California and New Jersey had the nation’s most expensive workers’ compensation rates, while North Dakota had the lowest rates in the nation, a new report shows.
A report released this week by the Oregon Department of Consumer and Business Services also shows workers’ comp rates in Oregon are among the lowest in the nation and have continued falling steadily over the past three years.
The authors of the report compared each state’s rates to the national median rate of $1.84 per $100 of payroll, which is a drop of less than 1 percent from the $1.85 median in the last report.
Rates ranged from a low of 89 cents in North Dakota to a high of $3.24 in California. California’s rates were 188 percent above the national median, according to the report.
The report is based on methods that put each state’s workers’ comp rates on a comparable basis by using a constant set of risk classifications.
The study used classification codes from the National Council on Compensation Insurance. To control for differences in industry distributions, each state’s rates were weighted by 2010 to 2012 Oregon payroll to obtain an average manual rate for that state.
So what’s going on with California’s rates?
“Basically they have higher advisory loss costs rates in the different classes than other states do,” said Chris Day, the study’s lead author.
Claim frequency, claim administration and high medical costs are typically among the drivers of high workers’ comp rates. However, the state in 2012 passed a massive workers’ comp reform law, which according to its supporters seems to be working.
California’s Workers’ Compensation Rating Bureau earlier this month submitted a pure premium rate filing to the California Department of Insurance proposing Jan. 1, 2017 advisory pure premium rates lower than the corresponding industry average.
The WCIRB submitted a rate filing that averaged $2.22 per $100 of payroll, citing in part legislative changes made this year that the bureau believes could help reduce costs. Senate Bill 1160 and Assembly Bill 1244 are both designed to remove medical providers convicted of fraud from the system and prevent them from filing liens.
The Oregon study shows that two years ago California’s rates were at $3.48, so they are trending downward.
Christine Baker, director of the state’s Department of Industrial Relations, said the report doesn’t reflect actual costs in California’s workers’ comp system because the Oregon study is based on the industrial mix in that state.
She responded a reporter’s request for comment on the report in an emailed statement.
“In California we are focused on providing the best, evidence-based medical treatment to injured workers while controlling employers’ costs,” Baker said. “Since the 2012 workers’ compensation reforms were enacted, we have seen an increase in injured workers’ benefits, instituted independent medical review to ensure evidence-based medical treatment guidelines are followed and to curb inappropriate medical treatment.”
New Jersey was the runner up for having the next highest rates in the nation, where the $2.92 per $100 in payroll was 158 percent above the U.S. median. The report shows the state moved up in ranking from No. 3 in 2014, when rates averaged $2.82.
Workers’ comp officials in New Jersey weren’t immediately available for comment.
Following New Jersey in the rankings for highest workers’ comp rates were New York ($2.83), Connecticut ($2.74), Alaska ($2.74) and Oklahoma ($2.23).
On the opposite end of the spectrum, North Dakota’s 89 cents rate puts it at 48 percent of the national median. It was at 47 percent of the national median in the last study, which then also ranked it as the least expensive state for workers’ comp in the nation.
“North Dakota is an interesting outlier,” Day said.
It’s one of only four states with a monopolistic workers’ comp structure. “But that doesn’t guarantee a low or a high premium rate,” he added.
Indiana ($1.05), Arkansas ($1.06), West Virginia ($1.22) and Virginia ($1.24) followed North Dakota for having the lowest rates.
Oregon issues these reports in even-numbered years, and has been doing so since 1986, when its rates were among the highest in the nation.
Oregon’s rate of $1.28 is 31 percent below the median. Oregon had the seventh least expensive rates in 2016, an improvement from its ranking as the ninth least expensive state the last time the study was done in 2014. Oregon was 13th least expensive in 2012.
It was recently announced that Oregon workers’ comp rates would drop an average 6.6 percent in 2017.
Oregon’s relatively low rates reflect the success of reforms made to the state’s workers’ comp system and its improvements in workplace safety and health, the study’s authors say.
“For the past three years we’ve had very large overall pure premium level decreases,” said Mike Manley, co-author of the study.
The state saw rate drops of 7.6 percent in 2014, 5.3 percent in 2015 and 5.3 percent in 2016.
Manley gave some credit the revamps to Oregon’s workers’ comp system in 1987, 1990 and 1995.
“There were some major omnibus bills that made a lot of changes to our workers’ comp system,” Manley said.
However, he pointed out that the latest legislative change occurred 21 years ago, and that recent drops can be seen in NCCI studies of Oregon rates. Those studies credit declining claim frequency and declining medical loss ratios as drivers of the falling rates.
“Oregon’s medical costs are not rising as fast as payrolls are,” Manley said.