Workers’ Compensation Insurers Lose Billions, but Almost Half of Payout Isn’t for Benefits

Wednesday, June 27, 2012


California’s miserable economy took its toll on insurers paying workers’ compensation claims in 2011, with losses totaling $2.3 billion. But almost 40% of their costs were administrative.

A report from the Workers’ Compensation Insurance Rating Board of California said that employers collected $10.4 billion in premiums and paid out $7.7 billion in benefits. They would have been profitable if their expenses weren’t $5 billion. Employer losses topped those in 2010 (another losing year) and administrative costs rose from 43% of earned premiums to 48%. The report does not include most large private and public employers who, for the most part, are self-insured.

Of the $5 billion in expenses incurred by insurers, around half ($2.65 billion) was for administering, adjudicating and settling claims. Defense attorneys got $715 million of that. Other expenses were: commissions and brokerage ($857 million),  general expenses ($786 million),  “other acquisition expenses” ($510 million) and “premium and other taxes” ($227 million).

Of the $7.7 billion in benefits, $4.4 billion (60%) were medical payments. The rest was indemnity payments such as temporary disability benefits ($1.5 billion) and partial disability benefits ($1.2 billion). Insurers paid out a total of $7.1 billion in benefits in 2010.

Physicians picked up $1.5 billion of the $4.4 billion in medical payments. Hospitals received $1.1 billion, injured workers got $987 million and pharmacies received $370 million.

The fortunes of workers’ compensation insurers have fluctuated over the years, but not all of it as a result of changes in the economy. Legislative reforms eight years ago lowered employer costs and it is expected that insurers will now amp up lobbying activities for increased premiums and an overhaul of the system.

–Ken Broder


To Learn More:

Report on 2011 California Workers’ Compensation Losses and Expenses (Workers’ Compensation Insurance Rating Bureau of California) (pdf)

California Insurers Lost Billions on Workers’ Comp Last Year (by Dan Walters, Sacramento Bee)

Workmen's Compensation History and Overview (Institute of Governmental Studies at UC Berkeley)

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