Six States Without WC Fee Schedules Carry Professional Service Prices 41 to 188% Above Benchmark

WCRI's 2026 edition of the Medical Price Index for Workers' Compensation (report WC-26-21, authored by Dr. Rebecca Yang and Dr. Olesya Fomenko, released May 29, 2026) covers 36 states representing 88% of all U.S. WC benefits paid over an 18-year window from 2008 to 2025. Its headline figures split along a single structural fault line: the six states with no physician or therapist fee schedule carry prices 41 to 188% above the 36-state median, with cumulative price growth of 43% since 2008 against 19% in fee-schedule states. A multi-state trend analysis that pools those two regimes without adjustment is not selecting a trend; it is regressing across a structural price-level mixture and mistaking the level difference for a rate change.

Six States, One Price Structure Problem

The MPI-WC indexes six professional service categories: evaluation and management, physical medicine, surgery, radiology, neurological testing, and pain management injections. These categories cover the dominant driver of professional medical cost in WC claims. As of 2025, the six states operating without any fee schedule for these categories are Indiana, Iowa, Missouri, New Hampshire, New Jersey, and Wisconsin. Each of them allows provider billing to be governed by negotiation or usual-and-customary norms, with no state-imposed ceiling on per-unit reimbursement.

The extremes in the 36-state price distribution show how wide the range runs. Massachusetts, with a well-maintained physician fee schedule, sits 28% below the 36-state median (WCRI MPI-WC 2026, WC-26-21). Wisconsin, with no fee schedule for professional services, sits 174% above it. That is nearly a fivefold gap between two states in the same line of business, and it has not narrowed over the study period. The MPI-WC data from 2008 through 2025 shows no convergence tendency; the gap widened during the 2021 to 2024 inflation cycle as non-schedule states absorbed general economic price increases without constraint while fee-schedule states were buffered by their scheduled rates.

The BLS Consumer Price Index for Medical Care Services is the alternative benchmark that some carriers use for WC medical trend testimony. It does not belong in that role. The BLS CPI-M blends payer mixes across commercial health insurance, Medicare, Medicaid, and workers' compensation, with weights drawn from consumer household spending rather than WC claim composition. The WCRI MPI-WC isolates WC professional services payments from actual WC payers in actual WC claims across 36 states, then benchmarks them against a consistent multi-state median. That is the methodologically defensible instrument for rate filing testimony.

The 18-Year Cumulative Record

The 24-percentage-point gap in cumulative growth since 2008, 43% in non-fee-schedule states against 19% in fee-schedule states (WCRI MPI-WC 2026), is the number that every pricing actuary building a multi-state WC medical severity trend assumption should carry into each filing cycle. It is large enough to reverse the sign of the trend adjustment when a carrier with heavy non-schedule state exposure applies a fee-schedule-state complement. It is also structural in the precise technical sense: fee schedules operate as permanent constraints on the rate of price increase, not temporary moderators, and the divergence compounds as long as the regulatory regime remains unchanged.

WCRI President Ramona Tanabe noted in the May 2026 release that "price growth slowed in many states during 2025 after faster growth from 2021 to 2024 driven by general economic inflation." The deceleration is real but concentrated in the non-schedule states where the inflation spike was most pronounced. Fee-schedule states, structurally constrained throughout the post-COVID cycle, show smaller deceleration because their 2021 to 2024 growth was already damped. The two groups are following different mean-reversion paths, and a national composite trend obscures both.

The Trend-Window Problem After 2025's Deceleration

The 2025 slowdown creates the most consequential trend-window selection problem for WC professional services pricing in several years. A short window anchored to 2024 or 2025 alone understates the long-run price trajectory for non-schedule states because the deceleration year is overweighted and the structural price-level premium is understated relative to a full rate cycle. A ten-year window that includes 2021 through 2024 overstates the prospective trend by embedding a cyclical inflation spike that has since partially unwound.

The MPI-WC enables explicit resolution of this problem. Because it indexes annual price levels by state across 18 years, the actuary can decompose each year's observed price change into the portion attributable to structural fee-schedule regime effects and the portion attributable to the general economic inflation cycle. A trend window fitted to price-adjusted severity, with price adjustment applied using the MPI-WC, isolates utilization and mix changes from the fee-schedule-driven price oscillation and produces a trend estimate that is neither inflated by the 2022 to 2023 spike nor suppressed by the 2025 reversal.

Building the Two-Component Decomposition

The actuarial mechanic that resolves the multi-state bias is the two-component identity: Medical Severity = Medical Price Index × Services per Claim. The first component is the price level, captured directly by the MPI-WC. The second is utilization, measured as the volume and intensity of services per claim after removing price variation. Fitting a single trend to the combined product without separating these components causes the fitted trend to absorb fee-schedule structure as if it were a utilization signal, which it is not. The regime difference between Wisconsin and Massachusetts registers as trend in the pooled data when the two states are mixed without adjustment.

The construction proceeds in three steps. First, for each accident year and state, the actuary obtains the MPI-WC index value for that state, indexed to the 36-state median where the median equals 100. Price-adjusted severity for each accident year is then computed by dividing observed per-claim medical costs by the ratio of that year's state MPI to the base-period MPI:

Adjusted Severity_y = Observed Severity_y ÷ (MPI_y / MPI_base)

The residual adjusted severity series is the utilization-only trend, free of contamination from fee-schedule level differences across states or across time within a single state. Second, a price trend is fitted separately from the MPI-WC time series using log-linear regression on annual index values for each state or state group. Third, the final selected medical severity trend is the sum of the selected price trend and the selected utilization trend, and the two components are presented separately in the DOI rate filing.

