The medical share of total losses has grown dramatically—from just over 40% in the early 1980s to almost 60% today. These ratios are based on actuarial estimates of ultimate accident year losses. Embedded in these simple ratios is information about the year-to-year changes in medical and indemnity claims payments.
In this study, we investigate the shift in the medical share of total benefits at a more granular level. We first look at patterns using both estimated ultimate and the reported data on which the estimated ultimate is based. Then we look at incremental triangles to isolate payments by report period and accident year to examine what has been happening to the periodic annual payments that contribute to the growing medical share of ultimate losses. We also examine the role of inflation in the rising relative costs of medical losses. And finally, we recognize that the share of medical varies across states and examine the data to see if the change in the mix of states has had any influence. In the appendix, we break down the overall medical share of total benefits to lost time and medical-only for the accident years and reports with available data.
We find that the rising importance of medical losses is pervasive, whether we look at estimated ultimate losses, reported data, or incremental payments by accident year and report period.
There are interesting patterns in the detailed incremental triangle data.
- Looking at the data by report period reveals that the medical share has been increasing over time for most report periods.
- Looking at the pattern by accident year shows that for a given accident year, the medical share starts out high, falls until the fourth or fifth report, and rises slowly again.
We found that slightly more than half of the increased medical share was the result of differences in medical and wage inflation rates, while the balance was attributed to differences in the growth in medical and indemnity utilization.
Furthermore, although there are differences in the medical share by state, the change in the relative mix of states has had very little impact on the estimated countrywide share of medical and indemnity benefits.