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Workers comp costs spiraling down for sixth straight year

Employers are spending less on workers compensation insurance premiums, and some employees could see more perks or higher wages as a result. A study released by the National Academy of Social Insurance (NASI) shows that 1998 was the sixth consecutive year in which workers comp costs declined as a percentage of employer payrolls.

"Some of that cost decrease is due to substantial, successful efforts to reduce the workplace injury rate," says John Burton, dean of the School of Management and Labor Relations at Rutgers University and a co-author of the NASI study. "Anecdotal evidence suggests that employers are taking an aggressive approach to rehabilitation and return-to-work programs, which means workers are brought back to work sooner, which is more cost-effective for employers."

The study cites recent restrictions on workers comp eligibility and more efficient use of workers comp budgets as other contributing factors to declining employer costs. However, NASI declines to draw firmer conclusions about cause or effect — incomplete data from some states makes conclusions difficult.

Workers comp benefit payments include cash payouts for wages and medical care expenses. According to the study, benefit payments as a percentage of payroll declined by 35 percent between 1992 and 1997 (but rose slightly in 1998), while premiums declined by 38 percent between 1992 and 1998.

Since workers actually pay for their workers comp coverage in the form of lower wages (Burton estimates that 70 cents out of each dollar earned pays for employers' workers comp premiums), workers could see higher wages or more benefits result from workers comp premium cuts.

"Employers are taking an aggressive approach to rehabilitation."

The report calls this decline "unprecedented," pointing out that between 1960 and 1992, employer costs rose from less than one percent of payroll in 1960 to 2.17 percent of payroll in 1993, before beginning a drop to nearly half the 1993 rate in 1998.

Burton says it's unlikely the declining-cost trend will continue. He notes that workers comp benefits paid in 1998 increased slightly from past years, which forbodes rising premiums to come. And a trend toward "reforming" the workers comp system — that is, restricting workers comp claim eligibility — which contributed to a drop-off in premiums, is on the wane.

NASI is a private, non-profit organization based in Washington, D.C., conducting research on social insurance including workers comp, social security, disability, and unemployment insurance.

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