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Workers Comp: Put a Lid on Costs
The cost of workers compensation insurance is escalating

By Phillip M. Perry
Date Posted: 12/2/2003

 If you're like most employers, you're concerned about the rising costs of employee benefits. And few such costs are rising as rapidly as those for workers compensation insurance.

            Premiums for workers comp have risen 50% nationwide in the last three years  -- the fastest pace in a decade, according to the New York City-based Insurance Information Institute. The increase is even greater in some states such as Florida and Texas. The hardest hit state is California, where rates have nearly doubled over the past several years, prompting some business owners to move elsewhere.

            "Employers are up in arms," said Daniel C. Free, president of the Indianapolis-based Insurance Audit and Inspection, a risk management consulting firm (www.insuranceaudit.com). "Some businesses are getting back-to-back increases of 25 to 40 percent, even if they have favorable workplace accident rates. No insurance buyer knows how to budget for a 20 percent increase that turns out to be twice that number. And employers often don't know what the new rates will be until a few weeks before renewal time. Then, of course, it's too late to shop around."

            The big increase comes on the heels of a decades-long effort by many business owners to reduce the risks inherent in their operations. "The irony is that in many respects the workplace is safer than it's ever been," said 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 leak of 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?

            Let's see what the experts say.

 

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. 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," said 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," said Free. "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."

            Look a number of ergonomic areas that commonly lead to workplace injuries. Free suggests the following:

n      Keyboard operators. Adjust keyboard positions and encourage safe practices to reduce the risk of carpal tunnel syndrome.

n      Computer screens. Adjust screen positions to avoid headaches that can turn into costly time off.

n      Floor coverings. Many employees stand all day long. Install floor mats that are designed to reduce the resultant shock to the legs and back. And have employees wear the right shoes to reduce fatigue.

n      Warehouse shelving. Remember that materials stacked the wrong way can fall over. Redesign your stocking procedures.

n      Lifting and moving. Anyone who needs to lift and move boxes of goods should wear appropriate lower back braces, and utilize carts whenever possible. Remember: Sprained backs are the most common workplace injury.

n      Chairs. Does your office staff sit all day long? Install chairs that support the lower back and mandate regular stretching and walking times.

n      Three extra pointers: Minimize the number of times people have to bend over to pick up things. Remove tripping hazards. Spot and adjust protruding installations and shelved items that may fall on workers.

           

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," said 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 to 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 to 50 percent," said Norman A. Peterson, President of Norman Peterson & Associates, a consulting firm that specializes in workers compensation issues (www.returntowork.com). "The number one cost driver for workers comp is time spent at home."

            Sounds like there's room for significant savings. Here's what to do: 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," said Peterson. "Remember that time is your enemy when an employee walks out the door."

            At first blush, it seems counterintuitive 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 trick 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," said 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:

            A. Communicate the problem with your work force.

            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.

            B. Communicate with medical professionals.

            Workers aren't the only ones who need education about the cost of workers comp: So do doctors. "Doctors tend to prescribe the maximum medical care available," said 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 which you have made available for the employee. You may also call the doctor and discuss the treatment.

            C. 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," said 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.

            Bonus tip: 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.

 

Take Action Now

            You can help reduce costly increases in workers comp costs by following some of the advice in this article. "In this tight insurance market, carriers will want to see documentation that you are controlling costs and reducing risks," said Crowley. "So when you take proactive steps you enjoy the prospect of insurance savings."

 

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," said 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 why 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.

 

Get More Information

            Here are some web sites with information about workers compensation insurance:

www.iii.org. The Insurance Information Institute offers a detailed overview of the current state of workers comp insurance, factors contributing to escalating costs, and relevant laws by state.

Click on "More Insurance Issues" Under "Hot Topics" and then on "Workers Compensation Insurance."

www.mostchoice.com. This agency marketing site provides a detailed explanation of the calculations used to determine premiums for workers comp insurance. Click on "Workers Comp" under the "Business Insurance” heading, then on "Purchasing" and the related headings. The site features an interactive quote request form sent to an array of independent agents.

www.law.cornell.edu. Hosted by the Legal Information Institute at Cornell Law School, this site offers a roundup of federal and state laws on workers comp. Click on "Law About" and then "Accident and Injury Compensation" and then "Workers Compensation."

info.insure.com. This marketing site for insurance agencies includes an interactive tool with capsule views of workers comp law by state. Click on "Workers compensation insurance law tool" under "Your Business." For in-depth information about workers comp, click on "Small Business," select "Small Business Insurance Main Page" and then "Workers compensation insurance library."

 








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