Workers' compensation—Managing the process
Editor's note: Portions of this article were published previously in an issue of FMA/TPA "Member Connections."
State workers' compensation laws were enacted to ensure that covered employees who are injured on the job are provided with monetary benefits to cover medical expenses and to replace partially any loss of income. The laws were intended to eliminate the need for employees who incur job-related injuries or illnesses to litigate their claims and also to establish limits on an employer's liability in these cases.
Workers' compensation is one of the many costs of operating most U.S. businesses. Like other business costs, workers' compensation costs must be managed.
Whether a business is insured by a provider of workers' compensation insurance or is self-insured, a number of common cost control measures can be used to eliminate or significantly reduce costs related to workers' compensation claims.
Both direct and indirect costs are associated with workers compensation claims. Some of the costs are obvious and some are not. Direct costs include:
- Medical expenses for treatment of the injury or illness and possible rehabilitation.
- Payment for lost wages, normally calculated as a percentage of the employee's average weekly earnings.
- Claims expenses, including investigation costs, attorney's fees, court costs, possible fines, third-party administrator fees, and bonds required for self-insured programs.
- Insurance premiums or self-funding increases.
Indirect costs, some of which can be significantly greater than the direct costs, include:
- Temporary labor or overtime to make up for the loss of the injured employee.
- Diminished productivity.
- Supervisor time spent dealing with the disruption and other necessary activities, such as replacement training.
- Scrap or other resultant work spoilage as an immediate or end result of the accident or injury.
- Property or equipment damage.
The costs associated with health care, litigation, and insurance administration have increased dramatically over the last 20 years. The events of 9/11 and its aftermath made the cost of insuring business losses, including workers compensation, even more expensive. Premium increases of 50 percent or more were not uncommon in 2002.
With increased payrolls, medical costs, legal expenses, and regulatory requirements continuing to drive up the cost of workers' compensation, employers cannot afford to treat workers' compensation claims as just another expense of doing business.
What all of this means is that providing a safe and healthy work environment is not just a benefit to employees—it's good for business.
Smart business owners and managers realize that the economic liability related to workers' compensation costs can be managed and controlled like other business expenses. They approach the process the same way they manage other costs—by evaluating and analyzing the risks, developing a plan to eliminate or reduce the risks, and assigning responsibility and accountability for managing the process.
Each business will have its own unique circumstances to consider when developing and managing its cost control program. However, there are some common cost control elements that all businesses can use.
Work force Involvement. This means everyone, not just owners, managers, and supervisors. Total work force involvement requires effective communication and continuous training at all organization levels. Risk identification and elimination must become priorities for all members of the work force. To accomplish this work force buy-in, owners and managers must demonstrate their commitment to the process on a continuous basis. Giving lip service to the process, hanging safety posters, and forming an impotentsafety committee while continuing to ignore obvious risks will doom the cost control efforts.
Accountability at All Levels. Effective risk management and safe work attitudes must become part of the overall performance measurement for the organization. A zero-tolerance culturewith regard to unsafe work practices and poor risk management habits must be implemented and practiced from the top to the lowest level of the organization. Accident and injury occurrence, including near misses, must be measured and the results reported to the organization on a regular basis. Remember, what gets measured gets done.
Outside Assistance. Many businesses do not take advantage of the free or low-cost risk management assistance available from their insurance providers, trade associations, and state agencies. For example, members of the Fabricators & Manufacturers Association, International® (FMA), have access to a wealth of information provided through the association's Web siteand other association resources. The FMA Safety Committee regularly publishes articleson how to manage risks. FMA members, who are insured through CNA, can access the carrier's risk management programs. Also, many states offer free, on-site safety audits; the only cost is that associated with correcting the risks that are found.
Safety Program Implementation. An effective safety program contains a number of elements such as:
- Performing regular safety and environmental audits.
- Effectively investigating and documenting accidents.
- Continuously training everyone in identifying risks and working safely.
- Positively and consistently enforcing the company's safety policy.
- Setting up an alternative duty program that provides medically safe alternative work for injured employees.
- Getting injured employees back to work as soon as it is safe to do so.
- Establishing a relationship with an occupational medicine physician, who always will see injured employees and who can advise the organization on work-related injuries and illnesses.
- Ensuring effective case management that involves close communication between the insurance case manager and the organization's workers' compensation representative (this should be someone in the company who has been properly trained in the workers' compensation laws requirements).
With more than 5 million work-related injuries and illnesses recorded in the U.S. during 2001 and more than 1 million of these resulting in days away from work, workers' compensation cost to U.S. business and its employees is no small number.
However, by adopting methods to identify and control workers' compensation costs with the same fervor and dedication that they manage and control other business costs, businesses can enhance their bottom lines and at the same time improve the work environment and lives of their employees.
Remember: Safety is just good business.