Managing Costs and Risks of Workers’ Compensation

Work comp benefits and claims can give you an additional competitive edge.

By Randy DeVaul

In today’s global marketplace, employers must keep a competitive edge while retaining their most valuable asset – their employees. After the more traditional belt-tightening techniques have been put in place, companies must look for an additional competitive edge. One area often overlooked is in workers’ compensation benefits and claims.

Perhaps you believe you have no control over workers’ compensation costs or claims, so you have written this off as a “fixed” cost that continues to spiral upward each year. This can cost you thousands of dollars if ignored. So what is workers’ compensation, and how can costs and risks be reduced?

Workers’ compensation
Workers’ compensation programs were formed in the early 1900s as “no-fault” systems to assist workers with medical expenses resulting from work-related injuries, whether due to employee or employer error. It is now a mandated insurance policy purchased by the employer to cover such expenses that may arise from such injuries.

Second, workers’ compensation claims and benefits are prescribed in law. These are not company policies and, with the exception of how each company wants employees to report injuries, are not open to interpretation or changes by the company or employee. Employees and managers who understand that begin to realize there are certain criteria already established for handling a work-related injury claim, including how much money may be paid out for a disabling injury. Both employer and employee are bound by the same criteria. It is not a decision that can be made by a company, and changes cannot be made between companies within each state.

Controlling costs
So if workers’ compensation is statutory in nature and cannot be altered by a company, how exactly can a company control workers’ compensation costs and claims?

Just like auto insurance, different providers charge different amounts for workers’ compensation premiums, so shop around for the total package of services provided compared to premium cost. This is beneficial as long as you compare “apples to apples” as to which services are offered for that dollar amount.

Next, your premium for workers’ compensation is determined by a number of criteria. The industry to which you belong has a certain history of injuries and costs, and that will affect your base premium rate. In that sense, you may not have much control over what you have to pay initially. Your company rate is also determined by your company’s injury record over the past couple of years. If you have a runaway or climbing injury record (increased number of claims, increased incident rate for employee hours worked), your premium will increase. That is similar to having an automobile accident followed by an increase in your auto insurance premium.

Third, the insurance provider will look at your injury rate and compare it with the national average within the same industry. If it is higher than the average, you are classified as a higher risk and your premium goes up. These three factors make up the “mod” (modification) rate that directly affects your premium.

With that said, a key element to controlling workers’ compensation costs is knowing the numbers the provider has used to factor your mod rate so you can begin to target the risk areas that you can control – your injury and incident record.

This is not difficult, but it requires assessing the proper criteria. If your safety and risk management program measures its success entirely on how many injuries were reduced or didn’t happen this year, you are on the wrong track! Not having an injury does not mean your employees are performing the tasks correctly. It could mean they simply have been “lucky” or that they did not report an incident. Too often, employees choose to not report something because of the backlash or reprimand that occurs from management if an injury occurs. Having bonuses or incentives tied to zero injuries and losing them when an injury does occur enhances the no-reporting practice by both employees and managers. You do not want that to be the common practice, as you are waiting for a fatality to happen and you’ll never see it coming.

Another often ignored cost-controlling practice is related to injury-reporting as well. Prompt reporting of injuries by your employees to the manager is critical to ensure prompt and proper care. Your goal is to return your employee to work at full, unrestricted duty as quickly as possible. Failing to report an injury or a manager deciding the employee can wait a day or two is money just waiting to go out the door.

For example, let’s say an employee cuts a finger on a greased shim. It is just a small incision, not bleeding much, and a simple bandage fixes the problem – or so the employee thinks. Three days later the finger is infected, swollen, painful and now affecting the employee’s ability to grip tools and do work because the grease, solvent and debris in the finger was never properly cleaned. This requires a trip to the doctor, and the spiraling effect of this “simple” injury is now costing you dollars, time away from work, restricted duty for the employee and a follow-up visit to the physician.

