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Workers Compensation Costs

News bits on the costs of workers compensation system to employers and consumers.;

WC Overview

Workers' compensation insurance is purchased by employers to provide benefits to employees who become ill or injured on the job. The coverage includes medical costs and partial replacement of income while the employee is out of work. Employers' premiums are based on the size of their payrolls and the number and severity of injuries and illnesses in their particular industry. 


Employer Costs
The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes an annual report titled
"Employer Costs for Employee Compensation." The latest report is dated June 8, 2011. Here's a summary:

In March 2011, employer costs for employee compensation (for nonfarm private and state and local government) averaged $30.07 per hour worked. Wages and salaries, which averaged $20.91, accounted for 70% of these costs, while total benefits, which averaged $9.15, accounted for the remaining 30%. (See table 1.)

A subset of total benefits are "legally required benefits" (Social Security, Medicare, state and federal unemployment, and workers compensation). They averaged $2.33 per hour (7.8% of total compensation).
Another subset is insurance benefits (life, health, STD, LTD) which averaged $2.67 (8.9%). The health insurance component alone is 8.4%. It was 6.3% in 2003.
Total Benefits 30%
Insurance   8.9%
Paid Leave   7.0%
SS/Medicare   5.6%
Retire/Save   4.5%
Suppl Pay   2.3%
Work Comp   1.4%
Unemployment   0.7%
Wages 70%
For more listings of BLS reports go to

Medical Fee Schedules
NCCI released a study in January 2008 titled "Making Workers Compensation Medical Fee Schedules More Effective." Here are the key findings:

  • Most states reimburse WC medical care at prices that are marked up above Group Health (GH)
  • States without fee schedules (like Indiana prior to July 1, 2014) reimburse at a higher markup over GH than states with fee schedules
  • Radiology and surgery show higher markups above GH than other medical services

    WC Medical Fee Schedule

Choice of Physician
Workers Compensation Research Institute (WCRI) found in a study released in November 2005 titled "The Impact of Provider Choice on Workers' Compensation Costs and Outcomes." Among the findings:

  • When the worker chose the provider, costs were higher and recovery of health and return-to-work outcomes were often worse than when the employer chose the provider.
  • When workers selected the providers with whom they had a prior clinical relationship, the costs and most outcomes were not dramatically different than when the employer selected the provider. However, when workers selected new providers, costs were higher and return-to-work outcomes poorer.
  • When workers selected providers—either prior or new—they expressed higher levels of satisfaction with their care.
To download a complimentary copy of the PDF file for this report, visit the WCRI web site 

The Workers Compensation Research Institute (WCRI) found in a study released in December 2002 and titled "Provider Choice Laws, Network Involvement, and Medical Costs" that state laws allowing employers to control the decision to change the providers of medical care to injured workers increase involvement of medical care networks and reduce workers’ compensation medical costs. The study examines the impact of “change in provider” workers’ compensation laws on network involvement and medical costs. A change from employer to employee control would increase medical costs approximately 7% to 10%.

Prescription Drugs
NCCI released a study in September 2011 titled "Workers Compensation Prescription Drug Study 2011 Update" Here are some key findings:


·         The indicated Rx share of total medical is 19%

·         Recent overall cost increases are driven more by utilization increases than by price increases

·         Physician dispensing continues to increase in Service Year 2009 in almost every state

·         Increased physician dispensing is associated with increased drug costs per claim

·         Per-claim Rx costs vary significantly by state


Medical Costs Rising
NCCI AIS "State of the Line Report" for May 2007 shows that both indemnity and medical costs are rising faster than wage inflation.

  • Indemnity: up an average 6.6% per year since 1997 (5.5% in 2006)
  • Medical: up an average 9.5% per year since 1997 (7.5% in 2006)

However, these rising costs have been more than offset by the decrease in claim frequency, which over 15 years (1991-2005), has dropped by a cumulative 49%. Many believe the drop is due to improvements in safety and technology.

WC Costs as % of Payroll
Workers compensation costs as a percentage of gross earnings (payroll) declined for the second consecutive year to 2.28% in 2007. The percentage was highest in 1994 at 2.99%, and lowest at 1.74% in 1986.

Workers compensation costs as a percentage of payroll is the most common measure of employers' cost used in workers compensation literature. The rationale is that over time employer expenditures on remuneration (wages, health insurance, pensions, and workers compensation) increase. 

Workers compensation costs per hour worked have increased less rapidly than payroll. From 1991 to 2006, workers compensation costs increased 45% while gross earnings increased 62%.

source: Workers Compensation Policy Review, Jan/Feb 2008, "Workers Compensation Costs for Employers 1986 to 2007" page 19

WC Compared to Health Care Costs
Countrywide, workers compensation represents only about 3% of health care costs. 

NCCI completed a study in November 2006 titled "Workers Compensation vs. Group Health: A Comparison of Utilization."

WC Costs Passed on to Consumers
Economic analysis suggests that a large portion of WC costs are passed on to consumers through increased prices and to other workers in the form of reduced wages.

New Approaches to Disability in the Workplace, by Terry Thomason, John F. Burton, Jr., and Douglas E. Hyatt
WC Indirect Costs
OSHA has a webpage that discusses both direct and indirect costs of workplace injuries titled "Business Case for Safety and Health."
Examples of indirect costs include training replacement employees, accident investigation and implementation of corrective measures, lost productivity, repairs of damaged equipment and property, and costs associated with lower employee morale and absenteeism.

Cost Control Tips

1. report claim quick
2. oversee medical care (in Indiana, employer can choose physician)
3. get employee back to work
4. treat employee with respect

Related Files

The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.