As a Certified WorkComp Advisor, I have spent countless hours helping businesses better understand and manage what is often one of the most expensive and most volatile insurance costs that any business has to purchase…Workers’ Compensation Insurance.
Workers’ compensation insurance is required by the state of Pennsylvania along with most other states. And if you operate a manufacturing business, a construction firm, a transportation company, or a business in a human services field, you certainly know how expensive this coverage is! Most likely, workers’ compensation insurance is your second or third largest expense after your payroll.
Is there anything you can do to control or lower your workers’ compensation costs?
The answer is ABSOLUTELY!
Before we go any further, you need to understand you will end up paying increases on your workers’ compensation premiums every time you submit a claim. In fact, for every dollar that your insurance company spends on your workers’ compensation claims, you will end up paying premium increases between 150% – 200% in the two to three years following your claim.
But together, my clients and I have worked to implement plans that consistently lower their workers’ compensation costs year in and year out. And by executing those proven strategies they were able to create a safety culture in their workplace, establish practices to minimize accidents and injuries. As a result, my clients have saved hundreds of thousands of dollars.
While it may take as many as three years to see significant changes in their workers’ compensation premium, their savings are substantial.
If you are paying more than $50,000 in workers’ compensation premiums, this article is for you. (Most of this article will still benefit firms spending less than $50,000 in workers’ compensation, but the positive and negative financial impacts for those companies will not be as large.)
In this article, we will explore the 7 best practices you can implement to lower your workers’ compensation costs. These practices will not change your premiums overnight, but if you commit to putting these into place, you, too, will find dramatic savings in your workers’ compensation costs!
In this article we will tackle these seven practices so set your company on a path to lowering your costs:
- Hiring procedures
- Reviewing claims
- Helping employees return to work after an accident
- Establishing a physician panel
- Organizing a safety committee
- Requiring drug testing
- Conducting confidential employee interviews
#1 Smart Hiring Protocol
Your hiring protocol is probably the simplest way to begin working on controlling your workers’ compensation costs. Having good hiring protocols in place can reduce the likelihood of workers’ compensation claims which lead to higher workers’ compensation costs. Good hiring protocols can stop claims before they ever happen.
Here are just a few hiring protocols you can put into place to help protect you.
Post-offer pre-employment physical
Before you finalize employment, you can request that potential hires see a doctor for a physical. You can let a potential hire know that you would like to offer them a job with the condition that they get clearance from a doctor through a pre-employment physical first.
Through a physical, a doctor can uncover preexisting conditions that would prevent a potential employee from safely working for you. A physician can identify if a potential employee might aggravate an old injury that could result in a workers’ compensation claim.
Let’s say someone applies for a job as a stocker in your warehouse. At their pre-employment physical, as the doctor is taking down their history, he discovers that in the last year this potential hire had shoulder surgery. The doctor can determine if this potential hire has a great risk for re-injury while working for you. If the potential hire is reinjured on the job in your warehouse, you will have to file a workers’ compensation claim.
Claims like this could cost you up to $60,000. A pre-employment physical is only $120. The pre-employment physical could save your business a lot of money.
Now you may be asking what if my employee turnover is high? Won’t the cost of pre-employment physicals cost too much? Or you might be asking what if I need a new employee to start right away?
Well, it is your decision and your money. But, I have seen businesses choose to hire an employee without first seeing a physician for a pre-employment physical. In the end, they faced a very large workers’ compensation claim.
And not only did they have to file a large claim. They were also still in the same position of needing to find a new employee. Besides that, they also had to deal with an injured employee while trying to fill their hiring needs.
It is lawful for you as an employer to require applicants to agree to drug testing and to authorize the release of medical records related to workers’ compensation claims. Having applicants agree to these factors serve to protect you as the employer.
Requiring drug testing before hire will often eliminate chronic drug users from the pool of potential employees applying for work at your business. Drug and alcohol users file a greater percentage of workers’ compensation claims than those who do not use drugs or alcohol.
