During the past decade, the amount employers paid for workers'
compensation insurance rose at an alarming rate. The causes of this increase
are a matter of continued debate, but medical expenses were certainly an important
culprit. In addition, “downsizing” may have led employees to be more inclined
to seek workers' compensation benefits in order to get as much out of the
employer as possible. And when the workforce is stretched thin, employees
may have more accidents.
The increase has slowed in many states--largely because of reform
legislation, changes in the way medical services are provided, strong safety
programs, an emphasis on finding and cutting out fraud, and increased return-to-work
programs. Also, employers retaining some, or all, of the risk may be helpful
in lowering their workers' compensation costs.
Human resources managers, insurers, and labor consultants recommend
investigating the following programs that may limit the costs of workers'
compensation. Some can be tackled in-house by individual employers. Others
require legislative or administrative changes to state workers' compensation
Managed care in workers' compensation means the employer's affiliation
with an organization for which health care providers work (usually called
an HMO) or that offers a list of physicians and other care providers (a PPO).
An increasing number of states certify managed care organizations and allow
employers to contract with them for workers' compensation coverage. In most
of these states, the employer may limit employee choice of doctors to those
on the organization's list. In addition, many of the managed care techniques
used to curb nonoccupational group health costs may be applied in the workers'
compensation area, including negotiation of provider discounts, utilization
review, case management, and medical bill audits. Some workers' compensation
watchers believe that the advent of managed care in workers' compensation
has had a moderating effect on costs, since it allows employers at least some
measure of control over the employee's choice of doctor and the treatments
given. Managed care is still in its infancy in workers' compensation, and
time will tell whether it is really effective in reducing medical costs.
Many states require employers to have an effective safety program
at the workplace. Depending upon the states, such programs may involve worker
training, safety equipment, and safety techniques. The benefits are manifold:
• Fewer accidents, more productivity
• Lower premiums or cash out-of-hand
• Less absenteeism
• Fewer Occupational Safety and Health Administration violations
• Better morale
Establish a safety committee made up of employees and management
representatives to review the circumstances of workplace injuries and to recommend
corrective measures for reported hazards. A number of states require such
committees or the establishment of a safety program. Also, an increasing number
of insurance carriers--including state insurance funds in some cases--are
offering premium discounts for employers with effective safety programs. And
some states mandate benefit reductions if workers are injured because they
violate the employer's specific safety rules. Be sure that safety rules are
effectively communicated to employees and consistently enforced.
Note: In order to stay on the safe side
of the National
Labor Relations Act, be sure the safety committee discusses safety--and
only safety--and that your management representative does not dominate the
agenda, discussion, or recommendations.
Every commentator insists that one element is absolutely required
for a company to have an effective safety culture: top management commitment
to the program.
The restoration of an experienced employee is of far greater
value to the company than bringing an inexperienced and untried worker on
board. Returning a regular, experienced employee back to the job can bring
substantial benefit savings and improve productivity. Further, there is evidence
that employees who return to work quickly are less likely to seek an attorney
than those who remain on disability leave.
Some states have laws requiring the employer to offer an injured
employee a modified duty or light duty job. In the states that have such “return
to work” laws, the employer does not have to create a new job, but if one
is available and the employee can perform it, it must be offered.
A number of states have established state insurance fraud units
with authority to prosecute fraudulent claimants, employers, insurers, and
health care providers. Penalties may include large fines and substantial jail
sentences. Some states require insurers to institute their own fraud squads
for investigating workers' compensation claims. In addition, many employers
have instituted fraud units in their companies. These developments have already
made quite a dent in workers' compensation costs.
Employer monitoring. While most employees
on workers' compensation follow their medical rehabilitation programs conscientiously,
evidence suggests that a minority of employees fabricate symptoms, cancel
physical therapy appointments, and are insincere about getting off compensation
and back on the job. The costs fall not only on employers, but also on the
malingerer's fellow employees. By forcing the payment of wages for no work
and wasting money on medical treatment, the employer is forced to skimp on
such things as pay raises, safety programs, and fringe benefits. Be on the
lookout for the following common signs of malingering and possible fraud.
Employee was new to job when injury was reported. Typically,
abusers of the system have no intention of doing any actual work, and they
will usually try to arrange things so that they don't have to spend any more
time than necessary on the job.
Injury is reported immediately before a work stoppage
of some kind. While everyone else has to struggle through a strike,
layoff, or shutdown without regular pay, the malingerer continues to collect
Injury is reported Monday morning, and there are no
witnesses. People who get hurt over the weekend sometimes try
to turn their injuries into cash by faking an accident at work.
