Why Have Your WC Rates Gone Up?

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Image courtesy of [Jennifer Maravillas] / Getty Images.

How do the rates you pay for workers compensation coverage compare to the rates charged in other states? The answer can be found in the latest Premium Rate Ranking Survey issued by the Oregon Department of Consumer and Business Services. A new Rate Ranking Survey is issued every two years. A link to the 2014 survey is provided below.

Why are workers compensation rates in one state higher or lower than those in another?

There are a number of factors that can push rates up or down. Six of these are described below.

Benefits Provided

Most states afford the same types of benefits for work-related injuries. These include medical coverage, disability (loss of income), vocational rehabilitation, and death benefits (to survivors). However, the amount of benefits provided is not consistent across the states. Some states provide richer benefits than others. Benefits cost money so higher benefit levels can lead to higher rates.

To demonstrate how benefits vary, suppose that each of two workers has suffered a total hearing loss in one ear due to an industrial accident. One worker resides in State A while the other resides in State B. The worker in State A receives 70 weeks of disability but the worker in State B receives only 49 weeks. The workers have sustained identical injuries but one receives 42% more in disability payments than the other.

 

Some states limit certain types of benefits. For example, a state's workers compensation law may bar a worker from receiving more than 500 weeks of lost income for a certain type of injury that results in permanent partial disability. Another state may afford unlimited disability payments for the same injury.

Injuries Covered

Certain types of injuries may be covered by one state's workers compensation law but not another. For instance, some states cover mental injuries, such as anxiety or depression, only if they result from an on-the-job physical injury. Other states cover mental-only injuries under certain circumstances. An example is post-traumatic stress disorder that stems from a gruesome incident of workplace violence.

State workers compensation laws also differ in the manner in which they cover comorbidities (co-existing conditions) like obesity or heart disease. A heart attack may be compensable in some states if it results from overexertion sustained in the course of employment. Other states may not cover such conditions.

State laws also vary in terms of the types of occupational diseases they cover. Many states cover any diseases acquired on the job that meet certain criteria. Other states cover only specific diseases that are listed in the law (such as asbestosis and silicosis).

Rating Procedures

The manner in which workers compensation rates are developed varies from state to state. In the past, most states relied on the NCCI or a state workers compensation bureau to calculate rates.

Some states still follow this practice. 

Nowadays, however, many states utilize competitive rating. Under competitive rating laws, insurers are generally permitted to develop their own rates based on loss costs provided by the NCCI or a state bureau. These laws are intended to lower workers compensation rates by increasing competition. This strategy has not always been successful. California, which has used competitive rating since 1995, had the highest rates in the nation in 2014.

Some competitive rating states prohibit insurers from using any rates that have not been approved by the state workers compensation authority. However, most of these states permit insurers to use rates immediately once they have filed them with the bureau.

Occupational Differences

Rates can also be affected by the types of industries in which workers are employed.

The mix of occupations varies from state to state. In some states large numbers of workers may be employed in mining, oil drilling, logging and other hazardous occupations. Such workers are more likely to be injured on the job than those in less dangerous occupations. As the number of injuries rises, rates may rise as well.

Claims and Litigation

Another factor that impacts workers compensation rates is the propensity of workers to file claims, particularly for disability. Workers in some states are more likely than those in other states to seek benefits for disability.

There are also differences from state to state in the proportion of workers compensation claims that involve attorneys. As attorney involvement grows in a state, rates may be pushed up.

Cost Differences

Two other factors that affect workers compensation rates are the cost of medical care and wages. Medical costs vary considerably from one part of the country to another. A simple knee surgery may cost $3000 in one state and $15,000 in another. Some states dictate the use of schedules that limit payments to providers. In other states providers are paid the amount billed and no schedules apply.

Workers compensation laws provide disability payments based on a worker's average weekly wage. If wages rise in a state, rates may increase as well.