How much does workers' compensation insurance cost?

Workers' compensation insurance cost

How much should a bargain cost? That's what the workers' compensation insurance has better been known by – the compensation bargain! It effectively bargains the costs and responsibilities between the employers and employees. Introduced as a medical perk and a wage replacement, it works both ways. It keeps the employer from going to the ground as a result of a costly lawsuit from an unforeseen calamity that happened as part of the work procedure. To the employee, it works as a damage claim for injurious and hazardous work conditions undertaken due to risks ungauged by him.

It started in the form of the same model that first appeared in Europe and then extended to the whole of the United States. The workers' compensation insurance has been enacted by the US government in 49 states, with the exception of Texas.

The lone star - Texas

Texas has, to the glee of many critiques of the US government, been cited as an exemplary state in the matter of workers' compensation insurance cost. Like other states, Texas did not make it a compulsion. It gave the employers the option of either paying the compensation on the incident itself or getting insurance contracts at the low introductory costs. It gets them out of the complicated legal compensation later down the lane.

According to the report by the Texas Department of insurance in 2016, 78% of employers in the private sector had voluntarily subscribed to the workers' compensation insurance plan. Only 5% of the total workforce remained that was not covered by either, the State plan or the employers.

Factors affecting the cost within and across States

The question still remains - How much does workers' insurance cost? The diversity amongst states, across employers and cadres of employees is so vast that it becomes challenging to come up with a uniform answer.

It can, yet, be observed that each state has an individualistic view in treating noncompliance with the regulations. The fine levied on companies is generally dependent on certain common factors. These factors include the number of employees and the number of days that a business has not complied with the relevant state laws.

For instance, Pennsylvania regards the deliberate non-compliance as a felony. Few states, such as Michigan, Massachusetts, Illinois and California treat the non-compliance as a criminal act. Hence, they bear higher costs.

Other factors that may influence the cost of insurance comprise the location of the business and its related industry. Higher the risk, higher the compensation needed from the employment. Certain states also provide leverages based on the circumstances of business operations. For instance, if a business in a volunteer in ski-operator business in Colorado, the state exempts it from the coverage clauses.

Cost Statistics as per the research undertaken

According to the National Academy of Social Insurance published in 2014, the statistics about the compensation insurance cost for every $100 of payroll cost, vary between $0.75 to $2.74 in the United States.


Cost for every $100 of payroll cost













The US Department of Labour went a step ahead. It estimated the workers' compensation insurance cost for private industry workers. The insurance costs were highest for employees falling under natural resources, construction and maintenance (3.1% of their total pay). The production, material moving and transportation industry workers followed at 2.9% of total compensation. The least cost is attributed to the sales and office workers at 0.9% and approximately $.022 per hour.

What makes up the compensation costs?

There are various types of benefits covered under the workers' compensation insurance.

A common form of benefit is medical coverage. It generally entitles the employee to the reimbursement of following costs in general:

  • hospitalization charges,
  • nursing costs
  • physical therapy
  • medication,
  • medical equipment
  • lab tests undertaken for diagnosis

Disability is either total or partial. Likewise, the company can choose to provide for partial pay lost due to disability that occurs at work, or fully reimburses it, as required.

Rehabilitation costs pertain to an employee's training, which is often vocational in nature. It is required for switching the job due to injury at work. Whereas, under certain jurisdictions, compensation is required to be paid to the survivors where an employee loses his life at work.

In all, a mix of all of these costs needs to be undertaken as per the industry, the designation of the employee, their nature of work and the law enacted by the relevant state. It is also notable that though states may provide similar benefits but the variation in their amounts in huge.

Some diverse pricing angles

Another costing angle relevant in the workers' compensation insurance costs includes the pricing based on the classification system. Here employers divide employees into different classifications as per the type of business. It is considered a risk-based classification. This system developed by NCCI, which helps monitor the ratings as well, together with the state rating bureau. Companies charge insurance premium based on these factors, the payroll and the rating assigned to each of them.

Additionally, employers sometimes take advantage of positive loss experiences. Based on this they generate the experience rating and adjust the insurance premium.

The future of workers' compensation insurance

There are various speculations regarding the future cost of the workers' compensation insurance. In March 2018, the Insurance Journal has reported that the compensation claims are expected to double in the decade ending 2030. It is expected that the overall costs will grow over to 300% than the current.

Dr Richard Victor of Sedgwick Institute is the founder of the Workers' Compensation Research Institute. He remained in service as director until 2016, since 1983. The economist observes that the situation seems dire. The human resource in the US would be plagued with multiple issues during the same time duration. These issues include the ageing population, labour shortage, trickling immigration and a shift of health insurance to more of workers' compensation.

The claims in recent times have been rather stable. The multifaceted effect of natural growth in the workers' compensation insurance and the above factors seem quite troublesome. Dr Richard voiced concern over the change in the political scenario and government policies in the US. He stated that the reforms which worked for the last many decades might not be as well effective for the future of the insurance costs related to workers' compensation. Therefore, new avenues may be explored for the same.

Concluding the workers' compensation insurance cost

A workers' compensation insurance plan should facilitate both the employers and the employees. Employers can take advantage of the insurance's benefits since it protects the business and its employees financially in case of illness or injury. It provides a financial back to the employers and support to employees.

For the cost of “grand bargain,” each company is required to refer to the respective law of the state. Companies need to buy the policies for workers' compensation insurance as earlier as possible. It could be right after they begin operations or as soon as they hire the first employee. In the light of the high penal clauses, it is important to buy the policies and comply with legal laws. The employers need to adopt a futuristic approach while forming new policies. They can reduce the associated costs by employing detailed health and safety policies. It could help in reducing work-related injuries. The right insurance coverage and safety policies can help you create a healthier and safer working environment. - Shayyan  - author / writer

Shayyan has completed his master in Law from University of Melbourne along with a year of experience as a law professor in Melbourne. He is very opinionated and believes in the saying that a pen is mightier than a sword. Since his early life, he has served greatly to make the world a better place by writing worthy articles regarding political, legal, and social problems. During his leisure time, he loves to travel and learn about new cultures, languages and societies - logo

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