Wondering how inflation and lack of talent affect worker compensation? It’s not as easy as you think: Risk and Insurance
A recent webinar looks at how inflation could end up affecting the workers’ compensation industry.
Anyone who has been to a grocery store or gas station recently knows that inflation is on the rise.
In the first quarter of 2022, inflation increased 8%by the Pew Research Center.
As prices rise, workers are demanding higher wages from employers, and many are changing jobs or even careers altogether to find options better suited to their pay and job needs. ‘social advantages.
All of this affects workers’ compensation. Whether it’s because higher wages affect the payroll which in turn affects bonuses, or because the cost of medical treatment and technology is rising.
“No other industry is more directly affected by macroeconomic factors than workers’ compensation,” said Matt Zender, senior vice president, worker compensation strategy, AmTrust Financial Services.
A June webinar from AmTrust, “Inflation and other macroeconomic trends: what impact do they have on the workers’ compensation market?dives into how inflation affects the sector. Zender spoke alongside Bryan Ware, Actuarial Director, AmTrust Financial Services. Here’s a look at what they discussed.
Inflation trends and workers’ compensation
When people think of inflation, they usually think of how it affects consumer goods. Tell how the gas pump sticker shock or rising food prices affect a household’s monthly budget.
Although workers’ compensation is not affected by consumer goods inflation, industry is affected by medical inflation, which is when the prices of medical devices, treatments, supplies and pharmaceuticals increase.
Many of the same factors driving consumer price inflation – supply chain issues, Russia’s attack on Ukraine, labor shortagesthe continuing effects of Covid-19 pandemic – could also affect medical fields.
But prices for healthcare services are usually set a year in advance through health insurance contracts and private insurance using projections of how inflation might affect healthcare prices. ‘Next year. Medicare has set its annual payment rates for 2022 in the first semester 2021before inflation spiked, CNN reported in April.
As a result, medical inflation remained fairly low. The Consumer Price Index, which is commonly used to track inflation, notes that from May 2021 to May 2022, prices are up 8.6% overall, but for medical care and services, the rate is much lower.
“At the start of all this rising inflation, medical inflation was down about 1% or even less,” Ware said. “The medical CPI remained quite low. It’s actually close to 3% at this point.
Medical inflation can cause claims costs to rise, which can be of particular concern to payers, especially if prices continue to rise.
“If medical inflation were to rise and stay high, that would be a problem for us,” Ware said.
Yet workers’ compensation tends to fare slightly better than collective health when medical care prices are high. Many states have fee schedules for workers’ compensation services, which can help keep costs more reasonable, according to Ware.
“Workers’ compensation, because of all these fee schedules and everything, tends to run a little below the CPI, just for medical care,” Ware said.
The great resignation: what role does it play?
Workers’ compensation may not be hit as hard by inflation as other sectors, but it is affected by other macroeconomic trends that dominate the world today. Namely, the Big resignation – a phenomenon where workers have quit their jobs en masse as the pandemic has waxed and waned over the past year.
“There’s still a gap of about 1.2 million jobs missing,” Zender said.
Workers leave for many reasons. Some change jobs in search of better benefits or the ability to continue working remotely. While the others mostly womenleave the workforce to focus on their caring responsibilities.
At the height of the pandemic, quitting or working part-time to care for a child or sick family member was a necessity. Schools went virtual, daycare centers closed, and family members sometimes fell ill for long periods. Today, with inflation driving up the childcare costssome leave the labor market for good.
“Families are making different quality of life choices than they were before COVID. They’re sitting around this table and jumping to conclusions based maybe on the fact that maybe they’ve opened their eyes a little bit during COVID about what they can do, how they can do it [out] and make the finances work,” Zender said.
Regardless of a worker’s individual reasons for leaving, the Great Resignation as a whole has led to higher wages as employers compete for workers.
Tied to inflation, Ware thinks that higher bonuses from higher payrolls could be good for workers’ compensation.
“High wage growth actually works to our advantage if it’s above medical inflation,” Ware said. &