Employees are injured and disabled less frequently due to workplace safety improvements, creating somewhat of a paradox, because, from a cost perspective, injury claims are “larger than they’ve ever been before,” said Matt Zender, Las Vegas-based senior vice president of workers compensation strategy at Amtrust Financial Services Inc.
“There’s definitely been an uptick in (catastrophic) claims in workers comp and across the board,” said Dennis Tierney, Norwalk, Connecticut-based national director of workers compensation claims for Marsh LLC.
Comorbidities also play a role in driving up costs, as more workers comp claims include mental injury components than in years past, he said. (see related story below).
Many insurers consider anything above $1 million to be a catastrophic claim, said Dave Boyle, senior vice president of casualty claims for Schaumburg, Illinois-based Zurich North America.
“I don’t think there’s necessarily a consistent definition of catastrophic injury in workers comp,” Mr. Boyle said. “I do think it’s mostly driven by type of law or type of injury.”
During the past few years, the workers comp system has seen a rise in claims with incurred values of between $5 million and $10 million, Mr. Tierney said.
And while catastrophic claims themselves make up only a tiny share of overall workers comp cases, they can represent as much as 20% of total workers comp costs, he said.
“The fact that we’re seeing a 30% increase in claims and incurred values over $10 million, that goes to show you it’s definitely something that’s a concern in the industry and something that’s been on the increase now for the last little while,” he said.
If catastrophic claims are defined strictly by dollar figures, not all insurers are experiencing the same increases.
“We define anything that has a total incurred value of $100,000 or higher as a catastrophic claim,” said Kapil Mohan, a senior vice president with Chicago-based Gallagher Bassett Services Inc. On that measure, severity has not changed significantly, he said.
Benefits paid or supplied to injured workers that set catastrophic claims apart include retrofitting a residence to accommodate a disability, installing hand controls on a vehicle, or providing a disabled worker with a service animal, according to experts.
Insurers must provide benefits according to state law, but many go “above that guidance to make sure that the individual is taken care of,” said Mr. Zender of Amtrust.
Catastrophic injuries often involve damage to the spinal cord, cognition or brain function and amputations. Severe burns and loss of eyesight can also be catastrophic.
Medical treatment advancement is a significant driver behind better survival rates from workplace injuries, Mr. Boyle said.
Workers who were burned over 80% to 90% of their bodies in years past, for example, would likely die from their injuries, whereas the advent of treatments such as artificial skin has helped more survive.
“Of course, that’s fantastic news for those that are exposed to that,” Mr. Boyle said. “But, because of that, that has driven up the cost for claims associated with (those types of injuries).”
As medical care becomes more specialized, insurers can expect to pay more for workers who are severely injured, Mr. Boyle said. And medical inflation is another main area of cost increase, in both catastrophic injury cases and workers comp in general.
Catastrophic injuries also correlate with certain industries, Mr. Boyle said, with construction seeing some of the highest numbers of catastrophic claims. Many high-dollar claims involve manual laborers who are catastrophically injured from falls or in incidents tied to heavy machinery.
Two typical markers of a catastrophic claim are medical and indemnity benefits that could potentially go on for life, said John Geaney, a workers comp defense attorney and shareholder with Mount Laurel, New Jersey-based Capehart Scatchard PA.
Depending on jurisdiction, wage replacement benefits may only last until retirement age, but can still be circumstance-specific, while medical benefits typically go on for the injured worker’s lifetime, experts say.
Unlike other workers comp cases, where the process can be more adversarial, catastrophic claims often require a team approach involving employers, insurance adjusters, attorneys, rehab nurses, life planning professionals and family members of injured workers, Mr. Geaney said.
Workers comp insurers responsible for administering catastrophic claims can tap into mitigation strategies to help offset the cost of the claims, said Mr. Mohan of Gallagher Bassett.
For example, they can hire a third-party medical management organization to better control medical costs for a portion of a claim’s life cycle, he said.
“It’s almost like a structured settlement where they’re guaranteeing you a certain medical cost, so your exposure as the insurer is capped,” he said.
Insurers can also structure a one-time settlement factoring in the lifetime costs of the claim.
“It allows you to have capped exposure versus this unknown exposure that could go on as long as the claimant lives,” Mr. Mohan said, noting the strategy is like a reverse annuity where the insurer pays the claimant a lump sum of money to cover their catastrophic injuries.
While catastrophic workers compensation claims rarely result from mental injuries, big claims increasingly contain a psychological component, according to experts.
Mental health is getting greater attention in workers comp amid the introduction of mental injury presumptions for various classes of workers. Such claims are more difficult to tie to employment, though, than those for physical injuries and are unlikely to be catastrophic, said Kapil Mohan, a senior vice president with Chicago-based Gallagher Bassett Services Inc.
But mental health is still affecting workers comp claims, including those deemed catastrophic, experts say.
“Just from observing, I think there is a higher incidence of psychological treatment necessary for those involved in catastrophic injuries. You do see a higher rate of that,” said Dave Boyle, senior vice president of casualty claims for Schaumburg, Illinois-based Zurich North America.
Mental injuries can also contribute to the overall cost of catastrophic claims, Mr. Boyle said.
The Boca Raton, Florida-based National Council on Compensation Insurance said it could not corroborate whether mental injury components of catastrophic claims have increased across the board, but it said psychological injuries related to severe burns have increased.