Five challenges for workers comp in 2025 Part 1 (1 – 5)

The workers’ compensation landscape is undergoing significant transformation driven by new technologies, legal and regulatory challenges, economic factors, and evolving workforce dynamics. Employers that are proactive and informed are in the best position to navigate these complexities and effectively mitigate risks. In 2025 employers will need a heightened awareness of federal, state and local regulations as significant changes are anticipated.

1. Market stability

While the workers’ comp insurance market experienced another year of strong performance, several emerging trends may indicate a challenging outlook for the market in the future. A gradual decline in reserve strength coupled with medical and wage inflation, shifts in workplace demographics, and other evolving risks could drive up claim costs. Insurers have a keen eye on the potential rising costs and will adjust rates to maintain profitability.

Since workers’ comp is state-based, market stability is mixed with some states seeing large declines and others seeing increases. In states with mandated fee schedules, providers have been pushing for fee schedule revisions. NCCI noted that the one percent decrease in rates in Florida would have been 6.4 percent but for a bill increasing physician reimbursements in 2025.

To understand the rate environment, pay attention to broad national trends, local market conditions, and industry risk factors. Even if the market hardens, workers’ comp is one of the most controllable costs in an employer’s risk profile. It’s time to assess the overall effectiveness of your program and evaluate new initiatives that will improve your underwriting risk profile.

2. Shifting workplace demographics

Today there is a larger proportion of both new and aging employees in the workforce. The Bureau of Labor Statistics expects 96.5 percent growth in the labor market of workers 75 and older between 2020 and 2030. Gallagher Bassett Services Inc. projects that by 2032, workers aged 55 and over will generate around a quarter of all claims. While older workers are injured less frequently, the injuries cost more, largely because of pre-existing conditions that hinder the healing process.

On the other end of the spectrum, the oldest members of Gen Z are 28, and their share of the workforce will continue to grow and is expected to reach 30 percent by 2030. Several studies have examined the traits of Gen Z in the workforce and have found that they have a higher rate of mental health issues, are less likely to drink alcohol, but more likely to use marijuana and vape, are digital natives oriented to mobile experiences, and value work-life integration and corporate social responsibility. These factors will affect productivity, workers’ comp claim management, and communication expectations.

Several studies in 2024 confirmed earlier studies that employees who have been in their jobs for less than one year are more susceptible to on-the-job injuries, representing over 30 percent of all injuries. While claim frequency will be higher among younger workers, severity will be lower.

When analyzing injuries, it’s important to include demographics to identify hazards unique to certain age groups. Get worker input into managing the hazards.

For new employees, employers need to have a thorough hiring process, including pre-employment physicals. Once hired, conduct in-depth training and safety orientations with follow up check-ins. Make sure new workers understand the workers compensation process and benefits provided through Employee Assistance Programs.

For older workers, at time of injury, conduct health screening to identify any preexisting conditions that could affect the employee’s recovery time. Assign a nurse case manager with experience in comorbidities to help the injured employee. Have a robust recovery at work program with strong manager buy-in. Pay particular attention to reserves for such claims. Allow flexible scheduling or modified hours to retain older workers and manage fatigue.

3. Mental Health

Mental health is one of the most complicated issues in workers’ comp. Untreated mental health can cost employers significantly in terms of absences, lost productivity, and lead to workplace injuries. The extent of workers’ comp coverage for mental health varies greatly by state.

While some states have enacted presumptions of workplace causation for mental health conditions, the laws have focused on first responders. Although most failed, an interesting trend emerged in 2024 – eight states considered legislation to expand coverage for mental injuries to additional workers. Notably, New York enacted legislation, effective Jan. 1, 2025, enabling employees to claim workers compensation for extreme job-related stress, a benefit previously available only to certain first responders. Vermont expanded PTSD coverage to include certain state employees, Connecticut expanded its law regarding PTSD to all employees on January 1, 2024, and Washington has a PTSD presumption that applies to nurses.

Compensability will ultimately be decided by state law and the specifics of the comp case. Antidotally there seems to be a nationwide growth in the number of court cases involving disputes about coverage of mental health injuries in comp, so case law can be helpful.

The issue, however, is broader than compensability. The NCCI has found that claims with a mental health component are 2.5 times more expensive than those without them and mental health issues that follow physical injuries are the predominant type of claim. Proactively identifying workers who are more likely to have mental conditions early in the recovery process and a supportive work environment will lead to better outcomes for employees and employers.

Employers that identify and address workplace issues that adversely affect workers’ psychological well-being, incorporate mental health resources and support options within employee wellness offerings, and address well-being in pulse surveys will be in the best position to limit mental health claims and foster employee retention.

4. Marijuana

Unfortunately, 2024 did not bring clarity for employers that must navigate the complex patchwork of regulations that govern marijuana and the workplace. At the federal level, cannabis remains a prohibited substance under the Controlled Substances Act, 39 states now have legalized medical marijuana, and 24 states have legalized recreational marijuana, but laws vary dramatically from one jurisdiction to the next. Further, the laws around workplace drug testing vary from state to state and even among municipalities within the same state. For a summary of state laws on testing.

In 2024, a growing number of states moved to protect off-duty recreational cannabis use (with exceptions for safety-sensitive positions), and more large employers removed marijuana from the drug-testing screening panels. Complying with the laws is particularly challenging for companies that employ workers in multiple states. Rather than testing for general use, some employers are training managers and using a monitoring system to detect impairment. Some of the newer laws identify the symptoms to observe.

Court decisions in 2024 offer guidance for some employers. Some examples:

Drug-free workplace policies in Illinois ;

Off-duty medical use in Florida ;

New Jersey denial of private right of action ,

Connecticut right to terminate for impairment by medical marijuana

Employers can find valuable information on cannabis use by industry and occupation and the impact of cannabis use on workplace safety in a recent study  by researchers affiliated with the Centers for Disease Control and Prevention (CDC) and published in the American Journal of Public Health (AJPH).

In 2025, employers must balance compliance considerations, workers’ rights, and workplace safety in a rapidly changing environment.

5. Climate change

In 2024, California adopted an indoor heat regulation and Maryland and Nevada enacted heat regulations. While federal OSHA developed a heat standard, it is in the comment stage until January 14 and it’s expected the rule will be scaled back dramatically, delayed, or even undone by the Trump administration. If so, expect more states to consider heat protection legislation.

Several studies were published in 2024 documenting that the probability of injuries increases on days with extreme temperatures, both hot and cold. The injuries can be direct, such as heat exhaustion, or indirect caused by disorientation or exhaustion such as falling off a ladder. Given the preponderance of evidence, risk managers should consider indoor air quality assessments, additional water or rest stations, ventilation, and cooling centers.