By: John F. Burton, Jr. and Daniel Mont
Published: June, 2001
A May 29 article in the Daily Mail (“State Comp Pays Four Times National Rate”) cites a recent report by the National Academy of Social Insurance (NASI) as the basis for a claim that businesses in West Virginia face the highest workers’ compensation costs in the nation. This interpretation of our report is wrong.
As the NASI report states, “these figures [benefits paid per $100 of covered payroll] do not accurately portray the comparative cost to employers of the workers’ compensation program in one state versus another.” They also do not tell us whether the benefits that an individual injured worker receives are high or low.
Workers’ compensation benefits paid per $100 of covered payroll can differ across states for a variety of reasons. As explained in the NASI report, these include differences in the statutory provisions for workers’ compensation programs, different injuries, variations in state wages and demographic factors, differences in health care delivery systems, migration across state lines, and different industrial and occupational mixes, which all affect state-wide average injuries rates.
As an example of how the industrial composition of a state can affect state injury rates, data from the U.S. Bureau of Labor Statistics on the number of lost work-related injury cases per 100 workers in which workers were away from work for at least a day indicate that West Virginia workers were from 25 percent to 75 percent more likely to be affected than workers elsewhere in the country in 1998 and 1999. These higher injury rates in West Virginia were to a large extent due to the disproportionate share of high-risk industries, such as coal mining, in the state.
States with dangerous industries, relative declines in working age populations, and recent reductions in statutory levels of workers’ compensation benefits (like West Virginia) may show high benefits paid per $100 of covered payroll while at the same time employers’ premium costs and benefits for those workers who were recently injured may be low. It is therefore inappropriate to use the benefits paid per $100 of covered payroll as a measure of either benefit adequacy for workers or of employers’ costs.
While the information on workers’ compensation benefits paid per $100 of covered payroll are useful for certain purposes, they are surely an inappropriate and unsophisticated way to determine the relative costs of workers’ compensation for employers in different states. An employer’s costs for workers’ compensation in different states should be evaluated by comparing the premiums that comparable employers pay in each state. These premiums are largely affected by benefit payments to employees in the employer’s particular insurance classification and by the employer’s own experience with past injury rates and the severity of injuries its workers sustained. Data on aggregate benefits per $100 of covered wages in the state, or even data on the costs of workers’ compensation for all employers in a state do not provide this information. If a refinery is trying to decide whether to locate in Warren, Ohio or Wheeling, West Virginia, the relevant information is the cost of workers’ compensation insurance for refineries, not the average benefit payments or costs of insurance for all employers in the two states. The NASI report does not provide this type of information.
If employers want to know how their costs compare to those of employers in other states, they should therefore compare premium costs. The State of Oregon has provided a reliable comparison of premiums paid by comparable employers that shows that West Virginia was ranked thirteenth in the nation in 2000.
For a more detailed discussion of these issues, please read our report located at www.nasi.org. We are also prepared to meet with interested parties in West Virginia to discuss the NASI report if this would help clarify the appropriate use of workers’ compensation data.
John F. Burton, Jr.
Chair, Steering Committee on Workers’ Compensation
National Academy of Social Insurance
School of Management and Labor Relations
Director, Workers’ Compensation Project
National Academy of Social Insurance