How Do States Determine Workers' Compensation Rates?


Quick Answer

Individual states are responsible for setting worker compensation rates, explains Advanced Insurance Management. Some jurisdictions use a rating formula from the National Council of Compensation Insurance, while others prefer rating systems from other organizations. In some localities, certain state agencies are responsible for developing rating formulas.

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Full Answer

State legislatures develop worker compensation rate policies and also mandate certain state agencies to oversee implementation, explains the U.S. Social Security Administration. The state-based approach leads to a considerable variance in worker compensation premiums between different states.

For instance, Alabama, Illinois, Connecticut, Colorado, New Hampshire and Oregon use the NCCI formula to calculate rates, explains Advanced Insurance Management. In contrast, states such as North Carolina, Minnesota, New Jersey, Michigan and New York use ratings systems from independent bureaus. Specific state agencies set rates in North Dakota and Washington.

A system that calculates the ratio of deductions for every $100 of payroll can provide an accurate comparison of the rates between different states, according to Insurance Journal. At $3.48 per $100 of payroll, California topped the rate charts for 2014. Connecticut came in second at $2.87, while New Jersey came in third at $2.82. At $0.88, North Dakota was the cheapest state for employers, with Indiana, at $1.06, being the second cheapest. The national average was $1.85 per $100 of payroll.

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