Workers’ Compensation Costs and Benefits Decline as a Share of Payroll: Study

Workers’ compensation employer costs as a share of payroll declined in 2015, reversing a four-year trend. Meanwhile, benefits as a share of payroll fell for the fourth straight year, according to a new report from the National Academy of Social Insurance (the Academy).

As the economic recovery has spurred growth in employment and a corresponding increase in employees covered by workers’ compensation, benefits per $100 of payroll fell from $0.91 in 2014 to $0.86 in 2015 — the lowest level since 1980. In aggregate, workers’ compensation insurers paid $61.9 billion in benefits in 2015, a 1.3 percent decline from 2014.

Between 2011 and 2015, benefits as a share of payroll fell in all but three states, continuing a national trend of declining benefits relative to payroll that began in the 1990s, according to the report, “Workers’ Compensation: Benefits, Coverage, and Costs.”

“Part of the story behind the decline in benefits and costs as a share of payroll is that workplaces are getting safer,” said Marjorie Baldwin, professor at Arizona State University and co-author of the report. “Both the incidence and severity of work-related injuries have declined steadily since 1990. In fact, according to the Department of Labor, the proportion of workers who experienced injuries that resulted in days away from work reached a 25-year low in 2015.”

Meanwhile, employer costs ticked down in 2015 to $1.32 per $100 of payroll — the 4th lowest level since 1980.

Between 2011 and 2015, however, total employer costs for workers’ compensation — including insurance premiums, reimbursement payments, and administrative costs — increased by 20.1 percent, exceeding total benefits paid in 2015 by $32.9 billion. The growth rate in aggregate employer costs, which had been increasing faster than total benefits paid in recent years, slowed down in 2015, increasing 2.3 percent from the previous year to $94.8 billion.

In 2015, total wages covered by workers’ compensation exceeded $7 trillion for the first time, increasing by nearly 19 percent between 2011 and 2015. Overall, in 2015, workers’ compensation coverage extended to an estimated 86.3 percent of all jobs in the employed workforce, comprising more than 135 million workers.

Medical Costs

In large part because of growing medical costs over the past 30 years, medical benefits now account for an increasing share of total workers’ compensation benefits, rising from 29 percent in 1980 to more than 50 percent in 2015. However, from 2013 to 2015, medical benefits paid declined faster than cash benefits paid — non-

federal medical benefits paid fell 2.3 percent to $29.9 billion in 2015 and non-federal cash benefits fell 0.7 percent to $28.3 billion.

“The relative decline in medical benefits paid between 2013 and 2015 can be partially explained by some states changing their workers’ compensation medical care delivery systems,” said Christopher McLaren, senior researcher at the National Academy of Social Insurance and lead author of the report. “Some of the changes involve, for example, implementing fee schedules that set maximum reimbursement rates for medical care or adopting treatment guidelines,” he said. Many states have also enacted new disability rating procedures and compensability requirements that impact cash benefits paid. “All of these factors influence the share of medical benefits, as well as total benefits and costs.”

Highlights

The Academy report highlights state-by-state changes in coverage, benefits and employer costs during the past five years. The state-level results show that between 2011 and 2015:

• The number of covered workers increased in every state except West Virginia, with 11 states experiencing double-digit growth in covered employment;
• The amount of covered wages increased in every state, and by more than 20 percent in 16 states;
• Benefits per $100 of payroll decreased in all but three states, with the biggest declines in Illinois (-$0.33), Oklahoma (-$0.41) and West Virginia (-$0.52) — three states that implemented significant changes in their workers’ compensation systems during this period;
• Employer costs per $100 of covered payroll increased in 24 states and decreased in 27 states. West Virginia, Montana and Oklahoma experienced the largest reductions, with costs dropping more than $0.30 per $100 of covered payroll. Employer costs increased by more than $0.20 in Wyoming, Delaware and California.

The is the 20th annual “Workers’ Compensation: Benefits, Coverage, and Costs” report published by the National Academy of Social Insurance. The report provides the only comprehensive data on workers’ compensation benefits, coverage and employer costs for the nation, state, District of Columbia and federal programs.

Workers’ compensation, the nation’s first social insurance program, pays medical benefits to the providers of health care for injured workers, and cash benefits to workers whose injuries prevent them from working.