Employers’ Workers’ Comp Costs, Workers’ Benefits Continue to Fall: Study

Workers’ compensation benefits declined to $57.5 billion in 2010, according to a report by the National Academy of Social Insurance (NASI). The drop in workers’ compensation benefits was largely due to a 2.1 percent drop in medical benefits for injured workers. Employers’ costs for workers’ compensation also fell by 2.7 percent in 2010. As a share of covered wages, employers’ costs in 2010 were the lowest in the last three decades.

“Employers’ costs as a percent of payroll declined in 43 jurisdictions,” said John F. Burton, Jr., chair of the study panel that oversees the report. “This decline is probably due to the slow pace of the recovery, with many jurisdictions still experiencing relatively high unemployment rates.”

Most states reported a decrease in the number of workers covered but an increase in covered wages between 2009 and 2010. During the same period, the total amount of benefits paid to injured workers declined in 26 jurisdictions and increased in 25. As a share of payroll, benefits paid to injured workers fell by three cents to $0.99 per $100 of payroll in the nation.

The share of medical benefits for workers’ compensation has increased substantially over the last 40 years. During the 1970s medical benefits nationally accounted for 30 percent of total benefits, whereas in 2010 the share of benefits paid for medical care was almost 50 percent. Experts attribute this trend to the rising cost of health care.

NASI’s report estimates of employer costs per $100 of covered payroll by state. The report provides the data for employer costs, aggregated across all types of insurance arrangements, for each state for the five-year period from 2006 to 2011. Costs for employers insured through private carriers or state funds include the premiums written in a year and the deductible benefits paid by the employers. Costs for self-insured employers include the benefits paid by these employers plus the estimated administrative costs.

Employer costs declined in every state except North Dakota, Oregon and South Carolina between 2006 and 2010. North Dakota and Oklahoma recorded increases of no more than 10 percent.

Many states recorded decreases in employer costs of 30 percent or more, for example: Alaska, down 34 percent from $3.62 to $2.37 per $100 covered payroll; Delaware, down 42 percent from $2.01 to $1.16; Hawaii, down 40 percent from $2.31 to $1.41; Texas, down 39 percent from $1.08 to $0.66; Utah, down 43 percent from $1.44 to $0.82; and West Virginia, down 52 percent from $3.84 to $1.83.

NASI warns against misuse of its data. The data on employers’ costs “should not be used to compare the adequacy of benefits or costs of workers’ compensation programs in different states,” says NASI. According to NASI, the data do not mean that states with lower costs offer a more competitive environment for employers, because states differ in their mix of industries. For example, a state heavy with logging firms would see higher costs than a state with a concentration in banking.

Also, states with higher workers’ compensation costs are, in general, providing more generous benefits to injured workers. Efforts to reduce costs for employers usually involve reductions in benefits for workers. Also, the data do not reflect any recent reforms.

Finally, NASI notes, employers in states where workers’ compensation costs are relatively low may be paying relatively higher wages. In the short run, lower benefits and costs can result in higher profits for employers. Research has shown that over time, however, there is a trade-off between benefits and wages, which means that lower workers’ compensation benefits are largely offset by higher wages.

Source: National Association of Social Insurance report, Workers’ Compensation: Benefits, Coverage and Costs, 2010. Visit www.nasi.org.