Workers' compensation costs continue to skyrocket, stagnating business growth and remaining a major concern for employers across the country. In fact, the total workers' compensation exposure in the United States is now estimated to be approximately $120 billion, according to calculations from Mercer Oliver Wyman as of Feb. 2004. Today, employers pay almost twice as much in workers' compensation costs than they contribute to Medicare. If this trend continues, by 2010 employers will contribute more to workers' compensation than to Social Security.

Since most employers have made significant strides on the health and safety front, the number of occupational injuries is flat or decreasing. Statistics prove repeatedly that the American workplace is far safer now than it was 30 years ago. Since the 1971 inception of the Occupational Safety and Health Administration (OSHA), workplace fatalities have decreased by more than 60 percent and occupational injury and illness rates by 40 percent.



"In announcing the closure this week, company officials said they have been struggling for years to continue operations and preserve jobs through tough economic times that included rising costs for workers' compensation insurance . . ."
Los Angeles Times, 10/2/04

However, despite decreasing numbers of injuries, workers' compensation costs are growing steadily. Why? Today, the key issue in workers' compensation is claims "severity"—that is the total cost of claims including medical, indemnity, and expenses.

That does not mean that accident prevention programs can be ignored and allowed to decline; workplace accident frequency is still a very real concern. In fact according to a recent Gallup poll, 50 percent of employees circumvent safety procedures—indicating a management breakdown.

Health and safety initiatives are critical and create the foundation for a successful prevention program, but they are simply insufficient to control an employer's total cost of workers' compensation. Safety cannot be compromised, but proactive employers who want to control costs should place more emphasis on managing, not just preventing, claims.



"The company blamed the lower [financial] outlook on rising costs in workers' compensation—as well as an increase in general expenses."
CBS MarketWatch, 9/23/04

Executives concerned about rising workers' compensation costs should ask themselves the following questions:

• Are we effective in managing workers' compensation claims and controlling costs?
• How can we apply best-in-class practices when filing and managing claims?
• Are we participating in compensability investigations?
• Do we manage the medical process whenever possible? Do we provide timely, appropriate medical care to injured employees?
• Is the return-to-work process effective? Are front-line supervisors involved?

Managing an Incident to Minimize Severity
Once an incident occurs, it is the employer's primary responsibility to manage that claim as efficiently as possible, while supporting the employee with medical care and wage replacement benefits. The better the employer handles this responsibility, the easier it is for an employee to return to full, regular duty after an injury.

Most workers' compensation claims involve some kind of physical injury; however, it is important for the employer to understand that a claim can also have a psychological effect on the employee. How an employee is treated by an employer, both initially and during the recovery period, can have a significant influence on how well and how quickly the employee recovers. A faster recovery directly influences a claim's severity, which directly affects the total cost.

There are three steps every employer should take following an accident or injury:

• Transport the employee to a pre-determined medical provider and take an injury report
• Investigate the injury
• Conduct a safety investigation with the goal of preventing similar future injuries

"Important to good claims management is getting everyone involved in a claim—the injured workers, their doctors and employers . . ."
The York Dispatch, 9/22/04

Providing Access to Medical Care
Employees injured on the job are entitled to medical treatment at no cost. In most jurisdictions, there can be no deductibles, no co-payments, no waiting periods, and no limits of liability for employees.

States differ when it comes to the issue of who may select the medical provider. Some states allow employees unlimited choice, but most allow the employer some involvement in the selection of a managed care network, a panel of physicians, or the initial choice of doctor for a specific time period.

Many states now allow the use of managed care networks. Although the features of managed care networks vary depending on state regulations, most managed care programs typically include:

• Provider credentialing
• Predetermined networks of physicians
• Cost containment treatment protocols
• Expedited oversight of provider/insurer disputes involving treatment reporting, claim-closure reporting, or payment timeliness
• Grievance procedures
• Disability prevention protocols
• Fee-for-service discounts or packaged pricing

Effective communications with medical providers is critical to successful outcomes for injured workers. Medical providers should have specific information about the kind of work environment to which an employee will return as well the types of accommodations than can be made in the interim and permanently. Employers and insurers should be kept abreast of the type care being provided, particularly relating to the employee's timetable for returning to work.

Easing the Return to Work
There are two things that every employer can do to help reduce the extent and duration of an employee's time away from work. First, employers need to initiate clear, consistent, regular, and empathetic communication with the injured worker. Second, employers must establish a post-injury return-to-work program. However, a formal program is wasted if it is hidden in the dark recesses of the employee handbook. Both employees and managers need to be familiar with the company's return-to-work policies and procedures.

Return-to-work programs can be enormously effective in mitigating the severity of workers’ compensation claims. Proactive employers will check on the employee frequently and will express a desire to have the employee back at work contributing to the team and the company. Experience has shown that employees who feel valued and missed return to work as soon as safely possible. Trust, productivity, job security, and morale increase; at the same time, overall costs related to severity decrease.



"Forty percent of respondents said that incurred workers' compensation costs increased an average of 24 percent from 2001 to 2002."
Marsh Mercer 2003 Time-Off and Disability Survey, 5/04

Additionally, a positive relationship between an injured employee and his/her supervisor can shorten the amount of time that it takes the employee to return to work and reduce the severity of lost-time claims.

Too often, supervisors are only given information on an employee's work restrictions. Instead, managers need to understand what an employee can do, rather than focus on what he/she cannot do. With a clear picture of the employee's capabilities, supervisors can use existing job descriptions to find the right return-to-work opportunity. Objective physical capacity measurements can prove to be invaluable. Specifically, functional testing that measures an employee's physical capabilities against specific job requirements can help identify an appropriate transitional duty assignment or a full-time job that accommodates the employee’s permanent restrictions. Tasks should be tailored to match the employee's physical abilities; job descriptions should be clear and, when possible, include input from the employee.

Finally, engaged employers who invest time, money, and effort are in a better position to control their workers' compensation costs. While there is no quick fix or simple solution, proactive employers should consider the following services:

• Absence management
• Compensability investigation training and tools
• Managed care assessments
• Employee Management Program and other return-to-work initiatives
• Physical capacity testing

If you have any questions or would like additional information, please contact us.