Report: Workers Compensation Costs Rise Again in 2002

Employers' costs for workers' compensation shot up 13 percent in 2002, the biggest increase in 14 years and the fourth year in a row that costs increased, according to a recently released study by the National Academy of Social Insurance (NASI).

Employer costs for workers' compensation totaled $72.9 billion in 2002, up from $64.5 billion the previous year. The benefit payments workers received also increased in 2002 by 7.4 percent, and for the second year in a row both benefits and costs relative to covered wages rose in 2002.

According to NASI, the increase in benefits and costs relative to covered wages in 2002 is due to a number of factors. The economic recession that began in March 2001 led to lagging wage growth and job losses.

Business representatives argue a second factor is that workers had an incentive to seek additional medical care in order to obtain higher permanent disability awards, because claims are sometimes settled as a multiple of the amount of medical costs incurred. Workers' representatives counter that studies show substantial numbers of injured workers never even file for workers' compensation benefits.

What appears to be beyond dispute is that in recent years, one of the most significant causes of rising workers' compensation costs is the continual sharp increase in medical spending.

Workers compensation benefits have two components: medical payments and cash benefits paid to disabled workers or the families of deceased workers. In 2002, medical benefits rose by 9.4 percent, while cash payments to workers increased 5.8 percent.

As the NASI study points out, because workers' compensation is not a national system, but is run by each individual state, conditions in some states may differ from national trends.

For example, in California medical benefits rose 26.3 percent, while cash payments to workers increased just 9.7 percent.

To some extent, the problems of the nation's largest state skewed the national data. The report states that employer premiums in California soared $2.4 billion, "accounting for 2.9 percent of the 13.0 percentage point increase in total employer costs estimated for the nation as a whole."

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