Workers compensation insurance covers the cost of medical care and rehabilitation for workers injured on the job. It also compensates them for lost wages and provides death benefits for their dependents if they are killed in work-related accidents, including terrorist attacks. The workers compensation system is the “exclusive remedy” for on-the-job injuries suffered by employees. As part of the social contract embedded in each state’s law, in all states except Texas, where employers may opt out of the state’s workers compensation system, the employee gives up the right to sue the employer for injuries caused by the employer’s negligence and in return receives workers compensation benefits regardless of who or what caused the accident, as long as it happened in the workplace as a result of and in the course of workplace activities.
Workers compensation systems vary from state to state. State statutes and court decisions control many aspects, including the handling of claims, the evaluation of impairment and settlement of disputes, the amount of benefits injured workers receive and the strategies used to control costs. According to the U.S. Chamber of Commerce, from 2013 to 2014 maximum income benefits for total disability increased an average of 1.87 percent. The average maximum weekly benefit for 2014 is $867.91, with Iowa heading the list at $1,543.
Workers compensation costs are one of the many factors that influence businesses to expand or relocate in a state, generating jobs. When premiums rise sharply, legislators often call for reforms. The last round of widespread reform legislation started in the late 1980s. In general, the reforms enabled employers and insurers to better control medical care costs through coordination and oversight of the treatment plan and return-to-work process and to improve workplace safety. Some states are now approaching a crisis once again as new problems arise.
Among the cost drivers that require attention are the increasing costs of prescription drugs, in particular the long-term use and abuse of narcotic painkillers, according to industry studies.
- National: According to NCCI’s State of the Line analysis, in 2020 workers compensation premiums for private carriers and state funds fell to $42.0 billion, the lowest since 2013, and down 10.8 percent from 2019, when net premiums written were $47.1 billion. Premiums for private carriers alone fell to $38 billion, down 9.5 percent from $42 billion in 2019. The workers compensation line of insurance was severely impacted by the pandemic-related recession as businesses closed and unemployment skyrocketed.
- Premiums for the residual market (NCCI-serviced workers compensation residual market pools) fell to $800 million in 2020, down 11.1 percent from $900 million in 2019. Its market share fell from 6.7 percent of the total market in 2019 to 6.5 in 2020.
- The combined ratio, the percentage of each premium dollar spent on claims and expenses, was 87 for private insurers, compared with 85 in 2019 and marks the fourth consecutive year of results under 90. The combined ratio for the 16 state funds administered by the NCCI was 119 compared with 10 for the previous year. A combined ratio of 100 or higher means that the industry is paying out more in claims than it is collecting in premiums.
- Lost-time claim frequency (the number of claims that include loss of income due to time off work as opposed to solely medical care claims) dropped 7 percent in 2020, faster than 4.3 percent in 2019, continuing a trend that has been going on for many years. Claim frequency has been falling 3.9 percent on average every year from 2000 to 2019.
Activities By State
- California: In August 2012 legislators passed SB 863, a bill developed by labor groups and some large self-insured employers. Supporters claimed that the measure would produce savings of $880 million, more than enough to offset the $610 million in increased payments to workers receiving permanent disability benefits. The impact of the reforms is still not clear. The Department of Industrial Relations and its Division of Workers Compensation posted a progress report in July 2014 outlining improvements to the system as well as continuing challenges. The report, SB 863: Assessment of Workers Compensation Reforms, notes that the law is improving the delivery of appropriate medical care through an independent medical review process.
- Delaware: In June 2013, Governor Jack Markell signed H.B.175, a bill implementing recommendations put forward by a study group charged, among other things, with reviewing workplace safety, return-to-work data and recent workers compensation rate increases, which some lawmakers believe threaten economic growth, particularly for small businesses and the construction industry. Key provisions of the law include more closely monitoring a company’s workplace records, requiring insurers to make more information available about modified duty jobs and work place safety inspection procedures and providing opportunities for employers to participate in workers compensation rate making discussions.
- Oklahoma: The transition put in motion by the passage of SB 1062 in 2013 is continuing. The measure totally revamps the state’s workers compensation system, changing it from a system run by the courts to one that is administered by three commissioners appointed by the governor for six-year staggered terms. In July 2014 the two systems began operating as stand-alone agencies. The commissioners will appoint administrative law judges to hear disputed cases. New claims will be processed by the Commission and the old court-based system will be phased out by 2020 as old claims are settled.
- The legislation also allows employers that meet certain requirements to opt out of the state’s workers compensation system and, instead, develop an alternative benefit plan. That plan will have to comply with ERISA, the Employee Retirement Income Security Act of 1974, the federal law that sets minimum standards for most pension, welfare and health plans offered by private industry. The bill will also cut payments to injured workers who receive certain types of benefits and reduce the need for attorneys to represent injured workers. Savings could be as high as 14.6 percent, beginning in early 2014, according to NCCI.
