Containing Your Workers' Compensation Costs

It's hard to fathom, but when first instituted a century ago, the workers' compensation system was devised as a cost-saving mechanism. Job safety was deteriorating, leading to an increase in accidents and injuries. Employers increasingly found themselves in court, defending civil suits.

Workers' compensation was seen as a way out of the problem by spreading the risk, while providing compensation to employees who were disabled from working.

Today, the system is a monster. Workers' compensation accounts for the fastest growing labor cost in the country. Studies show that costs in this area are doubling every four years, with insurance premium levels rising at an annual rate of 10%.

Employers spend tens of billions of dollars each year to insure their work-injury risk. Most costs result from the payment of increased benefits when it comes time to determine an employee's eligibility to return to work. The most common injuries are typically caused by lower back strains, slips and falls, and incidents in which employees are struck by various objects.

Increased utilization of attorneys on a contingent fee basis has fueled the cost increase. When these attorneys are involved, studies indicate cases become fifteen times more expensive for employers. Over-treatment by physicians contributes to the problem. Medical costs are approaching half of total benefit costs. Backlogged administrative systems drive up costs by creating obstacles to the rapid settlement of claims.

Dozens of states have turned to legal reform in an effort to control spiraling costs. Caps on recovery awards and contingency fee limits have been passed in many states, with limited success. Other states have passed laws that provide incentives to employers who implement drug-free workplace programs.

Federal laws such as the Americans with Disabilities Act ("ADA") and the Family and Medical Leave Act ("FMLA") have added confusion by imposing seemingly conflicting employer obligations.

Workers' compensation costs have had an enormous impact on the bottom line. By focusing on long-term objectives, however, these expenses can be effectively managed and contained. Here is a checklist that can help keep your costs down:

Establish a Comprehensive Cost Reduction Program: The program should be tailored to suit individual needs, but there are common elements to the most effective programs:

1. A legal, but thorough pre-employment screening program.
2. Administration of agility tests to job applicants.
3. Conducting post-offer medical exams and inquiries.
4. A focus on safety training at orientation.
5. Utilization of accurate, updated job descriptions.
6. Strict enforcement of a substance abuse policy.
7. Consistent adherence to a temporary light duty policy.
8. Coordination with FMLA, STD and other leave programs.

Train Employees to be Safety-Conscious: Implement a comprehensive safety program that provides for regular meetings, dissemination of written materials, and hazard communication. Consider creating a safety committee, consistent with the requirements of the National Labor Relations Act.

Evaluate Your Organization's Claim History: Study your history of workers' compensation claims over a minimum five-year period, and look for patterns in injury type and frequency. Determine the most common types of injuries, and look for a repeat use of the same doctors, chiropractors and lawyers.

Compare Your Costs to Those of Other Companies: Contact other contractors to compare your cost figures with those of "benchmark" companies with excellent claims records. Find out what they do differently, and try to determine what makes the difference. National, state and local industry associations represent valuable sources of information that may lead to additional cost savings.

Periodically Audit Claims Reserves: Hire a qualified person to evaluate whether reserve computations are reasonable or excessive for the types of injuries incurred at your facility. This person should report directly to you, not the insurance company.