Workers' compensation has notably decelerated over the past few years.
The workers' compensation market appears to be finding its equilibrium after the significant disruptions of recent years.
Pricing in the P&C industry has remained relatively stable for the last two years, particularly when compared to third-party claims. The data suggests that the sector's regulated fee schedules and established medical networks may be effectively moderating cost increases.
Every quarter, Enlyte analyzes the workers’ compensation cost data it has collected across all 50 states to calculate a medical price index (MPI) for workers’ comp charges for medical services, which it shares with the industry. Though the Bureau of Labor Statistics (BLS) calculates price indexes for hospital and physicians’ services, the workers’ comp industry faces different pressures and cost drivers. To understand trends in workers’ comp, its data requires a separate analysis to understand industry trends.
Specifically, medical and physician services have grown 10% from the first quarter of 2020 through the second quarter of 2024, faster than physicians’ charges overall, which grew 8% over that same time period, according to BLS. However, that upward trend may be changing. Workers’ comp charges actually fell 1% from fourth quarter of 2023 to second quarter of 2024. The decline hasn’t occurred over a long enough time period to truly be called a trend, but they’re definitely positive indicators for workers’ comp professionals.
Another positive indicator is that the pace of price increases in workers' compensation has notably decelerated over the past few years. While the sector experienced substantial increases of 5% between 2020 and 2021 and 7% between 2021 and 2022, the growth rate dropped significantly to 2% from 2022 to 2023, followed by a 1% decline in 2024.
The broader economic context adds another layer to these findings. BLS reports the overall consumer price index increased by 2.4% over 12 months ending in October 2024, marking the smallest increase over that time period since February 2021. This general moderation in inflation appears to be reflected in the workers' compensation medical price trends.
It’s important to note that 2020, when Enlyte started compiling its MPI, was an unusual year because of the public health measures put in place to combat the spread of COVID-19. We saw a significant dip that year in costs because hospitals were not performing expensive elective procedures such as hip replacements and spinal fusions. So, to some degree, the increases that occurred in 2021 and 2022 were likely at least partially driven by the backlog of costly elective procedures accumulated during the pandemic.
A mixed situation at the state level
The picture at the state level, however, is mixed, with some states seeing much larger declines with others seeing significant increases. California continues to lead with a 12% increase since 2020, while Texas showed a more moderate 7% rise. In contrast, both New York and Florida have experienced decreases, with charges dropping 5% and 7% respectively since 2020.
These significant state-by-state variations highlight the continued importance of local market conditions and regulatory frameworks in determining medical costs. California's persistent price increases, contrasting with Florida's and New York's decreases, underscore how state-specific factors continue to drive divergent outcomes in workers' compensation medical costs.
These trends become particularly interesting when compared to other insurance lines. Auto first-party claims, for instance, have shown considerably more modest increases, with physician charges rising only 4% since the first quarter of 2020. Even more striking is the contrast with third-party claims, where charges have surged by 17% to 19% in California, Georgia and Texas since 2020.
Looking ahead, these tendencies may continue to evolve as the year progresses. The current flat or negligible changes in workers' compensation costs at the national level could indicate a period of relative stability, but the significant state-level variations suggest that local market dynamics will continue to play a crucial role in shaping medical costs.
For insurers and risk managers, these findings emphasize the importance of understanding both national trends and state-specific dynamics when managing workers' compensation programs. The contrasting trends between workers' compensation and other lines of insurance also highlight the unique characteristics of each market segment and the varying effectiveness of different cost-containment strategies.
As the industry continues to navigate these complex price dynamics, stakeholders will need to remain attentive to both broad economic trends and local market conditions. The moderating national trends, combined with significant state-level variations, suggest a nuanced, locally informed approach to managing medical costs remains essential in the workers' compensation market.
Michele Hibbert is senior vice president of regulatory compliance management for Mitchell’s Casualty Solutions Group, an Enlyte company. Previously, Michele spent 10 years working with inpatient and outpatient medical billing and reimbursement on the provider side, working at four different, large inpatient facilities as a coding and reimbursement manager.
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