- The legislation will make ERISA-compliant plans the exclusive remedy for opt-out companies, preventing workers from suing their employers in state court. The exclusive remedy is at the heart of the workers compensation social compact, see the introduction to this report. In Texas, the only state to allow employers to opt out of the workers compensation system, nonsubscribers, employers that elect not to participate, are fully liable under the tort system for workplace accidents and can be sued for negligence.
- Oklahoma’s old workers compensation system was one of the most costly in the region. Insurance Commissioner John Doak has said that the high costs have been pushing employers to think about relocating. According to the NCCI, injured workers in Oklahoma were more likely to file claims than in surrounding states, particularly claims for permanent partial disability. The total cost of those claims was as much as five times higher than in neighboring states. In addition, injured workers in Oklahoma were off work longer. The high costs are attributed by some legislators to the adversarial nature of the system, which provides lawyers with incentives to drive a workers disability rating higher to increase lost income benefits. Oklahoma’s level of attorney involvement was 50 percent higher than the national average.
- Tennessee: Tennessee also reformed its workers compensation system. In April 2013, Gov. Bill Haslam has signed sweeping legislation that transfers all oversight functions from the courts to a single independent state agency. The measure also created an ombudsman to hear complaints, tightened the definition of a work-related injury and sets up medical treatment guidelines. Many insurers supported the switch to a purely administrative system because of the variances in judges’ decisions and expertise. The new law is also expected to improve overall efficiency, providing benefits faster and returning workers to gainful employment sooner. Tennessee considered an opt-out provision but ultimately decided against it.
- Texas: Major reforms were enacted in 2005 that transferred responsibility for workers compensation from a commission to the Texas Insurance Department, improved access to healthcare and advice for injured workers, promoted return-to-work programs, created medical treatment guidelines and raised injured workers’ benefits.
- The department publishes a biennial report on system improvements. Highlights of the 2012 report, the latest available, indicate that since 2003 to the end of 2011 rates have decreased almost 50 percent; the number of days lost from work due to work-related injuries fell from an average 97 days (median 26 days) in 2004 to 6.0 weeks (median 21 days); and the amount of time needed in 2011 to resolve medical disputes dropped significantly, with fee disputes taking 197 days instead of 335 days as they did in 2005, pre-authorization disputes 20 days instead of 59 and retrospective medical necessity disputes 31 days instead of 123. The percentage of employers that participate in the program (i.e., became subscribers, see Background section) rose from 62 percent in 2004 to 67 percent in 2012. Only an estimated 19 percent of Texas employees (about 1.7 million workers) were employed by non-subscribing employers.
- There were 114,000 employers in Texas that did not participate in the workers compensation program, according to Best’s News Service, April 10, 2012. The Texas Insurance Department puts the figure at 33 percent.
- Vermont: In January 2013 the state released a report, “Integration or Alignment of Vermont’s Workers Compensation System with Green Mountain Care,” which describes how the state is moving toward its ultimate goal of integrating its new single-payer healthcare system with its workers compensation system. This will take time, it says, but in the meantime, recognizing that this may involve further study, it is calling for administrative alignment. If fully integrated, the medical coverage portion of workers compensation would be eliminated and ultimately the private system would be abandoned in favor of a monopolistic, publicly funded workers compensation system. However, the report suggests, Vermont might select another route, integrating only the healthcare portion. Or it might reject integration in favor of some form of administrative alignment.
- State Funds, Competitive Funds: Following the successful change over in West Virginia from a state-controlled workers compensation system to a private competitive market, several states, including Arizona, Colorado and Oklahoma, all of which have workers compensation entities with some degree of state oversight that compete with the private market, have been looking into some form of privatization. Some impetus for the sale of these entities is the poor local economy and the resulting budget deficits.
- In Oklahoma in March 2014, the state’s Supreme Court upheld a bill, passed last year that privatizes CompSource. The legislation created a mutual insurer, which is due to become operational in January 2015. A stockyards company challenged the law, arguing that the state should maintain ownership of CompSource’s assets, valued at $265 million, but the court said that the assets were held in trust for employers and employees insured by CompSource and there was nothing in the state’s constitution that would prohibit placing its assets in trust with a domestic mutual insurer. CompSource will continue to maintain its current role as the market of last resort, serving high-risk employers. It currently provides workers compensation coverage to about 35 percent of the market. Most of the businesses in the state are small, with 98 percent having fewer than 100 workers and 75 percent having fewer than 10, according to the State Chamber of Oklahoma.
- Workplace Deaths and Injuries: Bureau of Labor Statistics (BLS) data show that 5,333 workers were killed on the job in 2019, up from 5,250 in 2018. Transportation – related accidents (including vehicle crashes) were the leading cause of workplace deaths in 2019, with 2,122 fatalities, accounting for 40 percent of the total.