Ryan Smith is the Senior Solutions Advisor for True Insurtech Solutions
When someone says “medical severity is up six percent,” it sounds like a single data point. One number. One trend. But anyone managing claims or pricing risk in workers’ compensation knows that number is a bundle of very different forces moving at different speeds, in different directions, across different states.
At AIS 2026, NCCI’s Raji H. Chadarevian, Executive Director of Actuarial Research, will unpack exactly that in his session, Navigating Medical Severity and Claim Outcomes. NCCI’s own preview captures the scope. Medical severity is more than a single metric, and the session will offer a roadmap for navigating complexity and how utilization can drive outcomes.
That framing matters. If you are only tracking the topline severity number, you are missing the dynamics underneath it that determine whether your claims operation is managing costs effectively or just watching them rise.
Price vs. Utilization: The Distinction That Changes Everything
The most important concept in workers’ compensation medical cost analysis is the distinction between price and utilization. Price is what you pay for a given service. Utilization is how often and how much of that service gets delivered. Medical severity is the product of both, and they do not always move together.
NCCI has been driving this point for years. At AIS 2025, Chadarevian’s session The Cost Conundrum: How Medical Utilization Shapes Future Costs introduced an additive utilization metric designed to separate price trends from utilization trends at the state, book-of-business, and class-of-claims level. The 2026 session will build on that work to show how utilization drives outcomes more broadly.
The practical importance of this distinction is hard to overstate. Fee schedules, which exist in most states, help manage the price side of the equation. States with Medicare-based physician fee schedules have seen notably lower cost growth compared to states without them. NCCI’s research shows that between 2012 and 2021, the countrywide average payment for physician services grew by approximately 1.5 percent per year, with states without a fee schedule showing the highest markup over comparable group health rates.
But fee schedules do not directly control utilization. A state can hold unit prices in check while still experiencing rising medical costs because injured workers are receiving more services per claim. That is exactly what the data shows. Physical therapy utilization is up across all medical conditions. The number of office visits per claim can vary. Diagnostic imaging patterns shift as treatment protocols evolve. Utilization is where the cost growth is hiding, and it is harder to measure, harder to benchmark, and harder to manage than price.
Surgery Rates, Site of Care, and the Mix Effect
One of the more nuanced pieces of NCCI’s medical utilization research involves what happens at the procedure level.
NCCI’s AIS 2025 data showed that one in eight injured workers underwent a major surgery, and those claims account for more than half the total utilization or cost of workers’ comp claims. That concentration means changes in surgical practice patterns have an outsized impact on total medical severity.
The data also revealed a set of offsetting trends. For accident years 2016 through 2022, claims reflected more severe medical conditions on average. But that upward pressure was partially moderated by a decreased surgery rate and a shift in site of care. Procedures that previously required hospital settings are increasingly performed in ambulatory surgical centers, which changes the cost profile even when the medical complexity remains the same.
At the same time, physical medicine utilization is up across all medical conditions, whether they involve surgery or not. This is not a small trend. It reflects a fundamental shift in how workplace injuries are being treated. Fewer invasive procedures, more physical therapy, more rehabilitation-focused approaches. That is good for patient outcomes. It also means medical costs are being distributed differently across the life of a claim, and traditional severity benchmarks may not capture those shifts accurately.
The Pain Management Reshaping
If there is one area where the medical severity story gets particularly complex, it is pain management.
NCCI’s pain management research shows that as of service year 2023, pain management accounts for approximately 30 percent of annual medical cost in workers’ compensation. That is a massive share. And the composition of that 30 percent has changed dramatically over the past decade.
The headline is well known. Opioid use in workers’ compensation has declined sharply, with the share of claims including an opioid prescription falling from more than 50 percent in 2012 to under 30 percent by 2021. That is a major public health achievement and a meaningful shift in how pain is treated in the system. But the cost story is more complicated than the prescription data suggests.
Despite that decline in opioid prescribing, pain management cost per claim has been relatively flat. The reduction in opioid costs has been offset by increases in other treatment modalities. Physical medicine, topical analgesics, non-opioid medications, and surgical interventions for pain management have all absorbed some of the volume that used to flow through opioid prescriptions.
NCCI’s most recent pain management research showed wide variation across states. Major surgery, drugs, and physical medicine were the three largest components of pain management spending in 2023, accounting for 34 percent, 14 percent, and 14 percent of total pain management costs respectively. Physical medicine costs rose an average 2.3 percent per year since 2012, driven primarily by utilization increases. Even after adjusting for differences in diagnosis mix, substantial cost variation remained across states, a pattern that connects directly to the regulatory and rate-setting differences we examined earlier in this series.
