What Is Driving Higher Workers’ Comp Costs in California?
After several years of relative stability, California’s workers’ compensation rates are once again on the rise.
For employers across the state, this shift is creating new financial pressures, and new questions. Why are rates climbing now? What’s driving the increase? And what can employers do to prepare?
In this two-part series, we’ll unpack those questions, starting with the key cost drivers behind today’s rate increases.
1. Medical Inflation Is Accelerating
Medical inflation has been a persistent challenge since the 2000s, but in recent years it has begun outpacing the broader economy.
From advanced imaging to rehabilitation and surgery, nearly every component of medical care has become more expensive, and those increases directly affect workers’ comp claim costs.
“Medical inflation is one of the biggest drivers of rate increases,”
says Kirk Aguilera.
“Employers who don’t have strong claims mitigation oversight or a strategic return-to-work program will feel it first.”
Even small increases in medical expenses can compound across multiple claims, particularly in industries with physically demanding roles or higher injury frequency.
2. Litigation and Legal Complexity Continue to Rise
California remains one of the most litigious states in the country when it comes to workers’ compensation.
Applicant attorney activity, evolving case law, and longer claim durations continue to drive higher claim severity and administrative overhead.
In some instances, Los Angeles–based applicant attorneys are even managing cases outside their jurisdiction, creating added friction and inconsistency between Northern and Southern California.
Tip from Kirk:
Employers can’t always control the legal process, but they can reduce exposure by maintaining accurate documentation, rapid reporting, and proactive claims mitigation oversight, working closely with adjusters, employees, and their broker to manage each claim strategically.
3. Workforce Turnover Is Fueling Claim Frequency
High turnover continues to challenge employers statewide.
New or inexperienced workers, particularly in construction, logistics, and hospitality, are statistically more likely to experience workplace injuries within their first year of employment.
That trend, compounded by frequent and inconsistent onboarding cycles, makes it harder to maintain safety discipline and consistency.
Best Practice:
Implement a structured onboarding and safety program with clear, trackable milestones. Employers who build safety into their culture see measurable reductions in both claim frequency and severity.
4. Regulatory and Administrative Cost Pressures
Beyond direct claim costs, administrative, compliance, and allocated loss adjustment expenses (ALAE) continue to drive hidden costs for employers.
Recent updates to medical fee schedules, reporting requirements, and utilization review procedures have increased program complexity and overhead.
Kirk explains:
“The challenge isn’t always the base rate itself, it’s the discretionary credits and debits applied by carriers and the administrative layers that surround the system. Employers need to understand how these factors impact total program costs.”
Even when published rates appear steady, structural and regulatory shifts often push total costs higher.
The Bottom Line
California’s workers’ compensation environment is evolving rapidly.
Rising rates are not driven by any single factor, but by the convergence of medical inflation, litigation trends, workforce dynamics, and systemic administrative pressures.
The good news? Employers aren’t powerless.
By understanding these cost drivers and implementing a true, strategic workers’ comp program, including claims mitigation oversight, structured onboarding, and a proactive return-to-work process, organizations can reduce exposure and protect their bottom line.
