Intended Consequences

By: Mark Webb

Earlier this year, April 1st to be exact, the Division of Workers’ Compensation (DWC) adopted changes to the Medical-Legal Fee Schedule (MLFS). This is the schedule governing the payment of fees for medical evaluations when there is a dispute over whether an accident arose out of and in the course of employment (AOE/COE), the existence or extent of permanent impairment and limitations, or the need for continuing medical care.

Per the DWC, the changes provided a raise in the reimbursement rates for medical-legal reports of approximately 25 percent. The debate over the MLFS was a long, contentious, and complex one. For purposes of the schedule, however, it was oft cited by all who participated in its development and promulgation that, as noted by the DWC, the fees themselves were last changed in June 2006, while the rules relating to the fees were last amended in September 2013.

Recently, the Workers’ Compensation Insurance Rating Bureau (WCIRB) testified before the Insurance Commissioner on its proposed 2.7 percent increase in advisory average pure premium rates for workers’ compensation insurance policies issued on and after January 1, 2022. One of the reasons for recommending an increase was the impact of the changes to the MLFS. The WCIRB estimated a 22 percent increase in medical-legal fees, which translates to an overall increase in total medical costs of 1.4 percent. To put this percentage into perspective, in calendar year 2019, roughly $300 million was spent on medical-legal costs. Starting with calendar year 2021, that number will increase, potentially dramatically.

There were additional costs noted by the WCIRB reflecting changes to the Official Medical Fee Schedule and indemnity severity impacted by changes wrought by the pandemic. The latter includes longer duration of temporary disability due likely to the strain on medical services caused by the pandemic, and higher overall wages of injured workers reflecting the significant loss of lower wage jobs during this period.

All of which is to say that workers’ compensation costs may go up without necessarily concluding the system is now in distress. There comes a point in time when the system performs as intended. That may well result in medical severity increases when fee schedules, either by regulation or automatically, increase rates paid to the providers of these services. There can certainly be differences of opinion on how to evaluate current workers’ compensation and broader economic data projected over the time claims will be paid on any given accident year, and accident year 2022 is no exception.

But it would be profoundly premature to start ordering up place settings for a table to discuss “fixing” a system that shows no outward signs of being broke. It is especially precarious to do so during an election year – which by most indications includes both 2021 and 2022.


Note: The opinions expressed herein may or may not be those of Workers’ Comp Executive. Mark Webb is a former Arizona insurance regulator, insurance company chief compliance officer, and is an expert in corporate governance, risk and compliance. He is the owner of Prop 23 Advisors.