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Employee Benefits as a Share of Payroll at Lowest Level Since 1980

Workers Comp 480x377
October 06, 2017

An October 2017 report from the National Academy of Social Insurance (the Academy) titled Workers' Compensation: Benefits, Coverage, and Costs has revealed that workers compensation employer costs as a share of payroll declined in 2015, reversing a 4-year trend, and benefits as a share of payroll fell for the fourth straight year.

Amid an increase in employees covered by workers compensation spurred by economic recovery and employment growth, benefits per $100 of payroll fell from $0.92 in 2014 to $0.86 in 2015—the lowest level since 1980. Between 2011 and 2015, benefits as a share of payroll fell in all but three states, continuing a national trend of declining benefits relative to payroll that began in the 1990s.

Meanwhile, workers compensation employer costs per $100 of payroll ticked down to $1.32 in 2015—the fourth lowest level since 1980. Employer costs as a share of payroll had increased consistently after the Great Recession but leveled off in 2014 and declined in 2015, reversing its previous trend. Between 2011 and 2015, employer costs as a share of payroll declined in 27 states.

"Part of the story behind the decline in benefits and costs as a share of payroll is that workplaces are getting safer," said Marjorie Baldwin, professor at Arizona State University and coauthor of the report. "Both the incidence and severity of work-related injuries have declined steadily since 1990. In fact, according to the Department of Labor, the proportion of workers who experienced injuries that resulted in days away from work reached a 25-year low in 2015."

In aggregate, workers compensation benefits paid in 2015 were $61.9 billion, a 0.7 percent increase from 2011. Aggregate employer costs for workers compensation increased by 20.1 percent across the same period, reaching $94.8 billion in 2015. Most of the growth in employer costs occurred between 2011 and 2014; in 2015, costs increased only 2.3 percent from the previous year.

Workers compensation, the nation's first social insurance program, pays medical benefits to the providers of health care for injured workers and cash benefits to workers whose injuries prevent them from working. In 2015, total wages covered by workers compensation exceeded $7 trillion for the first time, increasing by nearly 19 percent between 2011 and 2015. Overall, in 2015, workers compensation coverage extended to an estimated 86.3 percent of all jobs in the employed workforce, comprising more than 135 million workers.

In large part because of growing medical costs over the last 30 years, medical benefits now account for an increasing share of total workers compensation benefits, rising from 29 percent in 1980 to more than 50 percent in 2015. However, from 2013 to 2015, medical benefits paid declined faster than cash benefits paid—nonfederal medical benefits paid fell 2.3 percent to $29.9 billion in 2015, and nonfederal cash benefits fell 0.7 percent to $28.3 billion.

"The relative decline in medical benefits paid between 2013 and 2015 can be partially explained by some states changing their workers compensation medical care delivery systems," said Christopher McLaren, senior researcher at the Academy and lead author of the report. "Some of the changes involve, for example, implementing fee schedules that set maximum reimbursement rates for medical care or adopting treatment guidelines. Many states have also enacted new disability rating procedures and compensability requirements that impact cash benefits paid. All of these factors influence the share of medical benefits, as well as total benefits and costs."

The Academy report highlights the following state-by-state changes in coverage, benefits, and employer costs between 2011 and 2015.

  • The number of covered workers increased in every state except West Virginia, with 11 states experiencing double-digit growth in covered employment.

  • The amount of covered wages increased in every state and by more than 20 percent in 16 states.

  • Benefits per $100 of payroll decreased in all but three states, with the biggest declines in Illinois (-$0.33), Oklahoma (-$0.41), and West Virginia (-$0.52)—three states that implemented significant changes in their workers compensation systems during this period.

  • Employer costs per $100 of covered payroll increased in 24 states and decreased in 27 states. West Virginia, Montana, and Oklahoma experienced the largest reductions, with costs dropping more than $0.30 per $100 of covered payroll. Employer costs increased by more than $0.20 in Wyoming, Delaware, and California.

The October 2017 Workers' Compensation: Benefits, Coverage, and Costs is the 20th in an annual series. The report provides the only comprehensive data on workers compensation benefits, coverage, and employer costs for the nation, the states, the District of Columbia, and federal programs.

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