In the current economic environment, employers are stepping up efforts to control costs wherever they can. As workers’ compensation costs continue to soar, this area represents a prime target for cost savings that can be applied directly to an organization’s bottom line.

Although the frequency of work-related injuries has declined nationally, the length and severity of these claims have increased, driving up workers’ compensation costs. The Bureau of Labor Statistics (BLS) reported that the frequency of occupational injuries and illnesses decreased by 15 percent in the last four years for which data is available. Meanwhile, the number of workers’ compensation claims involving more than 30 days away from work rose by the same percentage according to BLS. So the lower rate of claims is being offset by longer absences with their associated higher costs.

In addition, Marsh finds the average workers’ compensation medical costs per lost-time claim rose 27 percent in the last four years, according to Marsh's Dimensions^TM database. The higher costs may be attributed to an increased use of medical benefits and increased durations. The longer employees remain out of work, the more medical services are used to treat workers’ compensation injuries.

Beyond the direct expenses associated with a claim, employers must absorb costs of training or hiring replacement staff. By some industry estimates, soft costs associated with workers’ compensation can range from one to four times the direct costs.

These trends call for action. Before changing existing workers’ compensation programs or implementing new strategies, employers should conduct a thorough review of their current programs to identify improvements that will deliver the greatest return.

This may involve using benchmarking approaches to measure the gap between an organization’s cost containment initiatives and industry best practices. The results of this analysis may become the foundation for developing a comprehensive cost containment strategy. Benchmarking data also can help prioritize the program elements that need attention as well as to identify practices already in line with industry standards.

Equipped with results from this analysis, employers can then concentrate on implementing initiatives that will lead to improved management of the work site, employees, claim process, medical providers, and more effective information systems.

Employers should view their workers’ compensation initiatives in terms of pre- and post-loss programs. Emphasis on employee education and management accountability will lead to greater focus on efforts to identify and mitigate workplace risks, thus preventing accidents and injuries before they occur. These activities can run the gamut from implementing ergonomic interventions to providing positive reinforcement in support of safe work practices.

To address post-loss issues, employers may need to sharpen their focus on the injury and claims management processes. This could involve establishing consistent policies for reporting claims, incident investigations, and medical referrals. A critical element in any employer’s post-loss activities involves a return-to-work policy that gives employees the opportunity to begin working on a modified schedule as soon as they are physically able. Transitional or temporary work programs offer significant benefits to the employee and potential cost savings for the employer.

Finally, effective workers’ compensation programs should have the visible support of senior management and foster involvement by all levels of the workforce. A carefully planned communication program will help ensure participation. In light of workers’ compensation cost trends, a properly managed program will not only to lower the frequency of claims, but their duration and severity as well.