Why is the treatment of work-related injuries so costly? New evidence from California

There is growing evidence that workers' compensation insurers are charged substantially more than health insurers for the treatment of similar injuries. The first study of the problem, conducted in Minnesota in 1987, found that both overutilization of services and price discrimination contributed to the charge differential. This article applies the Minnesota model to 1991-1993 data on health care charges and payments from California. Approximately 13,000 persons with work-related injuries are compared to approximately 3,600 persons with similar injuries that occurred off the job. Despite important differences in the populations and workers' compensation laws in California and Minnesota, workers' compensation insurers are charged more than health insurers for the treatment of similar injuries in both states. The difference in California's payments is attributable to using more health care providers and services to treat workers' compensation patients. The results do not support the hypothesis that work-related injuries cost more to treat because they are more severe than similar injuries occurring off the job.