Work comp rates continue to drift ever lower, with new declines announced pretty much every week. While this is great for employers and taxpayers, the impact on insurers, third-party administrators and the work comp ecosystem is rather less than “great.”

Joe Paduda

It’s going to end —someday, right?

It always does, but this time around feels different.

Here’s where we are today, and why.

Rates and payroll drive premiums. As we’re at or darn near full employment with pretty static average weekly wages, premiums are likely holding steady or up just a hair.

Florida’s rates will likely drop for a third straight year, New Hampshire employers are even happier as rates have declined for eight straight years — this time by almost 10%. California — by far the biggest work comp state in terms of premiums, gets another decrease in 2020. Same story in Missouri, Wisconsin and Virginia.

Rates follow declines in claim costs, so insurers are making tons of money. Historically high profits result from low combined ratios (defined as the ratio of total losses plus admin expense to premiums earned). As long as claim costs continue to drop, profits will remain strong.

Result: Insurers are really happy. So are employers.

With work comp medical costs static and claim counts stable-to-lower, there’s little if any growth in the number of claimants, the number of medical bills and the volume of medical services. This means payers have fewer dollars to upgrade systems, pay staff, and invest in improvements and training. As premiums drop, overhead costs get squeezed, too.

Think of it this way: A California insurer collects $1 million in premiums this year. If it keeps all its current business and doesn’t gain any new customers, that same customer base equals $900,000 in revenue next year. The 10% decrease means 10% fewer dollars to spend on information technology, marketing, staff training and process improvement.

The impact on service companies isn’t quite as straightforward.

What does this mean for you?

Fewer dollars is good news for some, but is likely preventing many insurers from much-needed investment and upgrades.

Joseph Paduda is co-owner of CompPharma, a consulting firm focused on improving pharmacy programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.