What Does the Future Hold for Workers’ Compensation Insurance Rates
By Donald D. DeCarlo and Roger Thompson
The National Council on Compensation Insurance (NCCI) reports that workers’ compensation insurance rates will again dip in most states in 2018. The report attributes this continuing decrease to two factors; (1) declines in the frequency of claims; and (2) improvement in the area of workplace safety on the part of employers. Tony Gillespie with the Property Casualty Insurers Association of America observed that “When you couple the claims frequency still going down and you have more stable medical costs and very stable indemnity costs, then you are going to keep seeing a progressive reduction in loss costs and rates.”
As background, NCCI is an advisory organization the development and promulgation of workers’ compensation rates in the majority of states. In most states, the NCCI and other rating organizations no longer file final recommended rates. Instead, they file actuarial “loss costs” or pure premium rates. Companies then gross up loss costs for their own particular expenses and rating policies. These insurance rates and loss costs reflect the cost of the product being insured. In the case of workers’ compensation, insurance rates and loss costs reflect the costs associated with wage replacement (indemnity benefits) along with the cost of medical care and other incidental expenses associated with workplace accidents.
In 2017, of the 38 states where the NCCI made rate filings, 36 of those filings were for decreases; many of which were double digit decreases. The trend continued in 2018 where NCCI filings showed decreases proposed in 36 states. As demonstrated in the following exhibit, in 13 of those states, the rate filings decreases were greater than 10%.
In states where rates are approved by independent bureaus, there is a similar downward trend in workers’ compensation rate. The New York Department of Financial Services (DFS) approved a 11.7% decrease in workers’ compensation loss costs effective October 1, 2018. In New Jersey, the insurance commissioner has approved a 5.1% rate decrease for workers’ compensation premiums on a new and renewal basis.
These decreases are taking place across the country. Even California which has a long history of being among the highest in terms of average insurance rates has seen a recent rate decrease. The filing recently approved to be effective Jan. 1, 2019 decreases workers’ compensation loss costs an average of 11.7%. Further decreases may be in the future following evidence that medical payments for workers’ compensation claims continues to fall. These reduced medical payments may be attributed to reforms enacted in 2013 along with a vibrant economy with low unemployment.
As stated at the outset, reductions in claim frequency, improved workplace safety, stability in medical and indemnity costs all contribute to the ongoing trend of decreasing workers’ compensation insurance rates. But are there any issues that may portend a change for the future? Things have a way of going in cycles and workers’ compensation insurance rates are no exception. The following looks at some specific areas where the potential exists to reverse recent rate trends.
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Obesity in the Workforce – Studies reveal that the number of obese individuals in the United States has steadily increased over the past 30 years. According to the Centers for Disease Control and Prevention (CDC), 37.9% of people 20 years of age and older were obese in 2013–2014, while a staggering 70.7% of adults were either overweight or obese. Even more concerning is the fact that nearly half of those obese or overweight people are living with comorbidities, such as hypertension, diabetes, heart conditions, lung conditions, and cancer.
Employers offering workplace wellness programs can influence the eating and health behaviors of both employees and their families thereby improving the health status of both the current and future workforce. Nonetheless, sustained weight-loss for employees has proven a difficult goal for many wellness programs. Obese and overweight employees often avoid or even resist a wellness weight-loss program if they feel it sets them apart from their co-workers’.
Obesity does have an impact on workers’ compensation claims. Obese workers’ often experience injuries that are more severe because extra weight generates increased force during an accident. The period of recovery following a workplace accident is often increased; a 2010 study conducted by the NCCI found that the duration of indemnity benefits paid is at least five times greater where obesity is involved. Finally, obese individuals have an increased incidence of depression and other mental health issues, which can make them more susceptible to opioid abuse; of, if they undergo surgery, there is a high danger of complications, such as blood clots
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Aging of the Workforce – The Bureau of Labor Statistics (BLS) estimates that by the year 2020, the sub-population of older adults in the United States is expected to reach nearly 98 million people, comprising nearly 30% of the entire U.S. population. It is also projected that by 2020, 25.2% of the proportion of the U.S. labor force will be composed of older adults. This continues a trend in increasing rates of older adults remaining in the workforce, as the rates were 13.1% in 2000 and 19.5% in 2010. A complementary trend is the increasing median age of the U.S. workforce. By 2020, the workforce is expected to have a median age of 42.8, which will be an increase from 39.3 in 2000 and 41.7 in 2010.
