Pertinent Perils

Lower Employment, Higher Costs

The California Workers’ Compensation Institute reports that workers’ compensation costs for self-insured employers rose 12.1% from year-end 2007 to year-end 2008. These data reflect the claims experience of private-sector employers that self-insure, which are chiefly Fortune 500-size companies. Nevertheless, this report offers insight for small businesses as it reflects cost trends. Last year represents the first increase in the number of workers’ comp claims for self-insured private sector employers since 1991. Increases in medical payments account for the rise in claims volume. Indeed, it is medical payments, rather than indemnity or lost time from work payments, which account for most workers’ compensation benefits. Because the self-insured employers are large corporations it is less likely that cost-shifting occurred by workers who lacked medical coverage. For small businesses, this can be a significant driver of costs, as employees who lack medical coverage are incented to seek medical benefits by other means. At the same time, however, net premiums written for workers’ compensation in California have declined. Unfortunately, this decline does not reflect reduced risks, but rather reduced employment. California’s unemployment rate is approaching 12% and other states are following, with rising unemployment and declining workers compensation premiums. This trend is exacerbated by the fact that manufacturing, which typically accounts for more claims than service businesses, is in decline. It makes sense to review workers compensation job classifications annually to ensure that your business is not paying more than it needs to in premiums and assessments. The complexity of job coding often results in overpayment. Make sure that your assessments are accurate and fair.