Employers with operations in California have been particularly hard hit, with workers' compensation costs nearly doubling during the same period.
Layoffs have reduced payrolls, thousands of manufacturing-sector positions have been cut, and accident frequency has diminished in each of the last few years. Nonetheless, workers' compensation expenditures still continue to soar as both claim duration and medical/curative utilization have increased significantly.
In addition to increases in health care utilization, disability costs and legal expenses, a cyclical insurance market and overuse of the system have been blamed for the rise in workers' compensation expenditures.
While many executives have begun to accept high or growing workers' compensation expenditures as just another cost of doing business, there are proven ways to successfully manage this process and reduce these growing costs.
Executives should be asking several questions:
- How do our workers' compensation costs compare to those of our peers?
- How much of our workers' compensation costs are related to actual losses?
- Is there a pattern to our claims? If so, why? Are some locations performing better than others? Do we know why?
- How do we allocate workers' compensation costs? How are accountabilities for safety and workers' compensation incorporated into management's performance metrics?
- Do we have an effective cost containment program in place for managing workers' compensation expenditures?
"At the broadest level, there's little question that our system for compensating on-the-job injuries is on life support. ...Governors in Florida, West Virginia and Washington have called special legislative sessions to try to find ways to contain costs. Businesses, which pay the claims, have been hit so hard that many are laying off workers and curtailing investment, further dragging down the economy."
The Wall Street Journal, 7/28/03
- Have we audited our workers' compensation service vendors to ensure they are meeting service quality standards? Have we confirmed their compliance with operating procedures?
- Do our management systems and approaches encourage and reinforce safe working behaviors?
- Do we conduct pre-loss and post-injury assessments to target and control workers' compensation cost drivers?
- Are we using the appropriate tools to manage workers' compensation costs?
Companies can attack the loss component of workers' compensation costs by conducting diagnostic assessments that identify savings opportunities and appropriate steps to more effectively manage both pre- and post-injury processes. The following services may be appropriate to help control costs:
Workers' Compensation Diagnostic/Benchmarking — Analyze and compare workers' compensation data using Dimensions, a proprietary system that helps measure the total cost of risk and validates the effectiveness of loss control and claim handling interventions.
Workers' Compensation Gap Analysis — Understand the primary workers' compensation cost drivers in the workplace, identify potential gaps in processes, compare financial performance against peers', benchmark against industry standards, and prioritize efforts to lower costs.
Behavioral Risk Improvement — Help eliminate employee risk taking and minimize injuries through a behavior-based process that is economical, efficient, and sustainable.
Ergonomics Risk Assessment — Identify and prioritize ergonomics exposures and define actions to help eliminate them.
Training and Communications — Online workers' compensation training courses help employers ensure a consistent approach to the workers' compensation process - particularly if they have high employee turnover and multiple locations.
Claims Management Process Re-engineering — Evaluate current processes for reporting, administering, medically managing, and closing workers' compensation claims, both internally and externally, and determine more efficient and cost-effective workflows.
"In the last few years, the cost of almost all kinds of insurance has been rising sharply. But workers' compensation, which pays for treatment of on-the job injuries and lost wages, is a particular problem because its purchase is mandatory."
The New York Times, 6/23/03
Vendor Compliance Evaluations — Conduct audits and develop metrics and performance scorecards for claims administrators and service vendors to measure compliance with special handling instructions.
Managed Care Impact Assessment — Develop a clinically based audit to assist in measuring and improving the medical treatment and case management protocols. Studies have shown that targeted early intervention is key to reducing claim costs.
Return-to-Work Program — Build an effective return-to-work program, a key element in reducing time loss associated with workers' compensation. The program can help boost employee morale by demonstrating concern for employees' well being.
Approximately 80% to 90% of workers' compensation costs are losses or loss related, so the best way to reduce expenditures is to significantly reduce the number of incidents and limit the severity of loss. Marsh can work with you to develop and implement strategies that reduce losses — and yield direct, bottom-line results.
"Regardless of the industry you're in, the best way to control the cost of workers' compensation insurance premiums is to avoid injury claims. A safe environment, effective safety training, and ongoing programs to promote safe work habits are keys to preventing employee injury."
If you have any questions or would like additional information, please contact us.