Another factor contributing to an aging workforce is that employment rates among older workers’ are increasing. The number of people who continue working after they are 65 is relatively high in the U.S. when compared to other developed countries. Due to the physical declines associated with aging, older adults tend to exhibit losses in eyesight, hearing and physical strength. While data seems to show that older adults have low overall injury rates compared to all age groups, they are more likely to suffer from fatal and more severe occupational injuries. In addition it is well recognized that the period of recovery for older workers’ who sustain an injury is also extended. Among older workers’, hip fractures are a large concern, given the severity of these injuries and the duration of recovery.
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Opioids and Marijuana in the Workplace – According to the Centers for Disease Control and Prevention (CDC), 115 Americans die each day from an opioid overdose. Opioids are a class of drugs that include illegal drugs such as heroin, synthetic opioids such as fentanyl and a number of prescription pain relievers. One of the often overlooked areas where the opioid epidemic is creating a crisis is the workplace. The BLS recorded 217 workplace overdose deaths in 2016 from non-medical use of drugs and alcohol, accounting for 4.2 percent of all worker injury fatalities that year. Such deaths accounted for 1.8 percent of the total fatalities in 2013 and have increased by at least 38 percent annually over the four-year period.
Addiction and overuse of opioids is also common within the workers’ compensation world, since opioids are often prescribed for post-surgical pain and other complex conditions associated with workplace injuries and conditions. Earlier studies conducted by the Workers’ Compensation Research Institute (WCRI), a workers’ compensation research organization located in Boston, MA, confirmed the widespread use of opioids in workers’ compensation. A recent study focusing on the impact these drugs have on duration of disability revealed that temporary disability duration was 251% higher on claims receiving opioids on a long-term basis. The higher the dosage, the greater the increase in disability.
Marijuana in the workplace is a well identified topic of concern. The recreational use of marijuana is now permitted in 8 states and the District of Columbia. 30 states permit its use for medical purposes. In addition to risk of injury, increases in absenteeism and injuries to co-workers’ may occur, as marijuana-containing products become increasingly available to workers’.
Both construction and transportation represent employments where the use of marijuana is inherently hazardous. Falls, serious injuries associated with the use of power tools, and vehicular accidents represent the more common incidents. In the meantime, states continue to grapple with approaches that protect the workplace while not infringing on the rights of workers’. Regardless of the strength of the arguments in favor of or against medical marijuana usage, its use in the workplace is primarily a safety issue
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Workplace Safety Programs – The U.S. Occupational Safety and Health Administration (OSHA) strongly promotes safety and health training as an essential component of employers’ efforts to provide a safe workplace. Hundreds of requirements for safety and health training are found in occupational safety and health standards promulgated by OSHA. Regulations promulgated by OSHA also limit certain jobs to persons receiving specialized training. In addition to OSHA requirements, firms receive worker’s compensation premium discounts for their implementation of safety programs.
A survey by BLS indicates that U.S. employers spend a considerable amount of time and resources on both formal and informal training including safety training. This study offers a rare look at the effect of training, benefit packages, and workplace practices on work injury. Results suggest that safety training increases the reporting of injuries but also has real safety effects on days-away-from-work injuries, especially in smaller firms. Safety training appears to be more effective in preventing severe injuries in large firms than in small ones. While overexertion injuries were resistant to safety training, toxic exposure events were reduced in manufacturing establishments with a formal safety training program.
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Legislative and Judicial Activity – Following the recommendations of the National Commission in 1972, virtually all states worked to broaden the extent of their coverage while at the same time increasing the level of benefit entitlement to injured workers’. Ultimately, there arises the question as to whether the coverage and/or benefit pendulum swung too far in favor of the injured worker.
Over the past 30 years there have been various legislative enactments directed at either one or both of these factors. Many of these laws were designed to raise the threshold in terms of what constituted a compensable injury or occupational disease. More recently, there has been a recognition that over time there has been such an erosion of injured employee rights that the original “grand bargain” is no longer in place and that injured workers’ should, therefore, be allowed to proceed against employers with a direct action for damages.
