PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

ESTIMATING THE WORKERS COMPENSATION TAIL 667TABLE C.4.2Comparison of SAIF’s Recent Rates of Medical CostEscalation with Average Changes in the MedicalComponent of the Consumer Price IndexAverage Rate of Average Rate of AverageMedical Cost Change in ChangeEscalation Medical in MixAccident for Time Component andYear Loss Claims of the CPI Utilization1998 9.2% 3.2% 6.0%1999 5.3% 3.5% 1.8%2000 18.6% 4.1% 14.5%2001 13.6% 4.6% 9.0%2002 12.7% 4.7% 8.0%2003 9.1% 4.0% 5.0%1998—2003 11.4% 4.0% 7.4%Escalation rates for workers compensation medical costs aredriven by unit cost inflation, changes in the utilization of services,changes in the relative mix of services across service categories,as well as the substitution of more expensive services forless expensive services within a service category.The medical cost escalation rate is the change in the cost perclaim. The following formulae show one way to decompose thecost per claim into utilization, unit cost, and mix.Payments are first combined into service categories. Examplesof service categories are office visits, pharmacy, physicalmedicine, surgery, radiology, and so on. For a particular servicecategory, the cost per claim can be decomposed into utilization,unit cost and mix.Cost per claim = Utilization £ Unit cost £ Mix,whereUtilization =Number of services in the service category:Number of claims receiving servicesin that category