Medical Costs Driving Workers’ Comp Rate Increases

Reforms to Connecticut’s workers’ compensation system put in place in the early 1990s helped rein in out of control workers' compensation costs while securing some of the most generous benefits in the nation for injured employees.  

Unfortunately, medical costs have continued to rise since then, including within the workers’ compensation system, causing significant cost increases. While employees’ replacement wages were at first the main cost driver of the workers’ comp system, today wages and medical costs have become equal.    

Starting Jan. 1, 2014, employers–including those who have never had an employee make a claim–will face their fifth consecutive year of increases to workers’ comp costs. Rising medical costs continue to be the main culprit for the increases. 

The Connecticut Insurance Department has approved proposed rates for policies purchased in the normal, or voluntary, market that increase by 3.2% overall; and rates for assigned risk policies that will rise by 5.7%. Costs for self-insured companies will likely increase as well, since their costs generally mirror those for insured businesses.

The rate changes were proposed by the National Council on Compensation Insurance Inc. (NCCI), which analyzes and recommends workers’ comp rates for insurers in more than 40 states.

Here’s how the rates break down by industry:

Voluntary Market

Manufacturing        + 3.7%                      

Contracting             + 3.5%                      

Office & Clerical       + 2.5%                      

Goods & Services     + 2.3%                      

Miscellaneous          + 5.2%                      

Overall  + 3.2%

Assigned Risk Market

Manufacturing + 6.2%

Contracting + 6.0%

Office & Clerical + 5.0%

Goods & Services + 4.7%

Miscellaneous + 7.7%

Overall  + 5.7%

NCCI said the primary cost drivers are:

• Average costs for both indemnity and medical care that remain high and are growing faster than wages
• The medical cost per case for lost time claims that has increased dramatically over the last eight years

The proposed rates are “pure premium” rates, which do not include costs associated with administration, premium taxes, and other expenses—nor do they take companies’ claims experience into consideration.

Hospital Charges

Worsening the situation, a state workers’ compensation commissioner ruled last year that an employer had to pay whatever a hospital billed for its services. The decision upended the longtime practice of allowing employers to negotiate lower charges for services, and required paying hospital charges that are often billed significantly higher than actual costs.

Legislation to re-establish employers’ ability to negotiate with hospitals was heavily lobbied on both sides by businesses and hospitals this year but ultimately died on the vine at the end of the 2013 session. 

Legislators can help control skyrocketing medical costs by restoring a reasonable and prudent way of negotiating hospital charges.

The Labor Committee is holding meetings with interest groups in an effort to resolve the issue prior to the start of the 2014 session.

For more information, contact CBIA’s Eric Gjede at 860.244.1931 or eric.gjede@cbia.com.