The cost increase in 2004 the most recent year for which data are available continues a trend that began after 2000, when workers' compensation costs and benefits relative to wages were at their lowest point in the last 15 years.
Total workers' compensation benefit payments for injured workers rose by 2.3 percent to $56 billion, while employer costs rose by 7 percent to $87.4 billion.
"The fact that employer costs rose faster than payments for benefits and medical care reflects broader developments in the insurance industry," said John Burton Jr. of Rutgers University, who chairs the panel that oversees the report. "Employer costs reflect rising premiums insurers charge to cover future benefit costs. The recent rise in costs appears to be part of a longer cycle of ups and downs in the insurance market."
Relative to wages of covered workers, benefit payments fell by 3 cents for every $100 of wages in 2004 from $1.16 to $1.13. Most of this national decline can be attributed to changes in California, where medical benefits dropped by 10 cents per $100 of covered payroll.
Nationally, the costs to employers primarily the premiums they pay for workers' compensation insurance (or the benefits they pay plus administrative costs if they self insure) rose by 3 cents per $100 of wages, to $1.76 in 2004.
The increase in costs in 2004 was the smallest annual increase since the current cycle of higher costs began in 2001.
"This development may signal a period of more modest increases in workers' compensation costs," Burton said.
Costs, Benefits Still Below Peak Levels
Despite the recent rise in costs, both costs and benefits in 2004 remain far below their peak levels relative to wages.
Total benefits peaked in 1992 at $1.68 per $100 of covered wages, which is 55 cents higher than the most recent figure. Costs to employers peaked in 1990 at $2.18 per $100 of wages, which is 42 cents higher than in 2004.
"The decline in employer costs in the 1990s occurred as favorable investment returns led insurance companies to cut premiums in order to expand their market shares," Burton said. "Costs also declined in the 1990s because of the drop in benefits paid to workers. After 2000, low interest rates and poor stock market returns led insurers to raise premiums in order to cover future benefit costs."
Since 2000, the growth in benefit payments stemmed from increased spending for medical care. Spending for medical treatment grew from 47 cents per $100 of wages in 2000 to 53 cents per $100 in 2004. Spending for cash payments to workers relative to wages was the same in 2004 as in 2000 60 cents per $100 of wages.
The report Workers' Compensation: Benefits, Coverage and Costs, 2004 is the ninth in a NASI series that provides comprehensive national data on these largely state-run programs. The study provides estimates of workers' compensation payments cash and medical for each state, the District of Columbia and the federal programs providing workers' compensation benefits.