Workers’ Compensation & Inflation Part II

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Inflation remains a heavy burden on American families. While inflation usually averages 2-3 percent annually, the current inflation rate hovers at 8.3 percent, according to the U.S. Bureau of Labor Statistics (BLS). From electricity, housing, and even groceries, almost every area of the economy is affected. Estimates from economists show optimism that inflationary trends will eventually wear from mid-2023 into the beginning of 2024. For the time being Americans must grapple with the impacts of inflation as policymakers, regulators, and private sector stakeholders consider solutions. 

For workers’ compensation, inflation affected medical costs minimally compared to other economic sectors, according to the National Council on Compensation Insurance (NCCI). While the Center for Medicare and Medicaid Services (CMS) anticipates the personal health care index (PHC) in workers’ compensation to run at 3.7 percent, this is less than half of the current inflation rate. However, it is nearly twice as high as most years prior to 2021, where medical costs per claim hit around just 2 percent increase annually. Although the rate is currently high, CMS officials project the PHC to revert to the 2.5 percent to 3 percent annual increase range post-2022, showing some stability is anticipated. Overall, medical costs in workers’ compensation saw the most significant increase in the Northeast and Southeast at 3 percent. In comparison, Western and Midwest areas of the country saw 2 percent or less in increases. Hawaii experienced the most notable change in total medical costs, with an annual average growth of 5.9 percent, while Oklahoma witnessed the lowest change at a -1.5 percent yearly decrease from 2012 to the current 2021 data.

Workers’ compensation medical costs, in all, are well contained, with some areas doing better than others. Prescription drugs are beating out inflation almost entirely, experiencing negated overall costs. In the U.S., workers’ compensation is currently seeing a -0.2 percent decrease in prescription expenses. The Western states saw the highest decline at -0.4 percent, followed by the Northeast at -0.03 percent and the Midwest and Southeast states at -0.2 percent. 

Declining prescription costs are a significant contributor to holding down medical price increases in workers’ compensation. Nevertheless, other factors may push costs to increase over time. Data findings also indicate that facilities costs are rising at a more than moderate pace. This circumstance is particularly the case in the Southeast, where facility share payments hit 41.6 percent, a nearly 7-point increase since 2012 compared to other regions that saw 1-4 percent modest upticks. Covid could be attributed to facility rate increases; ultimately, time will tell. 

For now, workers’ compensation medical costs surpass expectations compared to inflation rates in other key segments of the economy. Even though some volatility in the economy continues to present itself, workers’ compensation medical costs show strong performance in the face of challenging economic conditions. For now, industry stakeholders should closely monitor labor market conditions and global market trends to best determine how to chart the course. 


Midwest states: IL, IN, IA, KS, MI, MN, MO, ND, NE, OH, OK, SD & WI

Northeast states: CT, DE, (DC), MD, MA, NH, NJ, PA, RI, & VT

Southeast states: AL, AR, FL, GA, KY, LA, MS, NC, SC, TN, VA & WV

West states: AK, AZ, CA, CO, HI, ID, MT, NV, NM, OR, UT & WY

Workers’ Compensation Prescriptions & Inflation Part 1


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