Spotty work history. Malingerers frequently
get caught and have to move on. Look for periods of unexplained idleness in
their work records.
Employee is difficult to reach. An employee
who is disabled from an on-the-job injury should be at home during the day.
An employee who can't be reached by telephone could be working another job
or even away.
Frequent change of care-providers. No sooner
does the doctor catch on that there's mischief afoot then the malingerer changes
physicians, hoping to stretch out the disability payments just a bit longer.
Report claims promptly to the insurer, and be sure to notify
the insurer or attorney if there is reason to believe that a claim is not
based on a valid injury. Alert the insurer to any signs of malingering. Compile
a “repeater list” to show which employees are improperly trained, improperly
qualified, or “professional claimants.”
In addition, there are a number of cost-cutting strategies that
can be implemented within the employer's own organization.
Immediate action. Studies have shown that
the more quickly the employer gets involved in a workers' compensation claim,
the sooner it is resolved. Take prompt action and stay involved.
Pre-assignment physical exams. Screen applicants
for preexisting conditions and drug use, within the limits of applicable disability
discrimination and drug-testing laws.
Note:Asking about a person's health before
offering an applicant a job is a violation of the ADA. However, an employer
may do so before assigning an employee to new duties. Be sure the examining
physician is familiar with the physical demands of the individual's prospective
job assignment and heed the doctor's advice on appropriate accommodations.
Job classification. Be sure employees are
properly classified within their risk class. Improper rate classification
can be costly.
Payroll calculations. Pay insurance premiums
based only on straight time, not overtime, vacation pay, or sick leave. Most
states allow this.
Morale. Keep morale high. There is evidence
that employees with morale problems are more likely to be injured. Absenteeism
is one indicator of employee morale. Anticipate injuries by monitoring absenteeism.
Self-insurance. Almost all states these
days allow employers to self-insure their workers' compensation obligations.
This means that the employer assumes some or all of the losses itself, and
does not purchase workers' compensation insurance. Sometimes, the employer
buys excess insurance for losses that (for the employer at least) would otherwise
be financially catastrophic. Most states require employers to post a bond,
or in some fashion show proof of their ability to pay benefits. Usually, the
employer must have been in business in the state for a certain number of years.
There are a number of other financial and regulatory obligations for employers
that want to self-insure. They are most burdensome as start-up costs.
Group self-insurance. Many states allow
group self-insurance. Groups generally are required to be in the same business.
Benefits of self-insurance. An employer
may expect a better cash flow through self-insurance, because it does not
have to pay premiums in advance. Also, because the employer is very aware
of what claims it is paying, and why, there is generally more emphasis on
safety and all other methods of loss and risk control, as well as greater
involvement in the claims process. Also, administrative costs may be considerably
lower for the self-insuring employer. To a great extent, the success of a
self-insured employer depends on how effectively it manages its loss control
and claims programs.
Third-party administrators (TPA). Outside
companies will act as TPAs for administration responsibilities, and offer
a variety of services, including claims management, safety surveys, safety
training, rehabilitation, and others. At a minimum, the TPA should process
claim reports, file them to the state, investigate claims, recommend physicians
and medical facilities, assist in rehabilitation, and see to subrogation.
Typically, claim and loss control services cost from 10 percent to 15 percent
of the employer's normal insurance premium.
Deductibles. Deductibles are a useful cost-control
tool for employers. Today, nearly all nonmonopolistic states have approved
deductible plans for workers' compensation insurance. The benefit of deductibles,
particularly large deductibles (they apply per claim), is that they offer
many of the benefits of self-insurance without the high start-up costs, separate
insurer services, and regulations.
Some cost-control measures may be undertaken only at the legislative
or administrative level. Banding together with other employers improves the
likelihood of success of any reform efforts. Many states have already established
joint labor-management committees to study reforms of their workers' compensation
systems. Reforms could include:
• Establishing additional incentives for rehabilitation and an
early return to work, possibly by limiting the duration of some wage-replacement
• Making administrative changes that encourage settlements rather
than lengthy litigation.
• Developing fee schedules for medical reimbursements. This limits
medical costs. Only about half the states currently have such strategies.
• Giving employers the authority to choose the doctors who will
treat injured employees. This gives employers some latitude to negotiate cost-cutting
• Limiting stress-related claims. This is one potential area for
• Establishing mechanisms to limit benefits to employees who are
injured because they do not follow established safety rules.
The pressure for reform has characteristically been highest when
circumstances have turned critical, but there is no reason for employers to
wait until disaster strikes. Pressure today might well prevent crisis later