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United States Small Business Administration
Office of Advocacy
RS 155
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Purpose

The objective of this study was two­fold: (1) to assess the burden of workers' compensation by business size with an emphasis on how the medical costs may have affected that burden, and (2) to estimate workers' compensation premiums and claims payments by business size and state. A secondary purpose of this study was to summarize state laws and workers' compensation claims.

Workers' compensation costs have been increasing, often putting small businesses at a disadvantage because they pay a larger fraction of their payroll dollars for workers' compensation than do large businesses. Increases in insurance costs for small businesses relative to large businesses also could burden small business severely and reduce their viability and competitiveness vis­à­vis large businesses. One reason small business may pay more is the way premium rates are set: the so­called "manual rates" are tied to the experience of firms in a comparable industry-not to a firm's own experience.

The results of the study indicate that the burden of workers' compensation on small versus large firms varies by the measure of burden used. Several states appear to have an especially heavy burden across all measures, although it is difficult to link workers' compensation burden to the laws and rules in states governing workers' compensation. Future analysis should focus on workers' compensation burden by firm size within industries because rates are determined on an industry basis.

Scope and Methodology

The study measured workers' compensation burden by firm size for the nation and for all states, during the period 1990 to 1992. Although there can be several measures of burden, this study defines and uses three: (1) premiums relative to earnings, (2) claims relative to earnings, and (3) premiums relative to claims.

Currently, no private or federal organization in the United States collects workers' compensation data by firm size or by state. In addition, data for state medical claims paid by workers' compensation are nonexistent. This lack of data complicated the estimation of workers' compensation premiums and claims by business size by state, and required the researchers to use a variety of complex steps and assumptions.

The estimates presented in this study are derived from a variety of data sources, including the National Council on Compensation Insurance's Detailed Claim Information data base; the Current Population Survey, March supplements for 1989 through 1993; A.M. Best data; and state data from the Social Security Administration and the Health Care Financing Review.

While the level of burden in specific states is identified, the study indicates the tentative nature of the state estimates given the possibility of substantial error in the disaggregated data. A major conclusion of the study is that improvement is needed in data gathering on workers' compensation at both the national and state levels.

Highlights

This report presents, for the first time, an assessment of workers' compensation burden by business size and by state. Results indicate the following:

• When measured by premium payments relative to earnings, the burden of workers' compensation is greater for small business than for larger business and has increased recently.
• When measured by claims payments relative to earnings, the burden for small business is relatively greater but seems to have decreased recently.
• When measured by workers' compensation premiums relative to claims, the burden-originally less for small business-is no greater than in large businesses.
• Several states have heavy worker's compensation burden based on all measures of burden used.
• It is difficult to draw any definite conclusions between the state data on burden and rules governing worker's compensation by state.
• Small business generates relatively more claims payments than large business, indicating that small business is clustered in industries that generate more claims. This suggests that future research on assessing burden should concentrate more on industries and less on states.
• An important aspect of this study is the determination of whether medical claims payments are the source of the recent increases in claims-and hence premiums-or whether they have affected small businesses differently. Medical claims appear to have increased the cost of premiums for small business; however, the report found no evidence that medical claims payments constitute a substantially different share of all claims payments in small business, compared with large business.
  
  

Ordering Information

The complete report is available from:

National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield, VA 22161
(703) 487-4650
(703) 487-4639 (TDD)

Order Number: PB95­256012

Cost: A06; A02 Microf.

*Last Modified 6-11-01