Workers’ Compensation Benefits, Costs, and Coverage

The 25 th annual workers’ compensation report produced by the Academy provides the only comprehensive data on workers’ compensation benefits, coverage, and employer costs for the nation, the states, the District of Columbia, and federal programs. This is the first annual report to include data reflecting the impacts of the COVID-19 pandemic, with a five-year study period from 2016 to 2020. The report includes 19 tables, 7 figures, and 5 appendices detailing outcomes related to workers’ compensation benefits, costs, and coverage.

Executive Summary

Introduction

Like other social insurance programs – e.g., Social Security, Medicare, and Unemployment Insurance – workers’ compensation uses contributions from employers to provide support for workers when they need it. 1 As the first social insurance program to be implemented in the United States, the first states adopted workers’ compensation in the early 1910s, when federal-level programs were not yet considered legally acceptable. Other states quickly followed suit, with 43 states having enacted workers’ compensation laws by 1920 and the last in 1948. The lack of a federal framework distinguishes it from the other SI programs.

In the century since, workers’ compensation has served as a critical protection for injured and ill workers and their families, providing medical care and, when appropriate, wage replacement benefits. 2 It also pays funeral expenses and survivor benefits for those whose injuries result in death. The program has evolved to protect not only those injured at work, but also some workers who become ill due to workplace factors, though such “occupational diseases” have been less clearly and consistently covered.

The state-based nature of the system makes it difficult to measure the national-level impact of annual legislative and regulatory changes on employers and workers. This makes the National Academy of Social Insurance’s annual Report on Workers’ Compensation Benefits, Costs, and Coverage an important and unique resource.

Since 1996, the Academy has produced the nation’s only annual report providing data on workers’ compensation coverage of the U.S. labor force, the cost to employers of that coverage, and benefits paid to workers both at the national level and across states. These reports provide data updated to two years prior – in this case, the most recent data are from 2020 – and update the preceding four years (2016-19). In this report, the five-year “study period” is from 2016-2020, with 2020 notable as the first data year reflecting changes brought by the COVID-19 pandemic.

This executive summary highlights key findings and trends from the report.

Key Findings and Trends

Total benefits paid decreased between 2016 and 2020 from $62.7 billion to $58.9 billion due to a sharp decline in the first pandemic year, while standardized benefits3 continued declining, following a decade-long trend (Table 1).

• Total benefits paid increased by 0.5% between 2016 and 2019 but fell by 6.0% over the whole study period due to a 6.5% decrease in the first year of the pandemic. Cash benefits were stable, while medical benefits declined by 12.0% and by 11.4% between 2019 and 2020 alone.
• Standardized cash and medical benefits fell by 14.5% and 24.8%, respectively, producing a 19.6% decline in total standardized benefits 3 between 2016 and 2020.

Employer costs declined more than worker benefits over the study period on both a total basis—from $100.2 billion to $93.0 billion—and a standardized basis, sustaining a long-term trend (Table 1).

• Total costs fell by 7.2% over the five-year period, driven by a 7.3% decrease in the first year of the pandemic.
• Adjusted for labor-force changes, standardized employer costs 3 declined by 20.7% over the study period.
• The long-term downward trend in standardized costs 3 continued, down 40.5% to $1.07 since peaking at $1.80 in 2003 (Table 15).

Covered jobs declined over the study period due to pandemic job losses, while covered wages continued to increase, albeit at a much slower rate in the first pandemic year (Table 1).

• In 2020, workers’ compensation covered almost 136 million jobs across the country, with a total of $8.7 billion in covered wages.
• Measured by covered jobs, workers’ compensation coverage decreased by 2.1% over the study period, driven by a 6.1% decrease between 2019 and 2020 alone.
• Covered wages increased by 17.0% over the study period and by 1.6% in the first year of the pandemic despite extreme job loss.

State-level data and outliers

Benefits

• There are considerable cross-state differences in standardized benefits, 3 with only one state, Hawaii, seeing an increase over the study period (Table 12). Declines ranged from 2.4% in South Carolina to over a third in North Dakota (37.6%). Twenty-six states observed standardized benefit declines of at least 20% and, of those, seven saw declines of 25% or more.
• In the first year of the pandemic, only Hawaii, Oklahoma, and South Carolina experienced an increase in standardized benefits relative to 2019. South Carolina had the largest increase (5.0%), while Alabama had the largest decrease (21.9%).

Costs

• Like benefits, standardized employer costs 3 vary substantially across states from the 20.7% national decline over the study period (Table 14). In Hawaii, standardized costs were stable, and no state saw an increase. Decreases in the other 50 states range from 5.8% in Nevada to 31.3% in North Dakota. In all, standardized costs declined by at least 20% in 33 states, and at least 25% in 15.

• In the first year of the pandemic, only South Carolina experienced an increase in standardized costs (0.7%) relative to 2019. Declines in other states ranged from 0.2% in Missouri to 17.5% in Alabama.

Covered Jobs

• Covered jobs increased in 12 states over the study period despite universal decreases in the first year of the pandemic. Idaho had the largest increase (8.8%), while Hawaii had the largest decrease (14.5%) (Table 3).

• The largest of the across-the-board first-pandemic year declines took place in Hawaii (15.9%), Nevada (10.4%), and New York (10.2%), and the smallest declines were in Arizona (3.1%), Utah (1.2%), and Idaho (0.6%).

Covered Wages

• Covered wages increased in every state over the study period, again with substantial variation from state to state (Table 4). Washington experienced the largest increase (32.3%), and Hawaii experienced the smallest (3.1%).

• In the first year of the pandemic, 15 states saw covered wages decline relative to 2019, with the largest in Hawaii (7.4%). The remaining 36 states experienced increases in spite of job loss, with the largest in Idaho (7.2%).

Other Trends

Benefit to Cost Ratio

• The ratio of benefits paid to employer costs has fallen substantially in the past two decades (Table 15).
  • In 2000, benefits represented 76 cents of every dollar in employer costs. In 2020, that ratio had fallen by 17.0%, to 63 cents. 4

  Medical vs. Cash Benefits

  • Medical benefits as a share of total benefits increased steadily between 2000 and 2014, from 43.9% to 51.0%, but have since fallen to 47.1%, driven by a 2.6 percentage-point decline in the first year of the pandemic (Table 5). Though national trends are noteworthy, that average masks enormous variation across states. In 2020, for example, medical benefits are only a fourth of benefits in Washington (27.3%), but over three-fourths (78.0%) of benefits paid in Wisconsin (Table 8).

  Deductibles

  In recent decades, the portion of workers’ compensation benefits paid under deductible provisions has grown substantially, from 13.0% in 2000 to 18.0% in 2020 (Table 6).

  Workers ’ C ompensation Benefits, Costs, and Coverage – 2020 Data contains nineteen tables, seven figures, and five appendices covering national and state level data relevant to workers’ compensation outcomes. These data range from benefits, costs, and coverage to Department of Labor data on injuries and fatalities, and data on the overlaps between Social Security disability insurance and the workers’ compensation system. Certain source data are available upon request to gmurphy@nasi.org .