The biennial study by the Oregon Department of Business and Consumer Services has confirmed that California employers pay the highest workers’ compensation costs in the nation—by a wide margin.
California has consistently ranked among the most expensive states in this workers’ compensation rate study for more than a decade; however, California has not been tagged with the No. 1 spot since 2004.
The study revealed that California employers pay 188% more in workers’ compensation costs than the national median and 33% more than the second most expensive state (Connecticut).
Reasons for High Costs
Some of the reasons for California’s high workers’ compensation rates include:
• California has among the highest medical costs per workers’ compensation claim in the nation, and higher-than-average costs per claim for cash benefits. Since 2005, average costs per claim have increased by $30,000.
• California’s rate of work injury claims per 1,000 workers is 46% higher than the national median. Even as the rate in most states has declined, since 2012, California’s “claim frequency” has been increasing. The increases include a higher-than-average rate of “permanent disability” claims and an increase in claims involving cumulative trauma and those filed post-employment, particularly in the Los Angeles region.
• California’s system generally is more expensive to run because of higher-than-average litigation rates and complex administrative features.
2012 Reform/Benefit Hike
In 2012, the California Legislature reformed the workers compensation system by providing employers with new tools that are intended to reduce frictional costs, decrease litigation, stem abuses by vendors in the system, speed up the claims administration and make delivery of benefits more efficient.
The projected “savings” from these measures were, however, put toward providing injured workers with nearly $1 billion in benefit increases.
Currently, the “savings” in the reforms are projected to fully pay for the increased benefits, but it is unknown whether they will result in a net cost reduction to the system. It will take several more years to make a full assessment as state agencies must complete regulatory implementation and system stakeholders need to fully adjust to the new laws and regulations.
More Work Ahead
Meanwhile, employer costs have continued to increase since 2012 and the reforms are highly vulnerable to new abuse and legal rulings that run counter to the Legislature’s intent. It is clear that there is more work to be done in order to bring California’s workers’ compensation costs in line with what employers pay in other states.