That separate presentation is where the method earns its keep in a rate filing review. The standard regulatory critique of a combined medical severity trend is that the actuary may be double-counting inflation already embedded in recent fee schedule updates. With the two-component decomposition, the actuary can show the reviewer that the price component is sourced directly from observed MPI-WC changes, which already reflect fee schedule update amounts, and that the utilization component is the residual from price-adjusted data. The filing answers the double-counting objection at the calculation level, not just in the actuarial memorandum.

Multi-State Filings: The Payroll-Weighted Composite

For multi-state filings where experience is pooled, the price adjustment requires a composite MPI rather than a single-state index. The payroll-weighted composite is:

Composite MPI = Σ(W_i × MPI_i) / ΣW_i

where W_i is the payroll weight for state i and MPI_i is that state's annual MPI value. Each state's per-claim medical cost is deflated by its state-specific MPI relative to the composite before pooling. An accident year with heavy Wisconsin exposure, where the MPI sits 174% above the 36-state median, no longer inflates the pooled trend estimate for a carrier whose book is otherwise concentrated in fee-schedule states. The deflation brings each state's cost to the same price-level basis before any trend regression begins.

The payroll weight W_i should match the actual exposure base used in the loss cost indication. Using claim counts as a weight instead of payroll can introduce distortion if claim frequency varies systematically by fee-schedule regime, as it often does; low-frequency fee-schedule states would be underweighted relative to their cost exposure if claim counts drove the composite. The composite MPI weights should be refreshed with each policy year's actual payroll shift. A 5% payroll migration from a fee-schedule state to Wisconsin moves the composite price level by roughly 8 to 9 points on its own, enough to change the pooled price trend assumption by a material amount when it compounds across multiple years.

Fee Schedule Amendments as Piecewise Discontinuities

States that introduce a new fee schedule or materially restructure an existing one create a piecewise discontinuity in the professional service price series. Fitting a single log-linear trend line across the break point treats the one-time level shift as a trend rate, producing a systematic error in the fitted slope that persists in every subsequent indication that uses the historical series as a base.

The correction is to identify the effective date of each material fee schedule change from state regulatory filings, then apply a before/after bridging factor to construct a continuous series. The bridging factor is computed from the ratio of post-amendment prices to pre-amendment prices for a reference set of procedures in the transition year. Once bridged, the log-linear regression uses the continuous adjusted series, and the fitted slope reflects the ongoing trend rate within each regime rather than the one-time level change between them. WCRI's MPI-WC annual updates allow actuaries to cross-check state-level bridging factors against observed index values around known fee schedule effective dates, providing an independent verification of the actuary's internally constructed price series.

Three Scenarios for Selected Medical Severity Trend

The practical effect of the fee-schedule adjustment can be illustrated through three scenarios for a hypothetical multi-state carrier with 60% of its premium in fee-schedule states and 40% in non-fee-schedule states. The five-year observed pooled medical severity trend from 2020 to 2025 shows annual growth of 4.8%.

Scenario	Price Trend	Utilization Trend	Selected Combined
1. Unadjusted blended data	n/a (combined)	n/a (combined)	4.8%
2. MPI-WC decomposition	2.4%	1.9%	4.3%
3. Split regime selection: fee-schedule states	1.5%	1.9%	3.4%
3. Split regime selection: non-fee-schedule states	3.5%	1.9%	5.4%

Illustrative scenarios using a hypothetical 60/40 fee-schedule/non-fee-schedule carrier mix; price and utilization assumptions based on WCRI MPI-WC 2026 Edition (WC-26-21) regime-level index data.

Scenario 1 overstates the prospective trend for fee-schedule states and understates it for non-fee-schedule states simultaneously. The 4.8% blended rate misapplied to a fee-schedule state that historically trends at 3.4% produces a systematic excess loss cost loading; the same rate misapplied to a non-fee-schedule state trending at 5.4% produces an equally systematic deficiency. Scenario 2 corrects the aggregate bias: the payroll-weighted composite deflation brings both state groups to a common price basis and reduces the pooled selected trend from 4.8% to 4.3%. Scenario 3 produces the most granular result and the most defensible filing, showing exactly where each component of the expected severity increase originates and applying the appropriate assumption to each state group rather than cross-subsidizing between regimes.

Actuarial Implications for Rate Filings

Tracking multi-state WC medical severity trend assumptions across filing cycles, the single largest correction available from existing published data is this one: replacing a pooled unadjusted trend with a payroll-weighted, MPI-deflated decomposition. The WCRI data to support it covers 88% of U.S. WC benefits paid (WCRI MPI-WC 2026) and spans 18 years of annual observations at the state level. The methodology is reproducible, uses a published third-party index, and produces state-group-level trend components that regulators in both fee-schedule and non-fee-schedule states can evaluate independently.

Carriers writing across fee-schedule and non-fee-schedule states should update composite MPI weights with each policy year's payroll shift and re-run the price adjustment before finalizing the next loss cost indication. In states where fee schedule reform is under active consideration, including New Jersey and Wisconsin, any trend selection that does not separate price and utilization will need to be re-filed when the legislative change takes effect. The structural price premium documented in those states reflects a specific policy absence; when that absence is corrected, the price component of the medical severity trend changes immediately while the utilization component continues on its historical path. The two-component decomposition is the preparation for that scenario, not just a cleaner way to present the current filing.