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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