Self-insurance accounts for 25% of workers comp benefits paid out in US

Employers that self-insure their workers compensation exposure in the US are paying an increasingly larger share of the benefits that go to injured workers, with that amount rising to one fourth of the total costs in 2019, experts point out.

Self-insurance accounted for 25% of benefits in 2019, an increase from 21.6% in 1999, said Griffin Murphy, a policy analyst with the National Academy of Social Insurance (NASI). When amounts assumed within coverage deductibles are added in, he said, employers were responsible for 43% of benefits in 2019 – a jump from 34% some 20 years earlier.

“This growth has come at the expense of state funds and private insurers,” which have paid fluctuating amounts over the past two decades, said Murphy, who was joined by NASI policy analyst Jay Patel in a virtual workers comp discussion at the International Association of Industrial Accident Boards and Commissions’ 107th conference.

The analysts referred to NASI’s recently released report, Workers Compensation Benefits, Costs, and Coverage, which tracks workers comp data from 1999 through 2019.

The report shows that self-insured employers paid $15.8bn in workers comp benefits in 2019, compared to $10bn in 2019. Private insurers were the largest payers, with $35.1bn paid in 2019, up from $26.4bn in 1999. State funds accounted for $8.8bn in 2019, compared to $7.1bn 20 years ago. The federal government paid a smaller share of benefits, amounting to $3.4bn in 2019, up from $2.9bn in 1999.

Unadjusted workers comp costs in 2019 declined 1.2% to $100.2bn from the prior year, an unexpected finding, according to Patel. “This is the first time it’s happened since 2010,” he said. “It’s pretty surprising since 2018 to 2019 saw increases in both covered jobs and covered wages.”

The report shows that standardised workers comp costs – total benefits per $100 of wages – fell during the last five years, to $1.17 in 2019 from $1.38 in 2015. During the same period, standardised benefits dipped to 74 cents from 87 cents.

Shift to insured programmes?
Even as a larger share of workers comp benefits are covered by self-insurance, there is a trend among some large employers to shun self-funding, according to Suzanne McTeague, vice-president of client services at Sedgwick.

Speaking at a separate conference session, McTeague said that “with our large national clients, in general, there seems to be a shift in recent years from employers who are moving away from self-insurance to insured programmes, more broadly across the board than what we have seen in the past”.

“We look at this every year,” said Nathan Fraley, corporate claims manager for Kroger Co. “In a few states, we did move out of self-insurance,” he said, mainly because it had little exposure in those states. “That was the main reason for moving back to a high-deductible programme.”

In states where self-insured retentions are capped, Kroger may prefer a high-deductible insured programme, Fraley said. Collateral requirements can sometimes present challenges as well, he added, “and that did play a part in us moving away from self-insurance in a few states”.

“We love self-insurance,” said Andrew Cortese, senior manager of claims analytics, data security and financial controls at United Airlines. “It gives us the control to do the right thing for our employees and to do it faster,” while managing the “entire claim lifecycle”, he remarked.

Whether to self-insure in a particular state is “really a financial decision for us when it comes down it”, said Cortese. “There can be some administrative challenges one way or another, but at the end of the day it comes down to what the dollars look like, and we’re looking at it frequently.”

The airline is “constantly evaluating whether to exit or enter self-insurance depending on the state”, Cortese said.

Like Kroger, United considers whether collateral requirements are too high, he added. “Some states have really been working with us, making it a more collaborative process,” Cortese noted, instead of simply sending collateral requirements and saying, ‘we’ll talk again next year’.

United has been able to show that its actuarial findings are “very different” from those that some states have used in analysing its exposure, Cortese said. Cooperative state regulators have been willing to hear the airline’s reasons for “looking at it differently, because obviously we have a different viewpoint of our operation, what the exposure is and what the ongoing risks are”.

“This last year is a great example,” as the airline’s business tailed off during the pandemic, Cortese noted. “Most states have been very receptive to hearing that.”

Fraley said the difference-maker for Kroger can be the use of an experience modifier that considers the grocery chain’s claims history to determine its rates. In some states, “the use of experience mods has kept us in self-insurance”, he said.

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