The Bureau of Labor Statistics announced that it will remove workers’ compensation insurance costs from the Employment Cost Index beginning with the January 2027 release of December 2026 data. At the same time, the ECI will adopt new 2025 fixed employment weights that rebalance industry composition across the index. The companion Employer Costs for Employee Compensation (ECEC) measure will follow suit in March 2027. Together, these changes alter two federal compensation benchmarks that many actuaries use when selecting indemnity severity trends for workers’ compensation reserve studies.
Who it affects
Self-insured employers in every state whose actuaries benchmark WC indemnity severity growth to the ECI wage-and-salary or total compensation series. The wage-and-salary component is most commonly used for indemnity trending because temporary and permanent disability benefits are calculated as a percentage of the injured worker’s pre-injury wage. The total compensation series, which includes employer-paid benefit costs, is used less often for indemnity but sometimes informs broader cost benchmarks in captive feasibility studies and pool rate analyses.
Public-entity pools that use ECI as a wage inflation assumption for projecting payroll exposure are also exposed. If the reweighted index shifts measured wage growth for government workers, projected payroll (the denominator in expected loss rates) could diverge from realized growth.
The reserve mechanism
The direct effect is on indemnity severity trend selection. In a typical WC reserve study, the actuary selects a severity trend to project how average claim costs will grow from historical accident years into the future. One common anchor for that selection is ECI wage-and-salary growth, on the theory that indemnity benefits track wages.
The removal of workers’ comp costs from the benefits component does not change the wage-and-salary sub-index directly. However, the simultaneous adoption of new 2025 fixed employment weights will rebalance which industries contribute to measured wage growth. Industries with above-average wage acceleration (healthcare, professional services) or below-average growth (retail, hospitality) will carry different weight in the composite. Depending on the industry mix, the revised index could run hotter or cooler than the current series for any given quarter.
The Q1 2026 ECI release reported private-industry wages up 3.4% and benefits up 3.6% year over year under the current methodology. That 3.4% figure is the last baseline before the weights change. If the reweighted index produces a materially different number for the same underlying wage data, actuaries will need to explain the discontinuity or switch benchmarks.
What this means for your next review
Before January 2027, ask your actuary to run a parallel calculation: apply the current ECI-based trend and an alternative benchmark (state-specific average weekly wage growth, or BLS Quarterly Census of Employment and Wages data) to the same triangle. If the two produce materially different ultimates, the reserve study should document the sensitivity and disclose which benchmark anchors the selected trend. Waiting until after the January 2027 release to discover the impact risks embedding a stale trend assumption into year-end 2026 reserve estimates.
Confirm whether your actuary uses ECI total compensation (where the WC removal matters directly) or ECI wages and salaries only (where the reweighting matters more). The answer determines which aspect of the methodology change requires attention.