And as you read in the section about pre-employment physicals, a workers’ compensation claim can cause you to pay an additional $60,000 on your premium over the next few years. Beyond higher premiums, an accident where drugs or alcohol are involved can also end in litigation. You could also be dealing with a multi-million dollar lawsuit depending on who else is injured.
Also, knowing if a potential hire has filed a workers’ compensation claim in the past is very helpful information. For one, it gives you information on previous injuries that a potential hire has suffered in the past. Also, once a person has filed a workers’ compensation claim in the past there is a greater chance they will file one again in the future.
Sign-offs by a physician before hiring a new employee can help protect you from potential workers’ compensation claims.
One final hiring protocol that you should have in place is routinely checking your applicant’s references. These references can be an invaluable source of information about the applicant. They can attest to the applicant’s work ethic and integrity. Most references are honest about the information they give. A reference can help you determine if an applicant will be a good fit for your company and if they will responsibly and safely carry out the duties their job will require.
#2 Monthly Review of Open Claims
When managing a workers’ compensation claim, the business owner and the insurance company need to be on the same page regarding any open claims. Open claims can prove to be a problem for employers and end up costing them severely.
To review claims, you will want the aid of your insurance agent to facilitate the conversation between you and the insurance company. Your insurance agent will attain your current claims history. This will show you what claims have been paid and what claims are still open.
Sometimes business owners don’t even know they have an open workers’ compensation claim.
How can this be?
Claims adjusters, those at the insurance company that handles your claims, are often very busy and stretched thin. They are often unable to give claims the amount of attention they need. This sometimes causes delays in claims being closed.
Open Claims, PCRB Ratings, and Higher Premiums
When a workers’ compensation claim is filed, the insurance company determines the maximum amount they think the claim will cost. When you have an open workers’ compensation claim, the Pennsylvania Compensation Rating Bureau treats the claim as though that maximum amount has been paid.
This is significant because the PCRB determines your Experience Modifier, a surcharge that will be added to your workers’ compensation premium.
The problem arises when your employee is back to work, but the insurance company is still treating the claim as an open claim. Often, an employee will return to work and the cost of the claim was far less than the maximum amount the insurance company determined, but you still pay as if every dollar was already spent.
The ramifications of this might be hard to understand, so let’s take a look at a practical example.
Let’s say your employee is injured on the job and files a workers’ compensation claim. Your insurance company believes that your employee’s claim could cost up to $50,000. While the employee is seeking treatment, the PCRB treats the claim as though they have already paid $50,000.
Now let’s say that your employee’s injury is not as severe as they initially thought it was. Rather, your employee can get back to work rather quickly and the claim only ended up costing $10,000. If that claim is not closed as a $10,000 claim, the PCRB will treat it as though it was $50,000 which will likely generate a $60,000-70,000 surcharge on your workers’ compensation because of the resulting increase in your Experience Modifier.
The more you spend on workers’ compensation claims, the more expensive your workers’ compensation policy will be. At renewal, large claims will significantly increase your workers’ compensation costs over the next three-year period.
If you are conducting monthly reviews, your insurance agent can help you identify claims that need to be closed. This can save you a substantial amount of money in future workers’ compensation premiums.
Open Claims and Timely Care
Another reason to review your claims is to ensure that your employees receive timely care to help them quickly get back to work. While your employee is at home, your business loses productivity and your workers’ compensation claim grows larger. This often happens when appointments are not scheduled as soon as possible.
For instance, imagine you have an employee who injured their knee from a fall at work resulting in a need for surgery. Sometimes the surgery is scheduled later than it needs to be because the doctor is backed up or because the injured employee is not in a hurry to get back to work. Now your employee will lose extra time on the job as they wait for surgery and delay the healing process.
At a claims review, you are made aware of open claims. You are far more likely to make sure your employee is getting timely care and working toward getting back to work.