The shifts in pain management have also changed the timing of medical services within the life of a claim. Treatment is front-loading, with more services delivered earlier, driven by earlier referrals to physical therapy and earlier intervention with non-opioid approaches. That is likely better for injured workers. It changes the cash flow pattern of claims, and organizations whose reserving and financial models assume traditional cost emergence patterns may be working with outdated assumptions.
The Large Claim Problem
Medical severity matters most where claims are largest, and the math at the top of the severity distribution is striking.
NCCI’s research on large claims shows that for claims with total incurred losses exceeding $5 million, medical expenses represent approximately 90 percent of total cost. At the $4 to $5 million range, medical is roughly 80 percent. At $3 to $4 million, it is about 70 percent. The pattern is clear. The bigger the claim, the more it is driven by medical costs.
This means medical severity trends have a disproportionate impact on the tail of the loss distribution. Even small changes in utilization patterns for complex claims can produce significant movement in total incurred losses.
NCCI’s research on fast- and slow-emerging large claims adds another dimension. A growing share of large claims are reaching the $1 million threshold within roughly 24 months of the accident date. Fast-emerging large claims increased from approximately 25 percent in 2003 to nearly 60 percent in 2023, while slow-emerging “lurking” large claims have declined. Earlier identification of severe claims is likely a good thing for claims management. It also means the cost impact of these claims is hitting the financials faster, and the demographic dynamics our feature on demographics and injury patterns explored, including NCCI’s aging-workforce research on duration and comorbidity load, increasingly drive what large claims look like.
The Tariff Variable
True’s coverage on economic trends and their impact on workers’ comp earlier in this series covered the tariff question from a macroeconomic perspective. It is worth revisiting specifically in the context of medical costs.
NCCI has noted that imported durable medical equipment, supplies, and pharmaceuticals make up roughly 15 percent of workers’ compensation medical costs. Direct price increases from tariffs on these categories are one vector. The indirect path may matter more over time. Higher input costs for medical equipment and supplies can push up prices for physician, hospital, and long-term care services as providers pass costs through.
NCCI’s Medical Inflation Insights reporting through early 2026 shows the impact has been moderate so far. The Workers Compensation Weighted Medical Price Index tracked at about 2.5 percent growth through most of 2025. The categories most susceptible to tariffs showed a moderate acceleration toward year-end, and NCCI has noted it believes it is less likely that medical price growth will maintain those low rates into 2026.
For medical severity, the tariff question sits on top of the utilization question. If prices accelerate while utilization also continues to grow, the compounding effect on total medical severity could be meaningful.
Four Questions Still Worth Tracking
Chadarevian’s session lines up a set of questions that any severity-strategy work in 2026 should keep close.
- How is the additive utilization metric evolving since AIS 2025? The ability to separate price from utilization at the state and class level is one of the most useful analytical tools NCCI has developed in recent years. Each new application across more book-of-business cuts surfaces a different angle on what is driving severity.
- What does the updated surgery rate data look like? If surgical rates continue to decline while physical medicine utilization rises, the net effect on severity depends on the relative cost of each. The tradeoff is not linear, and the details matter.
- How are pain management costs trending post-2023? The flat cost trajectory despite the steep decline in opioid prescribing is one of the more counterintuitive findings in workers’ comp data, and the question is whether that trend held through 2024 and 2025, and which replacement modalities are continuing to drive cost.
- What is the state-level variation story? Medical severity is intensely local. Fee schedule structures, provider network dynamics, and regulatory environments all shape costs differently by state. The granularity NCCI’s research provides on state variation is the most useful input for multi-state operators.
Why This Changes How You Manage Severity
Medical severity is best understood as a set of levers to manage, not a number to track passively. The organizations that understand the component pieces, including price versus utilization, surgery rates versus physical therapy volumes, pain management composition, and large claim emergence patterns, are the ones that can influence outcomes instead of just reporting on them.
That requires visibility into your own medical data at a level of detail that matches what NCCI presents at the national level. Without the ability to break medical costs into utilization and pricing components, diagnosing why severity is moving becomes guesswork. Without tracking changes in treatment patterns across the book, interventions arrive too late to change outcomes. And without early surfacing of large claims, the costs that could have been managed get absorbed instead.
The gap between what NCCI knows about medical severity nationally and what most organizations know about their own book is where the opportunity lives. Closing that gap is a technology and capability question, and it is one of the most impactful investments a workers’ comp operation can make in 2026.
If your team is rebuilding severity strategy heading into AIS 2026, schedule a follow-up call with Ryan Smith to talk through what the data is telling you about your specific book.