At the state level, we see a growing number of constitutional challenges to provisions such as the time period in which to bring a claim, the level of attorney fees, and the removal of certain benefits available to injured workers’. In response to growing costs experienced earlier, Texas and Oklahoma enacted “opt-out” provision permitting employers to provide alternative coverage for workplace injuries.
In the upcoming years, we may see a healthy debate regarding the level of overall benefits being paid to injured employees along with more expanded coverage. A recently released national study by the Rand Corporation is urging changes to the workers’ compensation system. The study was commissioned by the US National Institute for Occupational Safety and Health (NIOSH) and approaches necessary improvements in order to make the nation’s workplaces safer. While still in the early stages, these activities may prove to portend the future for workers’ compensation.
The above noted issues along with a host of others including levels of employment and the potential for an economic recession all lead to the observation that a continuing decline in workers’ compensation insurance rates may not be a sign such action may continue into the future. If these change should occur, history shows that following activity at the state level to increase benefits and coverage following the 1972 National Commission report, state regulators were slow in approving adequate insurance rates. The same concern exists today that insurance regulators may not be as quick to respond to any increase in claim costs and frequency as they are when claim costs and frequency are going down. At the same time, employers are eager to support rate decreases but hesitant to support action in the opposite direction.
Donald T. DeCarlo, Esq. is the principal of an independent law firm in Fresh Meadows, NY, which focuses on mediation/arbitration and regulatory and insurance counseling. Previously, he was Partner at Lord Bissell & Brook LLP and headed its New York office. He was Senior Vice President and General Counsel of The Travelers Insurance Companies, Deputy General Counsel for its parent corporation Travelers Group, Inc. and Executive Vice President and General Counsel for Gulf Insurance Group.
Mr. DeCarlo is a Certified ARIAS-US Arbitrator and Umpire, a Master Arbitrator for the NYS Insurance Department, and an Arbitrator for the American Arbitration Association and Center for Dispute Resolution. He is the Founder, Chairman and President of The American Society of Workers Comp Professionals, Inc. (AMCOMP). In addition, Mr. DeCarlo is a Director of 17 companies in the insurance industry.
Mr. DeCarlo has authored numerous scholarly articles in legal and trade journals and is a co-author of two books on workers compensation insurance, Workers Compensation Insurance & Law Practice – The Next Generation and Stress in the American Workplace – Alternatives for the Working Wounded.
Mr. DeCarlo Chairs an Advisory Committee of the World Trade Center Captive Insurance Company, and formerly served as Chairman and Commissioner of the New York State Insurance Fund (NYSIF) for 10 years. He also served as an Inspector for the NYS Athletic Commission.
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Roger Thompson is a retiree from Travelers Insurance following thirty years of service in the area of Workers Compensation. Prior to his retirement, Mr. Thompson was Director for Worker’s Compensation Legislative and Regulatory Issues. A graduate of the University of California, Santa Barbara, he began his career with Travelers in Des Moines, Iowa in 1969 and subsequently transferred to the Home Office in Hartford, Connecticut in 1976.
During his career with Travelers, Mr. Thompson worked with various trade associations including the American Insurance Association (AIA), The International Association of Industrial Accident Boards and Commissions (IAIABC) and served on the Research Committee at the Workers Compensation Research Institute (WCRI).
Mr. Thompson is married with two sons and four grandchildren.
Roger Thompson is a retiree from Travelers Insurance following thirty years of service in the area of Workers Compensation. Prior to his retirement, Mr. Thompson was Director for Worker’s Compensation Legislative and Regulatory Issues. A graduate of the University of California, Santa Barbara, he began his career with Travelers in Des Moines, Iowa in 1969 and subsequently transferred to the Home Office in Hartford, Connecticut in 1976.
During his career with Travelers, Mr. Thompson worked with various trade associations including the American Insurance Association (AIA), The International Association of Industrial Accident Boards and Commissions (IAIABC) and served on the Research Committee at the Workers Compensation Research Institute (WCRI).
Mr. Thompson is married with two sons and four grandchildren.
