Workers’ Comp Costs Slowly Rising
Workers’ compensation costs are slowly rising, according to the most recent Workers’ Compensation Resources Research Report (WCRRR).
The cost of workers’ compensation per $100 of payroll is $1.32 for 2012, the most recent numbers available, up from the historical low of $1.25 in 2010, according to issue 9 of the report released Wednesday.
While there are several ways to measure workers’ compensation costs, cost per $100 of payroll is my favorite because it gives a direct measure of average costs without entanglements such as the insurance market. It also takes account that wages have increased much more rapidly than employer expenditures on WC.
(John Burton, publisher of WCRRR, actually saved this information from extinction by encouraging the National Academy of Social Insurance [NASI] to take over the task in the late 1990s.) NASI released these figures last August.
Employers are forever complaining about the costs of workers’ compensation. But the truth is, WC is far less expensive than it used to be. When I began writing about workers’ compensation in 1990, the cost of workers’ compensation per $100 of payroll was the highest in history at $2.18, which means the cost now is $0.76 less than 25 years ago.
Employers are forever complaining about the costs of workers’ compensation.
But …WC is far less expensive than it used to be.
Burton has been actively engaged in the workers’ comp system before I was born. He might be best known for being the chairman of the only National Commission on State Workmen’s Compensation Laws this nation ever had, which stemmed from the Occupational Safety and Health Act of 1970.
Insurance advocates have long argued that workers’ compensation costs rose beginning in the 1970s because of the higher benefit costs recommended by the National Commission. Rising benefits, along with massive system inefficiencies, rising medical costs and other factors, led to rising workers’ comp costs in the mid 1980s.
By 1990, employers, who in most cases are required to provide workers’ comp coverage to its employees, were clamoring for relief. This lead to significant changes.
From a legislative perspective, employers and insurer advocates did contain benefit costs by curbing maximum weekly benefits. As shown in the report, cash plus medical benefit costs were $ 0.98 per $100 of payroll in 2012, which is only two cents more than 1980, when it was $0.96. Reform also curbed allowable benefits for permanent partial disability and other types of cash benefits.
The changes in state programs also narrowed the definition of what types of injuries; illnesses and deaths were compensable, which Burton covers at length in the report.
Narrowing compensability does lower costs, but because it also removes the non-fault premise of workers’ comp from some work-related incidents, it’s potentially dangerous. From the employer’s point of view, the whole point of workers’ compensation, as Burton also describes in his report, was to remove such cases out of the tort system. Without workers’ compensation protection, employers risk lawsuits that are much easier to file than in the early 1900s and before.
Turning the attention back to the overall cost of workers’ comp per payroll, it is important to note that legislative action alone does not fully explain why workers’ compensation has become less expensive.
Before the workers’ comp crisis that began in the late 1980s, employers viewed paying premiums as a cost of doing business. Once it got expensive, employers had the incentive to become more educated on how to save workers’ comp dollars and ultimately take better care of their employees.
The employer-employee relationship has a greater impact
on a workers’ compensation claim than anything else.
I clearly remember those “ah ha” moments when employers realized their actions could lower WC costs. Enough employers “got religion” on accident prevention, safety, improving the claims process, rehabilitation and return to work that overall costs began to decline. What was considered innovative in the 1990s has become best practice.
The financial incentive to contain workers’ compensation costs also led to greater research on several topics from workplace safety to return to work outcomes and claim process inefficiencies. As a result, those involved in workers’ comp are more enlightened than ever.
That is not to say that workers’ comp is free from complication. The system is still beset by its political twists and turns, court decisions and other factors.
And while there are so many stakeholders in comp ranging from medical providers to insurers, lawyers, unions and regulators, one simple truth remains. The employer-employee relationship has a greater impact on a workers’ compensation claim than anything else. Many injured workers still suffer from uncaring employers just as employers see injured workers who are just not motivated to return to work.
Burton’s report also covers other important inflation, including WC coverage issues. To get your hands on the report, simply fill out an order form at www.workerscompresources.com. PDF downloads cost $20 and printed versions are $25.
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