PEO
Workers' Compensation Claims Are Declining, but Costs Are Rising
By Anthony Beck, . Insurance Wire.
Workers' compensation claims involving time away from work are becoming less frequent, but the average cost of those claims continues to increase.
According to National Council on Compensation Insurance (NCCI) data cited by PEO Compass, lost-time claim frequency declined 5.9% in 2024. During the same period, indemnity severity increased 4.9%, while medical severity rose 6.3%.
Indemnity severity measures the average wage-replacement benefit cost per lost-time claim. Medical severity measures the average medical cost associated with those claims.
The Workers Compensation Research Institute's (WCRI) 2026 CompScope Benchmarks report provides additional evidence of rising costs.
Across the 18 states studied, total workers' compensation costs per claim increased approximately 6% annually from 2022 through 2025 in the median state.
In Florida, total payments per claim increased approximately 5% annually, with indemnity benefits accounting for the largest portion of that growth.
WCRI identified longer periods of temporary disability as one contributor to increasing indemnity costs.
These findings show why fewer claims do not necessarily translate into proportionately lower workers' compensation expenses.
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Why Longer Disability Periods Increase Claim Costs
Workers' compensation claims generally involve two primary cost categories: medical expenses and indemnity benefits.
Medical expenses cover treatment related to a compensable workplace injury. Indemnity benefits provide wage replacement when an injured employee meets the applicable requirements for disability benefits.
When an employee remains unable to work for an extended period, indemnity payments can continue accumulating, subject to state-specific benefit limits and eligibility requirements.
Longer recovery periods can also involve additional medical treatment, rehabilitation and claims administration expenses.
However, disability duration is not determined solely by injury severity.
Delays in reporting injuries, obtaining medical evaluations, communicating work restrictions and identifying suitable modified-duty assignments can extend the period before an employee returns to productive work.
These delays are particularly important when an employee is medically capable of performing some work but cannot immediately resume their original duties.
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How Return-to-Work Programs Reduce Disability Duration
A return-to-work program establishes procedures for helping injured employees resume work when medically appropriate, including temporary modified-duty assignments.
Effective programs generally involve prompt injury reporting, coordination with the treating medical provider, communication of work restrictions and identification of available duties that employees can safely perform.
For example, a warehouse employee recovering from a shoulder injury may be restricted from lifting more than ten pounds.
If the employer can temporarily assign inventory documentation, scheduling or another task within the employee's medical restrictions, the employee may be able to return before resuming regular warehouse duties.
Without an established process, the employee may remain away from work even when suitable alternative duties are available.
The employer must ensure that modified assignments comply with medical restrictions and applicable workers' compensation requirements.
Return-to-work programs cannot eliminate disability costs in every case. Some injuries require complete removal from work, and some businesses cannot reasonably accommodate particular restrictions.
Their effectiveness depends on the employee's medical condition, the availability of appropriate work and the coordination between the employer, medical provider and claims administrator.
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Why Communication Matters After an Injury
The analysis identifies communication failures as a recurring obstacle to successful return-to-work efforts.
An employer may have modified-duty positions available, but the treating physician may not know what those positions involve.
A claims adjuster may be waiting for updated medical restrictions while the employee's supervisor is unaware that a return to work is possible.
Employees may also receive little communication about their recovery, employment status or available assignments.
These gaps can delay return-to-work decisions even when the employee's medical condition permits some level of activity.
A coordinated process should identify who communicates with the treating provider, who evaluates available assignments, who informs the employee and who updates the claims administrator.
Return-to-work planning should also account for the employee's recovery and well-being.
The analysis cites research associating employment with improved mental health outcomes, including lower levels of depression and psychological distress.
Those findings do not establish that returning to work improves outcomes for every injured employee. However, medically appropriate work can help employees maintain income, routine and workplace connections during recovery.
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What This Means for Employers Using a PEO
Professional Employer Organizations (PEOs) frequently provide workers' compensation coverage, claims administration and risk-management services as part of a co-employment arrangement.
However, the client employer generally retains control over day-to-day operations, job assignments and workplace conditions.
That division of responsibilities makes coordination especially important when an injured employee is ready to return to work.
The PEO or its insurance administrator may coordinate medical information, claims handling and disability benefits, while the client determines whether suitable modified-duty assignments are available.
If the PEO receives updated work restrictions but the client's supervisor does not, the employee's return may be delayed.
Similarly, an employer may offer modified duty without ensuring the proposed assignment is communicated to the appropriate medical provider or claims administrator.
The PEO agreement and applicable state law determine how these responsibilities are allocated.
Employers should understand who manages return-to-work coordination, who communicates medical restrictions and who approves modified-duty assignments.
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Measuring Return-to-Work Performance
The analysis suggests that PEOs can evaluate return-to-work performance across their client portfolios rather than simply tracking whether employers maintain written policies.
Relevant measures include the time between injury and reporting, the duration of temporary disability, the availability of modified-duty assignments and the time required to return employees to work.
These results can also be evaluated by industry, workers' compensation class code, injury type and jurisdiction.
Such distinctions matter because employers face different operational limitations.
An office employee with a shoulder injury may be able to resume computer-based duties relatively quickly, while a construction employee with the same diagnosis may be unable to perform essential physical tasks.
Comparing the two without accounting for job requirements and injury characteristics could produce misleading conclusions.
The analysis also raises the possibility of using return-to-work performance as a factor in evaluating workers' compensation risk.
However, the available analysis does not establish whether these measures independently predict claim costs after accounting for existing underwriting factors such as industry, wages, injury characteristics and geography.
Nor does it establish standardized benchmarks for comparing return-to-work performance across PEO portfolios.
For employers, the immediate application is more straightforward: track disability duration, identify delays in claims coordination and determine whether medically appropriate modified-duty opportunities are being used.
With indemnity and medical severity increasing, the time between an injury and an employee's safe return to work is an important component of workers' compensation cost management.
Source: https://www.peocompass.com/blog/return-to-work-performance-what-happens-after-the-injury-mattersnbsp
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