Driven by rising medical costs, catastrophic claims and expanded stress regulations, workers’ compensation premiums are climbing. Employers can curb costs through workplace safety, efficient claims processing and empathetic support for employee stress.
After years of moderation, workers’ compensation premiums are poised for escalation. Contributing to the increase are growth in catastrophic claims, rising medical costs and new state regulations that recognize the work-related nature of a greater variety of conditions, including mental stress. Employers can control costs by improving workplace safety, efficiently processing claims, and dealing empathically with employee reports of psychological stress.
Employers, take a bow. Your efforts to reduce workplace injuries have paid off big time. “The number of reported accidents under the worker’s compensation system has been falling steadily in recent years,” said James J. Moore, president of J&L Risk Management Consultants. “The reason has been largely due to successful safety programs.”
The healthier workplace environment has attracted a good number of insurance companies to the market, putting downward pressure on prices. “In general, insurance companies find workers’ compensation to be a profitable line of business,” said Randy Sieberg, president of Workers Compensation Consultants. “As losses have been trending downward, the end result is a really decent claim experience.”
Note: Employers in most states can shop for workers’ compensation insurance from competing private insurance carriers and compare those rates with plans from state-run funds. Ohio, Washington, Wyoming and North Dakota, however, maintain “monopolistic state fund systems” requiring employers to purchase such insurance through single state-operated facilities or self-insure if they are large enough to do so.
Danger Ahead
Despite the recent cost moderation, employers in the wall and ceiling construction industry need to be aware of dark clouds gathering. Foremost among them is an increase in expensive catastrophic claims, driven largely by advances in medical technology.
“While there’s been a soft insurance market for several years, those days might be numbered,” said Matt Morris, principal at World Insurance Associates. “The increasing incidence of million-dollar claims is going to start catching up with carriers.”
The mega claims are coming while more states are adjusting their fee schedules to reflect higher costs. “We’re seeing many states increase workers’ compensation benefits across the board, adjusting for inflation, higher medical expenses and a rising cost of living,” said Morris. “And ever since COVID we’re seeing carriers covering a lot more mental health conditions and PTSD.”
There’s yet another danger. While workers’ compensation is primarily a state driven phenomenon, that doesn’t mean actions at the federal level can’t affect employer costs. “We’re concerned about the possible negative effects of U.S. trade policy,” said Dennis Tierney, director of workers’ compensation claims at Marsh, a global insurance broker. “Employers who get impacted by tariffs may start cutting expenses, and that often means getting rid of employees. And reductions in force typically lead to an increase in workers’ compensation claims.”
Such increases can often be fed by desperation, noted Tierney. People who lose their jobs often look for another source of income and may find it in the form of back pain or similar condition that developed over the years and that could be deemed an occupational injury.
This temptation to assign workplace culpability comes while many states are passing laws reflecting a more liberal presumption—a term referring to the automatic determination that certain injuries are work-related, and thus compensable by the workers’ compensation system. It is up to the employer to prove otherwise.
Security cameras can help provide a defense against some of these instances. “Having everything monitored is a best practice and a good way to avoid frivolous claims,” said Morris. “Many times, employees will be joking around and not doing the right things on a work site and then claim a work-related injury when the video shows something else happening.”
Tariffs may lead to cost hikes for other reasons, escalating drug prices among them. “Raw materials for drugs are a big part of medical spend,” said Tierney. “Duties on imported ingredients may result in bigger bills for end users.”
Tariffs also can have a deleterious effect on labor costs. A manufacturing reboot in the United States—the ultimate goal of the Trump administration tariff policy—may increase the demand for workers, putting upward pressure on wages. “The administration’s restrictions on immigration could lead to the loss of cheaper labor and thus affect workers’ compensation rates which are figured off wages,” said Moore.
Younger Workers
Yet another force for higher premiums is an influx of younger workers as employers fill the ranks depleted by retiring Boomers. “In five years, we figure that some 25% of employees are going to be Gen Zers,” said human resources consultant Rachel Shaw. “We are concerned that we may see more injuries as a result, since there is a question mark as to whether they are coming into the workforce with the same skills and training and experience.”
The difficulty younger workers face in obtaining affordable health care is expected to add additional upward premium pressure. “We may see an increase in claims as people struggle with obtaining and maintaining medical care,” said Shaw. “We have in the past seen people use the workers’ comp system for either personal medical needs or as wage extension.”
The influx of younger workers can increase costs for two other reasons. First, younger workers have a more liberal attitude toward the use of recreational marijuana. “The younger generations see marijuana as more like beer or alcohol,” said Shaw.
