Medical Costs Impact Workers’ Compensation Premiums Less Than Widely Believed

It’s the Labor Market, Stupid

A significant flaw regarding how many experts have analyzed factors that determined the economic costs of workers’ compensation insurance coverage was that these professionals limited their scope to the long list of usual suspects, which included pill mills and imperfect fee schedules. The March 13, 2014 presentation titled “How the Economy Drives the Financial Performance of Workers’ Compensation” at the 2014 Annual Issues & Research Conference that Workers Compensation Research Institute held in Boston offered a broader perspective regarding understanding the factors that established workers’ compensation insurance premiums.

Economist Harry Shuford, Ph.D., with NCCI Holdings, Inc. in Boca Raton, Florida, focused his discussion regarding how the American economy impacted workers’ compensation costs on the labor market and how interest rates affected the performance of the investments that insurers select for their surplus funds. His points regarding the former included:

> Unemployment rates in higher-premium industries, such as manufacturing, being higher than the rates in other industries was a significant reason that premiums for workers’ compensation insurance fell an estimated 23-percent between 2007 and 2009; and

> Economic improvement prompts greater hiring of inexperienced workers, who tend to incur more work-related injuries than more experienced workers, which places upward pressure on premiums for workers’ compensation insurance.

Shuford’s noted regarding underwriting income from investments that this economy-related revenue stream was volatile; he further observed that the fact that investments typically paid lower interest during a recession and the period following such an economic downturn negatively affected the yield on investments in fixed-income portfolios.

The Bottom Dollar

The analysis of Shuford reflects the same holistic/cooperative approach that many workers’ compensation experts recommend regarding treating injured workers; understanding the problem and responding accordingly requires thoroughly understanding every relevant factor and utilizing the expertise of everyone with applicable knowledge.

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