In one other example, an employee falls and complains of lower back pain. Assuming it is a muscle strain, everyone decides it can be “worked out” during the shift. The next morning, the employee is in pain. He goes to his own physician, who sends him home for a couple of days. As it turns out, he has disc damage, which is now a few days old with increased pain, increased damage, and now increased costs in surgery, lost-time from work, restricted duty time upon returning to work, physical therapy and what he believes to be a reason to hire an attorney. Then there is additional overtime for those filling the void while he is out, loss of experience in that position that may affect quality and timeliness, and your need to now have an attorney.

Studies have shown that a “first aid” injury can run up to $3,000 in direct and indirect costs and a lost-time injury in excess of $30,000. Statistics suggest that indirect costs resulting from an injury can be five to 10 times that of the direct costs for medical treatment and follow-up.

Reducing risks of costs and claims
You can control workers’ compensation costs in the way you handle your injuries and incidents. Below are specific examples for reducing risks of costs and claims in workers’ compensation events. Though not an all-inclusive list, it will provide you with points that will ultimately save you in numbers of claims and dollars paid in claims.

• Designate one specific person in Human Relations or Safety as the workers’ compensation contact within your company. This provides your insurance provider with a direct contact, allows someone to learn and keep up with your state’s workers’ compensation requirements, provides employees with a personal contact for questions or claims follow-ups, and establishes a treating physician contact.
• Develop and actively maintain a written return-to-work policy and communicate it to all employees, the treating physicians and your insurance provider/claims adjuster.
• Develop and maintain a policy of immediately reporting injuries, regardless of severity, to your managers and your designated workers’ compensation contact. This will help ensure prompt attention to an injury and prompt care, ultimately saving your employee pain and recovery time and saving you on overextended costs.
• Develop and maintain a policy of you, your workers’ compensation contact and/or your managers communicating directly with your injured worker from the point of reporting an injury through return to work to full duty. This provides your employee with a feeling of employer concern for his/her well-being while staying in the communication link for follow-up or therapy visits.
• Make sure your designated contact obtains physician reports after treating an employee and reviews them. In a workers’ compensation claim, you (the employer) own the claim. It is your right to see all documentation related to the claim, and HIPAA is NOT an excuse for the physician’s office to not provide the information. You are paying for it, it is work-related, it is your claim.
• If a physician prescribes lost-time, call the physician and make sure the office is aware of your liberal return-to-work policy, ensuring that you will have work for the employee within the prescribed restrictions.
• Train your employees and managers in the workers’ compensation process for your state. This step shows managers the value of their roles in reducing costs and communicating with employees, and it increases their understanding in prompt and proper care of a reported injury. This step helps employees understand how the process works and reassures them that an attorney will not help their cause.
• Get involved with your insurance provider. Regular contact with your claims adjuster will improve communication and build a relationship of trust. It also allows your designated contact to learn what to look for with “high risk” claims and improve the flow of employee-to-physician-to-insurance provider process.
• Do not settle for “because it happened at work, it must be compensable.” Each claim is unique, but learning how to filter what is and is not compensable will keep you from paying claims you shouldn’t have.
• Review claims monthly with your claims adjuster. Find out why claims are still open versus closed, whether a claim needs to be settled or ongoing, and what the next step should be (do you need surveillance on a questionable claim, is there just one more scheduled therapy appointment before closing the claim, etc.).
• Ask your insurance provider which services are part of your premium, and use the services. This can include walk-through inspections, audits, training for your designated contact and managers, industrial hygiene sampling, hazard assessments or just another set of eyes to measure how you are doing. The provider is on your side, so take advantage of its services.
• Have a formal safety program with employee training and participation. When employees participate in identifying and communicating hazards followed by seeing that you are correcting the hazards, they become your eyes and ears in safety. Corrected hazards are no longer hazards, and they reduce your chance of injuries occurring in the first place.
• Communicate safety as a core value, not just a priority. Unlike priorities that change with the circumstances, a core value is a commitment to doing it right regardless of circumstances. Place safety measurements in performance evaluations for both employees and managers, and hold them accountable for safe performance.

These points will provide an excellent base for getting a handle on your workers’ compensation claims and costs. Follow as many of these points as possible, and you may see a discount in your workers’ compensation premium just for the effort.

Randy DeVaul is an internationally published writer and author from Westfield, N.Y. With 25 years in safety and emergency response services, he has authored three performance-based safety books and is now writing another.