Drop in California Spending Lowers U.S. Workers' Compensation Benefits and Costs

August 22, 2007

WASHINGTON, DC—U.S. workers’ compensation payments for medical care and cash benefits for workers disabled by workplace injuries or diseases declined in 2005, according to a study released today by the National Academy of Social Insurance (NASI).

The drop in payments in 2005 (the most recent year with data) reflects large declines in California payments, as reforms enacted in 2003 and 2004 took effect. Nationally, workers’ compensation payments for injured workers fell by 1.4 percent to $55.3 billion in 2005. The payments include $26.2 billion to providers of medical care and $29.1 billion in cash wage replacement benefits for injured workers. California payments fell by 12.2 percent; a change made up of a 16.0 percent decline in medical payments and an 8.6 percent decline in cash payments. “The reduced spending for benefits and medical care reflects the initial stages of cost containment measures that were put in place in 2003 and 2004 reforms to the California system,” according to NASI member Christine Baker, who directs the California Commission on Health and Safety and Workers’ Compensation, a nonpartisan labor-management group that advises state policymakers.

Because it is a large state – accounting for nearly 20 percent of national benefit payments in 2005 –California altered national trends. Outside California, total workers’ compensation payments rose by 1.7 percent, an increase driven by a 4.1 percent increase in payments to medical providers. Cash payments to injured workers outside California showed a small decline (0.3 percent).

The costs to employers for workers’ compensation are what they pay each year. For employers who buy insurance, costs are premiums they pay to insurance companies plus benefits they pay under deductible arrangements in their insurance policies. For employers who insure their own workers, costs are the benefits they pay plus administrative costs. In 2005, employers paid a total of $88.8 billion nationwide for workers’ compensation. A sharp drop in California employers’ costs (of 9.8 percent) held down the national increase in employer costs to 2.3 percent. Outside California, employer costs for workers’ compensation rose by 6.5 percent.

The new report tracks trends since 1989 in workers’ compensation benefits and employer costs relative to total wages of workers covered by the program. Relative to wages, cash benefits in 2005 were the lowest in 17 years ($0.56 per $100 of wages). Nationally, total benefits (cash plus medical) and employer costs fell relative to wages in 2005. Cash and medical benefits combined were $1.06 per $100 of covered wages in 2005, a drop of $0.07 from 2004, while employer costs were $1.70 per $100 of wages in 2005, down $0.05 from 2004.

Outside California, benefits per $100 of wages fell by a smaller amount ($0.03) and employer costs per $100 of wages rose slightly (by $0.02). According to John F. Burton, Jr., chair of the panel that oversees the study, “The relative stability of benefits outside the Golden State reflects a rough balance between the declining frequency of workplace injuries and higher expenditures for medical benefits.”

The new report, Workers’ Compensation: Benefits, Coverage and Costs, 2005, is the tenth in a NASI series that provides the only comprehensive national data that covers all types of employers. The study provides estimates of workers’ compensation cash and medical payments for each state, the District of Colombia, and federal programs.

To download the full report, click here.
To download a PDF of this release, click here.