Workers' compensation insurance, long a burr under the employer's saddle, is gaining new prominence in the drive to protect profits. Business owners are getting hit with premium increases for the first time after years of virtually level costs for the nation's oldest social program.
"We are entering a new environment of rising workers' compensation costs," says Peter Burton, senior division executive for State Relations at the National Council on Compensation Insurance, Boca Raton, Florida. "It is estimated that employers are seeing premium increases in the 2 to 5 percent range as their renewals come up."
Why the increase? More workers are having accidents and it's costing more to return them to health. "Most states have experienced `loss cost' increases over the past year," says Burton. "That's a change from the virtually flat or decreasing environment of previous years."
The term "loss cost" refers to the average statewide cost of lost wages and medical payments resulting from injured workers. Higher loss costs translate into higher insurance premiums.
A rising accident rate may seem surprising, given the many safety programs instituted by employers in recent years. "Workplaces are safer than they were 50 years ago," admits Daniel C. Free, president and general counsel of Insurance Audit and Inspection, Indianapolis, Indiana. And that's good because - at least until recently - controlling the number of accidents has gone a long way toward capping premiums.
Unfortunately, a number of factors have come together to reverse the favorable trend. Among them is a population that's getting older, heavier, and thus subject to more injury. "People used to retire in their 50s or 60s," says Free. "Now they often stay in the work force longer. Studies show that people who are older and overweight are more prone to slips and falls and lifting accidents, and take longer to heal."
Other cost drivers abound: Injured workers today are treated with more sophisticated medical procedures and more costly prescription drugs. And as the economy emerged slowly from the recession, employers began hiring new workers who were not as cognizant of security procedures, and whose lower experience levels led to more job injuries.
Finally, states are bringing more conditions under the workers' comp umbrella. "Some procedures, such as knee replacements, might not have been covered a few years ago but are now common," says Free. "And a growing number of states are covering nonphysical injuries such as mental stress."
It's all coming together to boost the doctor's share of the workers' comp bill. "Historically the indemnity portion of workers' comp costs [the replacement of a portion of lost wages] was higher than the medical portion," says Free. "Now the reverse is true: Rising medical costs are driving the increase in workers' compensation premiums."
Rising insurance costs are unwelcome to employers already under pressure to produce more with less. Workplace injuries affect far more than insurance premiums. An absent worker, after all, no longer contributes to profitable operations. "Your employees are your most important business asset," says Free. "You can replace computers if you have to. But your employees are hand-picked."
What's the best way to help cap workers' comp costs? The safety programs that have played such a vital role in past years remain the most promising resource today. "The best thing you can do is take steps that will improve safety," says Free. "That means training people in procedures that can reduce injuries, such as how to lift heavy boxes or utilize a computer keyboard safely. It may also mean purchasing safer equipment."
A big component is getting your work force engaged. "Get people thinking about safety," says Free. "It has to come from the top down. Make the employees feel you care about them. Every time there is an accident, enlist the help of your employees in figuring out what caused it and see if it can be fixed."
Pay special attention to new workers who may not have absorbed all of the safety instructions they were given, or who have not honed the skills requisite to injury-free activity. Establish safety groups that bring employees and managers together so they will become more cognizant of good practices. And explain how a safe work record contributes to an employer's lower workers' compensation premium.
Incentive programs can also help. Establish financial rewards for employees any time you go through a set period of time without injuries. A safe workplace is good for employees because it contributes to job retention.
Need help? "Most insurance carriers have trained safety and loss prevention professionals who will visit your workplace and make suggestions," says Free. "They can help a lot."
Back to Work
It's important to get injured employees back to work as soon as you can. "Experience shows that for every dollar you spend on benefits for an injured worker, you will be charged $3.50 in premiums over the years," says Norman A. Peterson, president of Norman Peterson & Associates, an Ashland, Oregon-based consulting firm that specializes in back to work issues.
Injuries lead to increased premiums because medical expenses affect your experience modification rating, or "x-mod" for short. If you experience higher than average claims, your premiums will increase; the converse is also true.
Generally speaking, smaller employers who pay less than $5,000 in annual premiums for three years running are exempt from x-mod calculations. But the threshold and rules vary by state. And even exempted employers will benefit from low accident rates because more employees will be productive participants in the workplace, rather than spending time at home recovering from accidents.
While the accident victim is off work, be sure to call and ask about the recovery process. "Keep very close contact with the injured employee," suggests Burton. "Check in often. Show you are concerned and see what you can do to keep the person's spirits up. Make sure the right medical care is being offered. The worst thing that can happen is a disconnect between the employer and an injured employee that does not lend itself to a prompt rehabilitation and return to work." Make the employees feel that someone is worried and they are needed.
Your business will benefit even if a returned employee can only perform light duty. "Employees who come back to work early go to their doctors less and take fewer prescription drugs," says Peterson. "Their minds becomes fully engaged at their work when they are not sitting at home thinking about their injuries." Develop and implement a light-duty program designed to blend injured workers back into the work force as early as possible.
Consider appointing an injured worker as a safety coordinator. "Have him write a report on how the injury occurred and how it can be avoided in the future for all workers," suggests Peterson. "Then have him bird dog the solution." This will heighten the profile of security, which is all to the good. The more employees think about safety, the fewer accidents you will incur. "Start to think of an injured worker as a resource," Peterson adds.
Fraud can be expensive in terms of rising workers' compensation premiums, the court time required for appeals, and the time and expense required for hiring replacement employees.
"The great majority of claims are legitimate," says Burton. "Most are compensable and correctly filed. But there are occasional outliers and they can be costly to the employer. In a time when everyone is competing in a global economy, the costs of fraudulent claims can make an employer less competitive."
How can you prevent such claims? "One of the best things you can do is use good interviewing techniques when hiring new employees," says Burton. Interviews should assess the work background and history of the applicant and the person's attitude toward work.
"Also, educate managers to be mindful for things that might be suspicious," adds Burton. "And educate your employees and managers on these topics. Make sure they understand that any time you add more costs to a business, it makes the business less competitive and may result in an employer eliminating positions due to increased expenses."
Should you fight a fraudulent claim in court? "If the employer has substantial evidence either through investigation or surveillance, certainly it would be beneficial to challenge a claim," says Burton. "Hopefully the workers' compensation commission will make the right determination. Bear in mind that most claims are nonetheless legitimate."
Workers' compensation fills a vital need for employers who are protected from lawsuits by injured workers. At the same time, the system makes sure employees receive compensation for a portion of lost wages and medical costs resulting from workplace injuries.
The workers' compensation system is not subject to the same cost controls as the health insurance industry. Nor do injured workers pay deductibles. For these reasons and many more, premiums are likely to go up further in the years ahead.
"No one knows what will happen once healthcare reform takes hold," says Free. "One might think that the legislation will cause claim costs to go down because everyone will be insured. But there is a lot of uncertainty out there. Whatever happens, we can expect workers' compensation costs to become an even greater concern in the future."