PRESS RELEASE: Workers’ Compensation Benefits as a Share of Payroll Continue to Decline Even as Employer Costs Rise

WASHINGTON, D.C. – Workers’ compensation benefits as a share of payroll are reaching historically low levels, even as employers shoulder more costs, according to a new report from the National Academy of Social Insurance (the Academy).

Despite growth in employment during the economic recovery – and the corresponding uptick in employees covered by workers’ compensation – benefits per $100 of payroll fell from $0.97 in 2013 to $0.91 in 2014, the lowest level since 1980. Benefits as a percent of payroll declined in 46 states between 2010 and 2014, continuing a national trend in lower benefits relative to payroll that began in the 1990s.

Costs to employers, on the other hand, continue to climb. Between 2010 and 2014, employer costs associated with workers’ compensation – such as insurance premiums, reimbursement payments, and administrative costs – grew at a rate nearly 5 times faster than benefits. Nationally, employer costs exceeded total benefits in 2014 by $29.5 billion while costs per $100 of payroll reached $1.35, according to the report, Workers’ Compensation: Benefits, Coverage, and Costs.

“What we are seeing in these data are still the effects of the economy gradually coming out of the recession of 2008-10,” said Marjorie Baldwin, Chair of the Academy’s Study Panel on Workers’ Compensation Data and Professor of Economics in the W. P. Carey School of Business at Arizona State University. “As more workers are hired, employers immediately incur higher costs for workers’ compensation insurance – the increase in benefits paid comes with a lag, especially for the most costly long-term injuries.”

The ratio of benefits paid per $1 of employer cost has varied over the last 20 years from a high of $0.82 in 1999 to a low of $0.63 in 2006. The ratio has declined from $0.81 in 2010 to $0.68 in 2014, but it is still greater than in the five years leading up to the recession of 2008.

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. Due to growing health care costs during the last 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 2014. In about 32 states, the majority of workers’ compensation spending goes to medical care.

“Declining levels of workers’ compensation benefits could mean that workers are getting injured less frequently and/or that they are returning to work sooner when they do get injured,” said Christopher McLaren, Workers’ Compensation Senior Research Associate at the Academy. “But there have been a number of changes in state laws in recent years limiting access to workers’ compensation benefits, which may also be a factor.”

The Academy report details state-by-state changes in coverage, benefits, and employer costs over the last five years. The state-level results show that between 2010 and 2014:

• The number of covered workers and the amount of covered wages increased in every state, with  the largest increases occurring in North Dakota and Utah;
• Benefits per $100 of payroll decreased in all but five states, with the biggest declines in West Virginia, Oklahoma, and Montana – three states that implemented significant changes in their workers’ compensation systems during this period;
• Benefits were lowest as a share of payroll in 2014 in the District of Columbia ($0.24 per $100 of covered payroll), Texas ($0.33 per $100 of covered payroll), Arkansas and Indiana ($0.49 per $100 of covered payroll, respectively);
• Employer costs per $100 of covered payroll increased in 31 states but decreased significantly in Montana, Ohio, Oklahoma, and West Virginia.
• Employer costs were highest as a share of payroll in 2014 in Montana ($2.25 per $100 of covered payroll), Alaska ($2.20 per $100 of covered payroll), and Wyoming ($2.01 per $100 of covered payroll).

Workers’ Compensation: Benefits, Coverage, and Costs is the 19th 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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