Rising Workers’ Compensation Claims and What Employers Should Know

The workers’ compensation market has generally remained stable in recent years. However, while the frequency of claims has declined, the cost and severity of individual claims have continued to rise, creating new challenges for employers and insurers alike.

According to the National Council on Compensation Insurance (NCCI), the primary concerns affecting workers’ compensation today include changes in the labor force, medical inflation, advances in medical treatment, and rising healthcare costs resulting from hospital consolidation. Adding to the complexity, the reasons behind increasing claim costs vary significantly from state to state.

The Workers Compensation Research Institute (WCRI) reports that lost-time claims—those involving employees who miss work because of a workplace injury—have steadily increased in most states. The increase has been even more pronounced in states that do not have established medical fee schedules.

An Aging Workforce

Approximately 23% of the U.S. workforce is now 55 years of age or older, and most industry experts agree that an aging workforce is one of the primary drivers of rising workers’ compensation costs.

Employees aged 55 and older account for more than one-fifth of all lost-time claims but represent approximately 31% of total workers’ compensation costs.

Older workers are more likely to have underlying medical conditions such as diabetes, heart disease, or mental health issues. As a result, recovery from workplace injuries tends to be slower and more complicated, often requiring more extensive medical treatment and a longer period before returning to work than younger employees.

At the same time, younger workers can also generate costly claims. As employers continue to struggle with labor shortages, many are forced to hire less experienced employees. Without adequate training and job experience, these workers are more susceptible to workplace accidents. Industries facing severe labor shortages—such as construction and manufacturing—often experience higher rates of serious injuries, including falls from heights, burns, machinery accidents, and vehicle-related incidents.

Rising Medical Costs

Medical inflation continues to be another major factor driving workers’ compensation costs upward.

According to Rising Medical Solutions, medical inflation within the workers’ compensation system recently reached 6.6%, up from the three-year average of 6.4%.

Healthcare consolidation has also contributed to rising claim costs. As hospitals merge and physician practices become part of larger healthcare systems, fewer providers remain in the marketplace, strengthening their negotiating power and leading to higher medical expenses.

In addition, advances in medical technology and the increasing cost of sophisticated medical equipment continue to push claim costs higher.

How Workers’ Compensation Premiums Are Determined

In most states, employers are legally required to carry workers’ compensation insurance to protect employees who are injured on the job.

Workers’ compensation benefits generally include:

• Medical treatment
• Disability benefits
• Vocational rehabilitation
• Death benefits

Workers’ compensation insurance covers not only medical expenses—including physician visits, hospital care, and prescription medications—but also a portion of an employee’s lost wages while recovering from a work-related injury.

Premiums are primarily based on a company’s payroll. At the beginning of the policy period, premiums are calculated using the employer’s estimated annual payroll. At the end of the policy term, the insurance carrier conducts a payroll audit and adjusts the premium based on the company’s actual payroll.

Premium calculations also take into account the employer’s Classification Code, which assigns different premium rates based on the type of work employees perform. In addition, each business is assigned an Experience Modification Factor (Experience Mod), which reflects the company’s individual claims history and workplace safety performance.

Together, these factors determine the final workers’ compensation premium paid by each employer.