Employers to Pay More for Workers' Comp Insurance
The average rate employers pay for workers' compensation will increase 6.9 percent next year, a hike pinned to rising medical costs and the lackluster economy.
High-risk industries will pay more into the state-mandated insurance system that covers medical services when workers are injured on the job and wages while they are out of work.
The actual rate employers will pay depends on "classification codes" that reflect the risk of their industry, said Frederick A. Huber, executive director of the Compensation Rating & Inspection Bureau (CRIB), a division of the state Department of Banking and Insurance.
"There are 550 classification codes, and many will not go up 6.9 percent," Huber explained. "Some will go up and some will go down, but the majority will go up. The 6.9 percent increase is the average increase."
As a general rule, "the more hazardous workplaces have the higher rates," Huber said.
The rate increase is also blamed on the weak economy. With fewer people working, the total payroll of the New Jersey workforce has declined. That means there is a smaller base on which to assess workers' comp premiums, which are paid as a percentage of each $100 of employee payroll.
"When payroll goes down and losses [claims] go up, that means that rates have to rise," Huber said. "Increasing medical costs, increasing claims frequency, and the reduction in the base [total payrolls] are three of the primary considerations why the rates are going up."
The rate increase effective January 1, follows a 3.9 percent hike in 2011. Workers' comp rates tend to run in multiyear cycles, experts said. The two-year increase follows two years of decreases: the workers' comp rates declined 2.6 percent in 2010 and 1 percent in 2009. Before that, rates rose every year for seven years from 2002 to 2008. That cycle was preceded by six years of decreases, from 1996 to 2001.
The frequency of claims is increasing, which may be related to the reduction in the work force during the economic downturn, Huber said. "You have smaller work forces doing bigger jobs, and perhaps there is some more [claims] frequency because workers are being pushed to the limit."
The workers' comp system annually pays out more than $1.4 billion in claims. Currently about 56 percent is for medical bills, and 44 percent goes for lost wages, or to compensate the employee for a full or partial disability. A decade ago, payments for lost wages exceeded medical claims, Huber said, but in recent years medical claims have surpassed wages as the leading cost driver in workers' comp.
Patrick Breslin, spokesman for New Jersey Manufacturers Insurance Co., said it's too early to tell if the 2011 and 2012 increases mark the start of a multi-year cycle of rate increases.
"This is the second year in a row it increased, and these cycles typically last four to five years, both up and down. The thing that is different now is that medical cost are increasing faster than they have been in past years, and you still have a tepid economy," and thus a lower payroll base on which to collect the premium dollars to pay claims.