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Workers Compensation Trends

By September 22, 2010Commentary

Workers’ Compensation is a fascinating sub-area of employee benefits, one which has attained some significance in health care because medical costs have become a steadily larger percent of workers’ comp payments.  A new report from the National Academy of Social Insurance is full of useful historical and background information on the subject; too much for all of it to be covered here.  (NASI Report) The report discusses both national and state level trends in injury rates, benefit payments in absolute dollars and on a percent of covered wage basis, and employer costs.

Because of the recession, the number of covered workers actually declined by about a million from 2007 to 2008, the last year of the analysis, a trend that probably continued in 2009 and 2010.  Covered wages, however, rose slightly in that time period, to $5.95 trillion.  Workers’ comp benefits paid rose faster than covered wages, to $57.6 billion, with medical costs accounting for more than half those benefits for the first time.  Employers’ costs for workers’ compensation, which is basically payouts and administrative costs for the self-insured and insurance premiums and deductibles for the insured firm, declined about 5.7%.  On a per $100 of covered wage basis, benefits paid rose slightly, all due to medical payment increases, and employers’ costs declined by about 8%.

Long-term trends from 1980 forward show an overall decline from a peak of costs and benefits in around 1990 to a level half of that today.  The medical and indemnity proportion paralleled each other until about 1994, when they began to converge and now have crossed over.  State funds, private insurers and self-funding are the primary methods of paying for workers’ comp benefits and since 1960 the significant share shift has been about a ten point decline in private carriers’ share and an 11% increase in self-funding.  Over that period medical claims have gone from 34% of payouts to 50.4%.  Funding source share varies widely by state, as does the change in benefits paid, employer costs and percent medical claims represent of total payouts.

It is only an observation on our part, but the four states that have exclusive state funds all had above average increases in claims payouts.  There is so much that is interesting in this report, but one thing that stands out is the difference in calendar year claims being paid and employer costs in the same year.  Since for insured employers the cost represents a premium which has to cover future costs for calendar year incurred claims, it appears that insurers are anticipating that the overall payouts will continue to decline, or that they are going to get huge investment returns.

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