A Publication of WTVP

Over the past 50 years, employers have paid workers’ compensation expenses including direct cost (premiums and deductible payments) and indirect costs (temporary worker replacement and retraining). These costs have risen since the formal implementation of workers’ compensation, but the relative costs might surprise you.

In the 1950s, employers paid about 0.5 percent of their payroll in workers’ compensation costs. This increased to 1 percent in the 1970s. Bureau of Labor Statistics indicate major cost increases began in the 1980s and then retreated in the mid-1990s. According to National Council on Compensation Insurance (NCCI) data, workers’ compensation costs were about 2 percent of payroll in 2000 and then increased to 2.2 percent in 2003.

Direct and indirect causes are responsible for the total claim costs. Direct costs (medical costs) comprise about 55 percent of the claim’s total. Indirect/indemnity costs (virtually everything else, including TTD) represent about 45 percent of the claim. This is why Illinois wisely chose to implement statewide cost-containment of workers’ compensation medical costs.

However, this isn’t the total picture on these costs, as your workers’ compensation premiums are more affected by the indirect costs of a claim, rather than the medical costs. In most cases, the old adage “penny wise—pound foolish” is the case if one takes short cuts on the medical portion of a claim.

NCCI reports insurance premiums are going up as well, with 2005 projected estimates between 4 and 5 percent greater than 2004. In short, it’s likely your broker will inform you of premium cost increases regardless of your experience.

According to NCCI’s 2005 report, the medical care portion of lost-time claims increased by an estimated 10.5 percent in 2004. The average increase for the years between 1996 and 2003 was 9.3 percent. This compares to only a 3.9 percent from 1991 to 1995.

And what about the injury rates? The Bureau of Labor Statistics (BLS) data suggests workplaces overall are getting safer. BLS reports workplace injuries and illnesses dropped from 7.1 per 100 full-time workers in 1997 to 4.8 in 2004. In 2004, a total of 4.3 million injuries and illnesses were reported, declining from 4.4 million in 2003. More than 2 million of these injuries and illnesses required days off work or restricted duties. Lost workday cases have declined from 4.1 cases per 100 full-time workers in 1990 to about 2.5 cases per 100 employees in 2004. Incidentally, these are the lowest rates in recorded history.

These numbers could lead us to a couple of conclusions. First, cost increases are largely a fact of life for insurance premiums, though how drastic these increases are doesn’t have to be. Secondly, workplaces are getting safer thanks to hard work by employees and employers, but the costs of claims continue to climb. In our next article, we’ll discuss the reasons for this apparent dilemma and some ways to resolve the issue. IBI