During the recent period of high inflation in the general economy, states experienced varying rates in growth in workers’ compensation medical prices depending on what methods were used to update workers’ compensation fee schedules, according to a WCRI analysis. The research—which examines how the high inflation period between 2021 and 2023 has affected medical payments in workers’ compensation in 2025—indicates that, since the summer of 2022 through the first quarter of 2025, the general inflation rate has been slowing down, after two years (2021-2022) of substantial growth in prices.
“Consumer prices started to grow rapidly in 2021, after being fairly stable for most of the decade before, with an annual growth rate of 1.6% between 2012 and 2020,” states the report. “In 2021, the annual price growth increased to 4.7%; it reached 8% in 2022, with a peak of 9.1% in June 2022. Since June 2022, inflation has been slowing down. In 2023, the annual growth of consumer prices decreased to 4.1%; it further decreased to 2.9% in 2024 and 2.7% in the first quarter of 2025.”
The report states that medical price growth in the general health care system remained about 3% per year during the 2020-2025 period. “In workers’ compensation, however, medical prices grew faster from 2021 to 2024 in states that update their fee schedules based on measures of inflation in the general economy, relative to states that update their fee schedules based on a medical price index,” according to the report. “As this report shows, different approaches to inflationary updates in workers’ compensation fee schedules lead to different price growth rates, especially when trends in prices embedded in fee schedule updates diverge, like during the recent inflationary period.”
The report also notes that there is “no evidence of a contemporaneous or delayed higher medical inflation in general health care during or after the high inflationary period of 2021-2023.” The research provides information on medical inflation as measured by the CPI-U (Consumer Price Index for All Urban Consumers) for medical care services and the Producer Price Index (PPI) for health care services. “Although these two indices are based on different approaches to measuring price changes, both deliver a consistent summary of medical inflation for most of the past decade. In contrast, during recent years marked by substantial price growth, the growth in the overall CPI-U outpaced the growth in medical prices.”
However, the report adds, “Although inflation in general health care was not much of an issue, when examining the drivers of medical price changes, we find that hospital payments increased much faster than professional prices.” The report explains, “In particular, from 2020 to 2024, similar to the PPI for overall health care services, payments for hospital outpatient services grew at 3-4% annually, compared with 2% in earlier years (i.e., between 2012 and 2020). On the other hand, prices for physician care had little growth of about 1-2% per year, with the exception of 2021.”