Controlling Workers' Comp Costs
Industrial Distribution - 2013
If you're like most employers, you're concerned about the rising costs of employee benefits. And few such costs are increasing as rapidly as those for workers' compensation insurance.
Businesses were pleased to see workers’ compensation rates decrease nationwide as recently as 2011, although the 2012 Workers’ Compensation Premium Rate Ranking Study in Oregon predicts that the tides will turn in the opposite direction. Workers’ compensation rates reported at a national low of $1.88 per $100 of payroll in 2012 are expected to hit bottom and begin to increase steadily.
Co-author of the report and research scientist Jay Dotter believes that all businesses can expect to see definite workers’ comp increases by 2014. This evaluation was made based on an assessment of fluctuations in workers’ comp premiums in different states.
"The irony is that, in many respects, the workplace is safer than it's ever been," says P. J. Crowley, vice president of the Insurance Information Institute. "The root cause of the problem is the escalating cost of medical care and the number of prescribed follow-up visits to medical professionals."
Adding fuel to the fire is the length of time injured workers stay off the job, the continuing wages that must be paid while they are on leave, and the cost of replacement labor.
You can't reduce the level of workers' comp benefits, as you can with health insurance. That's because states mandate full coverage for treatment of on-the-job injuries.
So how can you control costs?
Are you being over-billed?
Is your insurance company calculating your premium correctly? To find out, have your insurance agent answer the following questions:
- Are Your Workers Classified Correctly? Different work positions are classified at different premiums. It's easy for these to get out of whack. For example, the promotion of an employee to a less risky position may not be reflected in your workers comp calculations unless you take steps to make sure it is.
- Is Your Payroll Reflected Accurately? The premium you pay is based upon your payroll level. If your company experiences a great deal of shifting among employees during the year, your payroll records at the insurance company can become outdated.
- Are Exemptions Duly Reflected in Your Calculations? Overtime pay and commissions are often exempted from your premium calculation. Make sure they are.
- Is Your Experience Modification(OR "X Mod") Rating Correct? Your premium is adjusted by your history of workplace injury, as distilled into an "experience modifier." Make sure yours is accurate.
"Every company should request a claims audit from the insurance company to check the x mod," says Norman A. Peterson, president of Norman Peterson & Associates, a consulting firm that specializes in workers' compensation issues (www.returntowork.com). "We estimate that if you were to get an independent audit of 100 companies, you would find errors in 90 that affect the x mod."
Speaking of audits, there's no reason you can't ask your insurance company to visit your place of business and conduct a job safety analysis. It's a great idea to have knowledgeable individuals analyze the safety risks of tasks your employees perform and suggest modifications to reduce risk of injury.
Step 1: Increase workplace safety
By far, the most important step you can take is to identify and address the riskiest areas of your operations, say insurance experts. Reducing the number of accidents in your workplace will directly affect your expenses for replacement labor while reducing your risk of getting hit with higher insurance rates as a result of poor workplace conditions.
"Insurance providers look at your track record," says Crowley. "They want to see evidence that you are taking control of your costs by getting workers the care they need, but also getting them back on the job as quickly as they are able. Add to this a training program that emphasizes safe workplace procedures to reduce the risk of accidents."
Smaller employers especially must be vigilant about workplace safety.
"If losses accumulate to any great degree, your insurance company will cancel coverage," says Daniel C. Free, president of the Indianapolis-based Insurance Audit and Inspection, a risk management consulting firm. "And you are going to have to tell prospective replacement carriers why you got canceled. If they decide not to take on the risk, you will be thrown into your state's assigned risk pool. That's expensive."
Today, workplace safety is often measured by experience modification ratings (EMRs) compared to industry averages, according to the Laborers’ Health and Safety Fund of North America. EMRs are tallied at a rolling, three-year average, meaning that a business’s improved safety performance will only be evidenced after three years of reduced on-the-job accidents.
Step 2: Get employees back to work quickly
Workplace safety is great, but costly accidents will happen. When they do, you need to get the injured worker back as soon as feasible. Indeed, it's the "staying at home" part that is most costly for employers. The expense starts with the need to hire replacement workers.
"Think of the time it takes to train someone to do an injured worker's job," says Free. "Furthermore, temp agencies charge huge fees that keep going until a person comes back. None of that is covered by insurance."
The costs don't end with the temp agency bill. Untrained employees just don't have your regular staff's expertise and customer contacts. Furthermore, employees who stay out of the workplace longer than necessary may get too comfortable and decide to lengthen their stay indefinitely or even build a lawsuit against your business.
The trick, then, is to institute a program that encourages early return.
"We estimate that a good 'back to work' program will reduce the cost of having an injured party at home by some 40 percent to 50 percent," says Peterson. "The number one cost driver for workers' comp is time spent at home."
Even a small number of cases in a company can account for a large portion of workers’ compensation costs. The LHSFNA recommends that workers return to their jobs as soon as they are medically able, reinforcing the importance of light duty work for injured workers to speed up recovery time and cushion company losses.
Peterson suggests the following:
Create temporary positions for injured workers. Get proactive. Today, before accidents happen, draw up contingency plans for workers who are injured on the job.
"Create in advance a modified temporary position to bring any injured worker back on the day of the injury," says Peterson. "Remember that time is your enemy when an employee walks out the door."
At first blush, it seems counter-intuitive that an injured worker can get back to work right away. After all, doesn't the reality of an injury preclude business as usual? It does, but that "as usual" part is subject to alteration. The idea is to develop productive positions for which the worker's injury does not rule out participation.
"A worker who deals in heavy lifting might not be able to resume full duties right away," says Crowley. "However, that same worker might be able to return to your job site and have some responsibilities that are not as physically taxing."
Step 3: Communicate your concern
If you don't express your concern about rising costs, how will people know? Reach out to everyone involved in the health care network. Take these steps:
• Explain the problem to your workforce. You know that workers' comp costs are escalating, but do your employees? Chances are they have no idea how much you have to pay for workers' comp or how it affects the health of the company that provides their paychecks.
Sharing this information will open their eyes to the problem, and to how they can help by fostering workplace safety and returning to work quickly if they are injured.
• Communicate with medical professionals. Workers aren't the only ones who need education about the cost of workers' comp. Doctors do, too.
"Doctors tend to prescribe the maximum medical care available," says Crowley. "Make sure the medical providers that treat your workers are familiar with the workers' comp system and prescribe what your workers need, but not more than they need."
A big part of the education solution is to make sure the doctor knows the demands of the position held by the injured worker and the alternative position you have made available for the employee. You may also call the doctor and discuss the treatment.
• Express concern for the injured worker. Remember that the injured worker is stewing at home, irritated that he has been hurt, and perhaps angry at your business. Such negative feelings can escalate if the worker feels you do not care what has happened.
"Employers who are viewed as uncaring open themselves up to claims that are not legitimate," says Free. "There is a lot of workers comp fraud out there." Free suggests designating what he calls an "employee diplomat" who maintains contact with the injured worker and expresses the concern of the employer. Not only will this make the worker feel better, but it will also encourage cooperation with the back-to-work program.
What's more, about half the states allow you to reduce your workers' comp costs by paying a deductible or by using managed care organizations to provide required care. See if your state is one of them.
"In this tight insurance market, carriers will want to see documentation that you are controlling costs and reducing risks," says Crowley. "So when you take proactive steps, you enjoy the prospect of insurance savings."Ready to Compare Workers Compensation Price Quotes?