Skip to main content

The Economy and Workers’ Compensation

By April 4, 2011Commentary

Workers’ compensation is an interesting backwater in health care, where things tend to happen a little slower than in the mainstream, but where a lot of very good analysis occurs, particularly in regard to the relationship between economic conditions and health usage.  The National Council on Compensation Insurance issues a number of regular and special reports every year that are outstanding.  One recent one looked at the extent to which the recent economic recovery, slow though it may be, was having an impact on workers’ comp claims.  (NCCI Report)

The greatest effect that the economy has on workers’ compensation is through employment; the more people that are employed and the more they earn, the more workers’ comp claims there are likely to be and the higher premiums will be.  This is particularly true in regard to employment in industries with higher levels of claims, such as manufacturing or construction.  NCCI is forecasting that employment growth and wage growth will continue to be weak, so the WC insurance market will also be soft, especially because job increases in the high claim industries is weak.

Despite this, because health care costs now account for more than half of workers’ comp payouts, medical inflation and utilization increases will put some upward pressure on the market.  NCCI reports that medical inflation overall will likely be around 4.2% in 2011.  In addition, more utilization and use of more expensive treatments will also impact total health costs.  This is partly due as well to a workforce that is aging and is working longer because of the recession.  So the health care cost portion of WC claims will be increasing while the indemnity or wage replacement part will either be declining or standing still, meaning that health care’s significance in workers’ compensation cost control will be ever greater.

Leave a comment