Most often at your monthly claims review, you will find nothing surprising or new in your claims history. But, having this practice in place can avoid a lot of unnecessary costs. This decreases the overall cost of your workers’ compensation claims.
#3 Return to Work Program
When an employee gets injured on the job, it’s important to help that employee get back to work as soon as possible! Returning to work has enormous benefits to your employee, and it also benefits you.
Benefits to the employee
When an employee is injured and home from work, they are often more sedentary which often delays the healing process. Sometimes a doctor may encourage an employee to rest at home during the healing process, but more often doctors encourage their patients to resume some activities to encourage recovery.
Getting up and out the door helps your employee to be more active and often promotes healing. (Just look at how quickly professional athletes begin to do rehab under the care of some of the best medical providers in the country.)
Also, employees who sit home all day can suffer from loneliness and depression. The workplace is often where people have significant relationships. When a person is home from work, they are often alone. This time by oneself can lead to feelings of isolation and depression which can often lead to feeling alienated and make an employee more prone to litigation.
Getting back to work as soon as possible helps your employee with the healing process. It benefits their mental health, often provides emotional support, and almost always contributes to their physical recovery.
Benefits to the employer
Every dollar spent in a work comp claim is generally going to cost you the employer between $1.50 and $2.00 (depending on the size and location of your firm). How can that be?
Insurance companies use these three factors to determine your workers’ compensation premium: experience modifier, rating tier, and credits.
When you have an accident at your workplace and a workers’ compensation claim is filed, your experience modifier will automatically go up. Insurance companies use this modifier in part of their calculations on your workers’ compensation policy. When your experience modifier goes up, you will experience higher workers’ compensation premiums for the next three years.
Also, insurance companies consider the number and overall costs of workers’ compensation claims that you have filed when determining what tier they will use to calculate your premium.
Fewer claims will generally place you in a better tier, whereas more claims will place you in a higher tier and your premiums will be higher. Insurance companies use your past claims as a predictor of your future claims which means they will charge you accordingly through higher rates than your peers with lower claims.
Lastly, insurance companies offer credits to companies with good workers’ compensation records. If you file even one large claim, you may notice that the credit you received last year on your workers’ compensation policy is removed when you renew the next year.
You definitely do not want to lose any work comp discounts!
Other costs when an employee is home from work
Every day that your employee is home from work, your workers’ compensation will be paying a portion of their lost wages increasing the overall amount of the claim. Also, extending the healing time of an employee can result in a lot more medical costs. Getting your employee back to work will benefit you as the employer because it will lessen the total amount of your workers’ compensation claim.
Also, when your employee is sitting at home and off the job, you typically lose their productivity and have to find someone else to replace them while they are recovering. Both of these are a significant cost to you.
When you successfully help an employee get back to work, your employee will contribute to your company’s overall productivity.
Also, a workers’ compensation claim increases with the amount of wages that employees receive through their workers’ compensation benefits along with the amount of their medical claims. These factors contribute to higher workers’ compensation surcharges in the future. When you renew your policy, there will be increases in your workers’ compensation premium.
So how do you get your employee back to work safely and successfully?
The two biggest keys to getting your employee back on the job are working with the employee’s doctor to help them safely return and looking for creative ways for your employees to work while they are recovering from injury.
Create a process where you get information from the doctor of the employee’s capabilities
With workers’ compensation claims, doctors are permitted to talk with an employer about their employee’s health needs and recovery resulting from their injury. Maintaining contact with the doctor will help you aid your employee in getting back to work. As we discussed earlier, there are far too many negative consequences when an employee remains home.
In conversations with your employee’s medical team, you will want to find out about the progress your employee is making and what types of work they can do. Knowing where your employee is in his recovery will allow you to plan for his return to work.
Creatively find ways to allow them to work
Because getting your employee back to work can help your employee heal faster and contribute to good mental health, you may need to get creative about how you get them back on the job.
Keep in mind the main goal is to find ways your employee can be productive for your business. Our claims management team regularly helps our clients come up with creative win-win solutions in this area.
