NCCI's April 2026 Medical Inflation Insights report flags accelerating medical equipment and supply prices as "one of the first signs of tariff-related impacts" on workers compensation medical costs. In the same quarter, pharmaceutical prices fell and hospital outpatient price growth moderated toward a 3.5% annualized pace.

Three components moving in three directions is the finding. A single composite medical severity trend applied across all of them will be wrong in both directions at once.

Key Takeaways

  • Medical equipment and supplies accelerated in early 2026, the category NCCI ties to tariffs, carrying roughly 15% of WC medical spend against Section 301 duties of 25% on Chinese-origin devices and effective rates above 40% on some components.
  • Hospital outpatient moderated toward 3.5% annualized, materially below the 5% to 6% post-pandemic range, on roughly 27% of WC medical spend.
  • NCCI says the moderate Q1 pace is unlikely to be sustained and expects the index to trend back toward its 2024 and 2025 levels later in the year.
  • Component divergence is worth roughly 0.38 points of composite trend, which compounds to about $115 million on a $10 billion premium base over a three-year prospective period.
  • The margin funding an 86% combined ratio is narrowing. Medical severity ran +6% in accident year 2024 while the 2025 to 2026 filing cycle produced the smallest count of loss cost decreases since 2018.

Three Findings, Three Directions

The April report covers data through March 2026 and needs decomposing rather than averaging.

Hospital outpatient price growth moderated against a year ago, with recent monthly increases consistent with a longer-term annualized pace near 3.5%. On roughly 27% of WC medical spend per NCCI's Medical Call data, that pulls the composite down, and 3.5% sits well below the 5% to 6% range of the post-pandemic period.

Medical equipment and supplies moved the other way. Durable medical equipment is roughly 15% of WC medical spend, and the tariff structure behind the acceleration is layered: Section 301 duties of 25% on Chinese-origin medical devices, a Section 122 tariff adding 15% on certain categories, and a Section 232 national security investigation covering devices from surgical robots to syringes. Effective rates on some orthopedic implants and rehabilitation equipment now exceed 40%.

Drug prices declined, which NCCI attributes to federal initiatives holding prices down. That component's share of WC medical spend has been falling anyway as states tighten formularies.

The composite therefore came in below the 2024 and 2025 trend, and NCCI cautioned in the same report that the pace is unlikely to be sustained.

The Index Is Weighted for Workers Comp, and So Should the Trend Be

The WCWMI is not CPI medical or PPI medical relabelled, and the construction is where the pricing consequence sits.

NCCI builds it on a method similar to the Bureau of Economic Analysis Personal Health Care price index but substitutes its own Medical Call data, covering reported medical transactions across 38 member states, for the economy-wide spending weights. Source indices differ by category.

WC Medical CategoryApprox. Share of WC Medical SpendBLS Source IndexQ1 2026 Direction
Physician services~40%PPI (offices of physicians)Stable
Hospital outpatient~27%PPI (general medical/surgical hospitals, outpatient)Moderating toward 3.5%
Durable medical equipment~15%CPI (medical equipment and supplies)Accelerating (tariff-flagged)
Prescription drugsDeclining shareCPI (prescription drugs)Declining
Long-term care (home health, skilled nursing)RemainderMixed CPI/PPIStable to modest increase

The split is deliberate. Physician and hospital services use PPI because it captures prices paid by all payer types including Medicare and Medicaid, which matches WC reimbursement structured as fee schedules referencing Medicare rates or state conversion factors. Drugs and equipment use CPI because WC reimbursement there tracks consumer-facing prices more closely.

That split is doing real work in 2026, because consumer-paid medical costs ran ahead of producer-paid medical costs in the first quarter. Benchmarking medical severity to headline CPI medical would overstate price pressure on the physician and hospital components, which together carry about two thirds of the spend.

The arithmetic of the divergence is what belongs in the filing. Weighting the components at 0.40 physician, 0.27 hospital outpatient, 0.15 equipment and 0.18 pharmaceutical and other, and running the current picture at 3.0% physician, 3.5% hospital outpatient, 5.5% equipment and 0.0% pharmaceutical, gives 1.20% plus 0.95% plus 0.83% plus 0.00%, a composite of 2.97%. Move equipment alone to 8% and the composite reaches 3.35%.

The 0.38 point difference reads as small in isolation. Compounded over a three-year prospective period on a $10 billion WC premium base it is roughly $115 million of loss cost, from one component that carries 15% of the weight.

The Signal Is Not in the Claim Data Yet

The constraint on acting on any of this is that the transmission chain is longer than the filing cycle.

Tariffs raise landed cost first, which the BLS Import Price Index for medical goods captures. Manufacturers then absorb some and pass through the rest, showing up in the PPI for Medical Equipment and Supplies Manufacturing, series PCU33913391; historical patterns put pass-through at 60% to 80% within six to twelve months.

Fee schedules move last. States referencing Medicare see changes through the CMS update cycle, which in 2026 reflects a 2.7% Medicare Economic Index increase. States setting their own rates, Texas at a $72.07 conversion factor for 2026 and South Carolina at $52.00 effective April 2026, move on their own schedules. The lag from tariff imposition to fee schedule adjustment runs 12 to 24 months, and claim cost emergence after that depends on treatment mix, since a knee replacement with an imported titanium implant carries different exposure than a course of physical therapy.

That puts the cost pressure outside the experience period entirely. A loss cost filing prepared in mid-2026 for a January 2027 effective date uses experience through 2024 or early 2025, so the equipment acceleration observed in the first quarter of 2026 appears nowhere in the historical data. The prospective trend factor is the only place it can enter, which means it has to be selected from external indicators rather than developed from claims.

Meanwhile the arithmetic that has absorbed medical severity is thinning. Frequency has been declining at roughly 5% annually and medical severity ran +6% in accident year 2024, an offset that has produced consecutive years of loss cost decreases. NCCI's preview of the 2026 State of the Line noted the 2025 to 2026 filing cycle showed the smallest count of loss cost decreases since 2018. An 86% combined ratio, the eighth consecutive year below 90, has room for 0.3 to 0.4 points of additional medical trend. It has less room than it did.

Further Reading

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