PRESS RELEASE: New Study: Workers’ Compensation Benefits and Costs Continue to Decline as a Share of Payroll

WASHINGTON, D.C. – Workers’ compensation benefits as a share of payroll declined in 2016, continuing a five-year trend, while employer costs as a share of payroll fell for the third straight year, according to a new report from the National Academy of Social Insurance (the Academy). Despite the downward trends at the national level, the experiences of individual states varied dramatically.

Nationally, workers’ compensation benefits fell from $0.86 per $100 of covered payroll in 2015 to $0.83 in 2016, a decrease of 3.5 percent and the lowest level since 1980. Benefits as a share of payroll declined in 36 states – in 19 of those states, benefits fell by more than 5 percent. The largest percentage decreases were in Michigan and Oklahoma where benefits as a share of payroll declined by over 10 percent in 2016, according to the report, Workers’ Compensation: Benefits, Costs, and Coverage.

In contrast,15 states bucked the national trend, experiencing increases in workers’ compensation benefits as a share of payroll in 2016. The largest percentage increases were in Wyoming and Iowa, where benefits per $100 of payroll increased by more than 5 percent.

“Workers’ compensation programs are administered by the states, without mandates or regulations from the federal government, so part of the variation in benefits as a share of payroll reflects differences among the state systems,” said Marjorie Baldwin, Professor at Arizona State University W. P. Carey School of Business and co-author of the report. “However, states also differ in the relative riskiness of their occupations and industries, which contributes to the variation in benefits and employer costs.”

Workers’ compensation costs to employers fell for the third year in a row at the national level, from $1.33 per $100 of covered payroll in 2015 to $1.30 in 2016, a decrease of 2.3 percent. More than two-thirds of states experienced an annual decline in employer costs as a share of payroll, and 14 jurisdictions had a decline of 5 percent or more. The largest percentage decreases were in the District of Columbia, where costs as a share of payroll fell by 24 percent, and Texas, where costs fell by 14.3 percent.

Fourteen states did record increases in employer costs as a share of payroll between 2015 and 2016. The largest percentage increase was in New York, where costs to employers increased by 4.6 percent.

“While workers’ compensation benefits and costs as a share of payroll have been gradually declining at the national level in the past few years, the story is more nuanced at the state level,” said Christopher McLaren, Senior Researcher at the National Academy of Social Insurance and co-author of the report. “Rising employment is exerting upward pressure on total benefits and costs, but many states have implemented significant changes to their workers’ compensation benefit systems in recent years, including efforts to improve the return to work outcomes of injured workers, that are driving benefits and costs down.”

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. In 2016, workers’ compensation programs covered more than 138 million workers, an estimated 86.5 percent of all jobs in the employed workforce. About half of the $61.9 billion in workers’ compensation benefits in 2016 were medical benefits paid to health care providers.

Employer costs for workers’ compensation amounted to more than $96.5 billion in 2016. Premiums paid to workers’ compensation insurers (nearly $59.9 billion) were the largest share (62 percent) of employer costs. Nearly $18 billion (18.6 percent) of workers’ compensation costs were paid directly by self-insured employers.

The Academy report charts workers’ compensation benefits, costs, and coverage over a 20-year period from 1996 to 2016. The results show that:

• Workers’ compensation benefits as a share of payroll have declined by $0.43, from $1.26 per $100 of covered payroll in 1996 to $0.83 in 2016. Medical benefits have become an increasing share of total benefits paid, from 39.9 percent in 1996 to 50.3 percent in 2016.
• Workers’ compensation costs as a share of payroll have declined by $0.32, from $1.62 per $100 of payroll in 1996 to $1.30 in 2016. Deductible policies have become more common in workers’ compensation, in the states where they are allowed. In 1996, employer-paid deductibles represented 8.9 percent of total benefits paid, compared to 16.7 percent in 2016.

”Benefits as a share of payroll declined by almost 50 percent between 1991 and 2016. This most likely reflects a combination of factors, including declining injury frequency and legislative changes that have occurred in many states,” noted Les Boden, Professor at Boston University School of Public Health and co-author of the report. “The decline would probably have been greater but for the substantial increase in medical costs over that period.”

Workers’ Compensation: Benefits, Costs, and Coverage (2016 Data) is the 21st in an annual series. The report provides the only comprehensive data on workers’ compensation benefits, coverage, and employer costs for the nation, the states, the District of Columbia, and federal programs.

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