While workplace safety has improved drastically in just the last 100 years, thanks in part to emerging technology and an overall shift toward a more information- and service-based economy, mental health is fast emerging as the new frontier for workers’ compensation.
As of January 2024, 31 states, plus the District of Columbia, allow workers to file claims for mental health conditions arising from work-related factors, according to new data from IB+. This is accompanied by a decrease in workers’ compensation premiums and losses to $42 billion and $19 billion, respectively, in 2024, down from $45 billion and $20 billion, respectively, the year before.
The growing acceptance of mental health-related claims was spearheaded largely by first responders. States like Florida, Missouri, Washington, and Idaho, among others, have acknowledged that post-traumatic stress disorder (PTSD) among police officers, firefighters, EMTs, correctional officers, and frontline medical professionals can be related to their employment.
On the back of these changes, many other industries are attempting to gain similar reliefs, with New York and Connecticut even passing laws enabling claims for extraordinary workplace stress for workers in any occupation.
With the rising popularity of mental health-related claims, insurers have begun developing evaluation guidelines and revising claims handling protocols, while workplaces have ramped up investment in preventive strategies.
Insurers are also increasingly seeing new claim patterns emerge as the traditional retirement age is extended. Older workers are less prone to workplace injuries than their younger counterparts, with data showing that injury frequency decreases with age, although they are subject to extended recovery times and elevated claim severity when they do suffer an injury. Ultimately, the balance between increased injury severity and decreased injury frequency helps to keep the average per-worker claim costs stable.
Furthermore, while improvements in health and medical technology threaten to increase overall care costs and claims costs by association, this potential increase has actually been offset by a significant decrease in the total number of claims. This decrease has also borne a reduction in overall system costs and employer premiums, culminating in employers now paying less for workers’ compensation insurance than five years ago.
Workers’ compensation medical costs have also remained stable, only growing 1-2 percent annually in recent years despite a surge in general healthcare inflation. Insurers can attribute this to state fee schedules, treatment guidelines, and falling pharmaceutical costs following the opioid crackdown, as well as recent decisions among certain states to cut workers’ compensation rates as losses dropped.
As a result, employers now enjoy some of the lowest premium costs in decades, boosting insurer profitability. In fact, the industry has reported combined ratios below 90 percent for 10 consecutive years.
However, the report warns that while the current outlook is strong, “this equilibrium may not hold forever.”
Indeed, new pressures such as wage inflation, litigation, and advancements in medical treatments could serve to buck the trend.
The full Workers’ Compensation Financial Insights report from IB+ provides a deeper examination of mental health as the next frontier for workers’ compensation and the changing legal landscape of mental health claims, as well as how employers benefit from the fragile balance between medical costs and premiums.
