November 12, 2022

Inflation’s Impact on Workers’ Comp

The National Council on Compensation Insurance (NCCI) has released a series of reports addressing the impact that rising inflation and subsequent shifts to workforce dynamics have had on workers’ comp.

In terms of medical costs, the NCCI found that while medical costs faced moderate inflation over the last decade, recent consumer inflation is hitting comp as well. Approximately 80% of workers’ comp medical costs is tied to physician costs and facility costs, which have both gained a greater share in medical payments from 2012-2022 across the country.

Physician and facility costs have also gone up, with facility costs experiencing greater increases. This is likely because the prices of medical services are changing, as is the measure/mix of services provided to injured workers.

Drugs costs have been the target of much legislative action, which has led to cost savings over the years, but the level of regulation for physician and facility costs is not currently comparable, leading to higher costs in the face of growing inflation.

In another report, NCCI addressed wage inflation, noting that post-pandemic labor shortages required wage increases to attract workers, which lead to various shifts in workforce dynamics. The total private workforce saw an average 6% increase in wages, with wage growth varying greatly across employment sectors.

One immediate impact for workers’ comp is that as wages increase, payroll has increased, which means that premiums have subsequently increased.

The report notes that wages grew faster in recent years for low-wage jobs, as these jobs often displayed the strongest demand for recovery, with the Leisure and Hospitality sector seeing the highest wage growth noted from June 2021 to June 2022 at just under 12%. Transportation and Warehousing saw similar growth.

However, this report points out that lower-wage earners experienced greater injury frequency. While the report specified which sectors experienced growth, total compensation was not addressed, meaning that sectors that still experienced growth could still be considered low wage.

Essentially, if low-wage positions have gained greater appeal, wage inflation could attract workers to industries with labor shortages. This can bring compounded risk, as these low-wage positions are linked to injury frequency, compounded by the injection of newer, less-experienced workers who also bring heightened injury risk.

In a separate report on the Great Resignation and the Great Reshuffle, the NCCI noted that short-tenured workers were twice as likely to suffer work injuries that full-tenured employees.

Workers’ Comprehensive

News and views in workers’ comp

Important news in workers’ comp delivered to your inbox