Topic:
BENEFITS (GENERAL); INSURANCE (GENERAL); WORKERS' COMPENSATION; EMPLOYMENT (GENERAL); STATISTICAL INFORMATION;
Location:
WORKERS' COMPENSATION - COSTS;

OLR Research Report


March 1, 2007

 

2007-R-0173

CONNECTICUT WORKERS' COMPENSATION COSTS

By: John Moran, Principal Analyst

You asked for a comparison of workers' compensation (WC) costs to employers in Connecticut to employers in other states.

SUMMARY

We found two ways of comparing Connecticut's WC cost for employers: (1) compare the loss cost calculation the National Council on Compensation Insurance (NCCI) does for Connecticut and neighboring states, and (2) the annual 50 state WC premium ranking done by the Oregon Department of Consumer and Business Services. In NCCI's five state comparison of New England states, Connecticut had the second lowest loss cost (i.e., the actual payouts for medical treatment and wage replacement benefits). In the Oregon ranking, Connecticut was the 14th most costly state when all states' rates were, in an attempt to make the comparison more meaningful, weighted by Oregon's payroll distribution.

OVERVIEW

Methodological Issues

Due to the differences in the way each state's WC insurance system works, it is difficult to compare the costs to employers from state to state. First, WC insurance premiums vary considerably depending on the occupation of the worker being insured and its likelihood of leading to a work-related injury. Second, some states strictly regulate what employers can be charged for WC insurance coverage, while Connecticut (and others) allows a competitive marketplace where carriers have some flexibility in setting premium rates within parameters set by the state Insurance Department. Third, a comparison of rates does not tell the entire story because states have different levels of WC benefits, different reimbursement rates for physicians, different wage levels (since premiums are based on payroll), and different industry mixes with different proportions of each job type.

WC Rating Agencies

WC insurance rates are developed by ratings agencies and then approved by a state's insurance department. Connecticut and 42 other states use the National Council on Compensation Insurance. NCCI gathers and analyzes data related to WC in order to propose the “loss cost” figures for every job classification that is insured through WC. The loss cost means the cost paid out for workers' compensation claims for both medical expenses and salary replacement payments; it does not include administrative cost or profits for the carrier. The loss cost figure for a more hazardous job is higher than the loss cost for an office job or some other relatively low-risk occupation.

NCCI also proposes assigned risk policy rates, which include administrative costs for policies covering businesses with high claims experience.

Making Rates in Connecticut

In Connecticut, NCCI submits proposed loss cost figures and assigned risk policy rates to the state Insurance Department. The Insurance Department reviews and approves them. Once the loss cost figures are approved for each of more than 600 job classifications, individual insurance companies submit their premium rates to the Insurance Department for approval. (These rates are usually expressed as a multiple of the loss cost figure. For example a multiplier of 1.5 means the premium is one and a half times the loss cost.)

Because each insurance carrier is individually approved, each has rates that (1) differ from their competitors and (2) differ from one job classification to another. Some carriers specialize in one area of WC insurance (construction or even a subcategory of construction) and therefore don't offer insurance for all job classifications. Due in part to these complications, the Insurance Department does not calculate an average WC insurance rate for individual job classifications. Tom Taggart, an Insurance Department examiner, estimates that over 140 companies offer WC insurance in Connecticut.

NCCI'S COMPARISON

The 2006 NCCI loss cost comparison shows Connecticut has the second lowest rate of the five states (see Chart 1). To control for differences in industry distributions across the states, each state's rates are weighted by Connecticut's payroll distribution to obtain the average rate for each.

The loss cost is the part of the rate or premium that is paid out to cover the losses (medical treatment and wage replacement). This loss cost comparison is for the voluntary WC market, not the assigned risk market.

Chart 1: NCCI Loss Cost Comparison

Source: NCCI. Note: Massachusetts not shown as it is not an NCCI member.

OREGON WC 50-STATE RANKING

The Oregon Department of Consumer and Business Services each year conducts a 50-state ranking of WC premium rates. To control for differences in industry distributions across the states, each state's rates are weighted by Oregon's payroll distribution to obtain the average rate for each. The ranking does not show rates for any particular job classification; it only shows an average premium rate for a state.

Connecticut's premium rate is the 14th highest in the country or $2.90 per $100 of payroll (see Table 1). This is 117% of the 50-state median, which is $2.48 per $100 of payroll. The Oregon ranking in part confirms the NCCI comparison in that it also shows Maine and Vermont to have higher WC rates than Connecticut. Although the NCCI chart shows New Hampshire to be more expensive than Connecticut, the Oregon ranking puts New Hampshire at 19th, five places lower (and less expensive) than Connecticut. Both comparisons show Rhode Island to be slightly less expensive than Connecticut.

Table 1: 50 State Ranking of Workers' Compensation Rates

2006 Ranking

2004 Ranking

State

Rate

Median

1

2

Alaska

5.00

201%

2

1

California

4.13

166%

3

7

Delaware

3.91

158%

4

6

Kentucky

3.78

152%

5

8

Montana

3.69

149%

6

3

Florida

3.32

134%

7

17

Vermont

3.24

130%

8

13

Maine

3.21

129%

9

19

Alabama

3.17

128%

10

18

New York

3.15

127%

11

9

Louisiana

3.1

125%

12

5

Ohio

3.00

121%

13

15

Oklahoma

2.96

119%

14

11

Connecticut

2.9

117%

15

4

Hawaii

2.89

116%

16

10

DC

2.86

115%

17

14

Texas

2.84

114%

18

20

Pennsylvania

2.8

113%

19

12

New Hampshire

2.75

111%

20

23

Illinois

2.69

108%

21

21

Minnesota

2.69

108%

22

16

Rhode

2.68

108%

23

29

New

2.52

102%

24

22

Missouri

2.5

101%

25

39

South Carolina

2.5

101%

26

25

Tennessee

2.48

100%

27

27

New Mexico

2.41

97%

28

28

Wyoming

2.4

96%

29

31

Colorado

2.4

96%

30

26

Nevada

2.36

95%

31

36

Mississippi

2.29

92%

32

34

Idaho

2.29

92%

33

38

Nebraska

2.25

91%

34

24

West Virginia

2.2

88%

35

33

Wisconsin

2.18

88%

36

35

Washington

2.17

88%

37

32

North Carolina

2.17

87%

38

46

Utah

2.06

83%

39

30

Michigan

2.05

82%

40

40

Maryland

2.03

82%

41

37

Georgia

2.02

82%

42

42

Oregon

1.97

79%

43

44

Kansas

1.84

74%

44

41

South Dakota

1.83

74%

45

43

Iowa

1.75

71%

46

49

Arizona

1.73

70%

47

45

Massachusetts

1.7

68%

48

48

Arkansas

1.59

64%

49

47

Virginia

1.52

61%

50

50

Indiana

1.24

50%

51

51

North Dakota

1.1

44%

JM:ro