“We anticipate that as more states legalize recreational marijuana we’re going to continue to see some impact, especially in industries that require workers have balance and focus to do their job well and to be safe and not have catastrophic injuries.” The National Institute on Drug Abuse (NIDA) found that workers testing positive for marijuana were involved in 55% more industrial accidents, 85% more injuries, and experienced 75% more absenteeism.
Additionally, mental health issues have much less stigma among members of the younger generations, who are more comfortable than Boomers discussing and claiming work-related stress. They also expect mental health support from their employers.
“Mental health claims seem to be the fastest growing segment of the workers’ compensation picture,” said Sieberg. “While they currently don’t add up to a large percentage of overall claims, they can cost from two to five times the amount of traditional claims and run two to five times as long.” Mental health claims are also more likely to be litigated, further escalating costs.
Many states are introducing regulations that help fuel the growth of mental health claims. For example, there is an increasing presumption of a work-related nature for reported psychological and stress-related injuries. Furthermore, many states are no longer requiring that mental health claims be preceded by physical injuries.
It used to be that a worker claiming work-related depression would have to show that a preceding event such as a back injury caused mental stress by keeping them from carrying out their normal daily routines. “Today, employees might claim they were abused in the workplace by a coworker or a manager, or they witnessed an event that caused psychological damage,” said Tierney.
These upward payroll pressures are coming at a time when the federal government is deregulating workplace safety standards from the Occupational Safety and Health Administration (OSHA). Recent steps out of Washington include the following:
- Reducing the number of workplace inspectors and engaging in less aggressive enforcement actions.
- Delaying regulations mandating heat injury prevention standards.
- Reconsidering a regulation allowing employees to designate third parties (such as union representatives) to accompany OSHA workplace inspectors.
“Some companies love the idea of deregulation because it can reduce immediate compliance costs,” said Shaw. “But a resulting increase in injuries might well raise costs over the longer term.”
Reducing Costs
Employers are not powerless to navigate a more challenging workers’ compensation landscape. Indeed, the most powerful defense is the establishment of the very workplace safety programs that have helped control costs to date. Employers that reduce injuries generally see lower experience modification factors (EMRs). That can reduce premiums and improve competitiveness when bidding construction projects.
“The claim that doesn’t happen is the least expensive claim,” explained Sieberg. “Employers need to be proactive in creating programs that train employees on how to perform their work safely. That can include everything from making sure they’re wearing the right shoes and other protective equipment, to ensuring they’re lifting correctly and taking appropriate breaks.”
Designing a good workplace safety program is one thing. Getting the word out to employees in an effective way is another. Experience shows that distribution of information on company bulletin boards and newsletters tends to get overlooked. More effective are daily “toolbox talks”—short, 10-minute interactive talks by supervisors that concentrate on one hazard at a time. These can cover such topics as ladder safety, electrical hazards, heat illnesses and proper lifting techniques.
Quick claims processing can also help with cap expenses. “When an injury occurs, employers need to promptly report the matter to the carrier, then conduct an investigation into how the injury occurred and how the company can obviate similar incidents in the future,” said Sieberg. “When discussing the accident with employees, remember that the investigation is not about blame, but about learning how to eliminate future risks.”
Employers can also reduce costs by establishing effective claims management programs. And the first step of such programs is empathic communication with injured workers. “One of the most expensive parts of workers’ compensation is litigation,” said Shaw. “Bear in mind that employees usually don’t sue employers because of injuries, but because they feel disbelieved, ostracized, and unsupported. It’s an emotional reaction.
And so, I always encourage employers, especially smaller ones where lawsuits can threaten their livelihoods, to treat injured employees with concern. Employees should understand that you take their injuries seriously and you will stay on top of their treatment until they can return to work.”
Prompt Action
Prompt action is especially cost effective for claims of psychological stress. “The temptation by insurance companies is to delay mental health claims, especially during the first couple of months after a report,” said Shaw. “But what we know is that if we can get those people prompt behavioral support, even if we do not accept workplace responsibility, we can get them back to work more quickly and reduce claim cost and duration by up to 70%.”
Employers would also be wise to have a workers’ compensation attorney on call for shepherding injury cases, even if litigation is not anticipated. “Bear in mind that insurance companies often have a self-interest in managing claims slowly, while it can be better for employers to get the workers back to work without delay,” said Shaw. “It can be cost effective to have an attorney on retainer for a couple of hours a month to push claims forward.”
While the business environment is becoming more sympathetic to the claims of injured workers, employers can take steps to mitigate the dangers. “The financial health of the workers’ compensation system follows from businesses being in control of safety programs and managing claims effectively,” said Sieberg. “But employers must be diligent. They have to stay on top of things.” CD
Phillip M. Perry is a full-time freelance business writer with more than 20 years of experience in the fields of workplace psychology, employment law and marketing. His byline has appeared over 3,000 times in a variety of business publications.