You may need to reduce an employee’s hours until they have fully recovered. You may also reduce the hours they spend doing certain parts of their jobs.
For instance, if you own a trucking business and your employee is only cleared to operate a vehicle for up to two hours a day, you may need to employ them for two hours a day, or you may need to have them work for two hours driving and six hours helping with other projects that their doctor approves.
Modify their job responsibilities
While your employee may not be able to get back to the work they were doing before their injury, they may be able to work on other projects that you need to be done. Maybe they can’t contribute to physical labor but could help with taking inventory or training new employees. You might also have a short-term project that they could assist with.
A practical example of this might be an employee at a construction firm that gets hurt and has a shoulder injury. While his shoulder injury is improving the doctor still says that he can’t go back to swinging a hammer and carrying heavy supplies around the construction site. However, the doctor may say it is just fine for that same employee to operate a truck, help with some lighter duties, or help as office support.
Communicating with your employee’s medical team will help you find solutions to getting your valued employee back to work.
#4 Physician Panel
One of the most important tools in an employer’s hand is a physician’s panel. This pre-approved list of doctors helps to ensure that effective and appropriate care is given to your employee after a workplace injury occurs.
Legally, you can designate which doctors your employees can see regarding a workplace injury for the first 90 days after a workplace accident has occurred. After 90 days, your employee can visit any doctor of their choosing. With a pre-approved physician panel, your workers’ compensation policy will only cover visits to those pre-approved doctors for the first 90 days.
Usually, your physician panel will have a list of 6 to 10 doctors that you permit your employee to see after their injury. If those doctors refer your employee to another doctor due to the severity of their injury or a need for specialized care, your workers’ compensation will cover those referred doctors as well.
Your insurance agent or insurance company will help you assemble doctors for your panel that you know to give good care and are not known for overprescribing medication or questionable procedures. You will want to employ the use of reputable doctors that will also help your employee get back to work. We utilize a twenty-one point evaluation tool to vet doctors on our client’s physician panel.
While this may not seem very significant in terms of workers’ compensation costs, the consequences of an injured employee seeing just any doctor can be catastrophic.
I know of a business without a physician panel in place that ended up with a $60,000 workers’ compensation claim that could have easily been avoided. Here’s what happened.
A small electrical contractor had an employee who was supposedly injured on the job. Without telling anyone, the employee left the worksite and visited a doctor of his own choosing. The employee did not contact the employer for a full week!
Because there were no witnesses to verify the accident and because the employee chose a doctor on his own, the insurance company had to honor the claim. There was no way for the employer to adequately investigate the accident.
Also, the doctor that treated the employee was known for quickly prescribing pain medication. Unfortunately, the employee was prescribed oxycontin and, as often happens with pain medication, developed an addiction.
Ultimately, the employee never returned to work and his workers’ compensation claim carried on for many months and ended up being a very large claim.
Because of this workers’ compensation claim, the employer’s experience modifier went up and credits were removed from work comp policy. Overall the claim caused their workers’ compensation premiums to increase $60,000 over the next three years.
If the employer had a physician panel in place, they would have been able to assess the reliability of the claim and make sure that a competent doctor was involved in the diagnosis. The insurance company would have also been able to more effectively investigate the claim and deny the claim depending on what they found. Without a physician panel already in place, they forfeited the opportunity.
#5 Safety committee
Having in place a safety committee that meets monthly can help your business earn a 5% discount on your workers’ compensation premium PLUS any additional indirect savings from avoided claims. Many businesses have these committees in place.
I have seen many of these committees done poorly resulting in a waste of everyone’s time—no change in the safety of the workplace and no decrease in workers’ compensation claims.
I have also seen these committees done effectively resulting in improving the safety culture of a company. An effective committee will have a significant impact on the overall safety of your business and lessen the likelihood of workers’ compensation claims.
Safety Committee Members
When you establish a safety committee, the committee members should be a mix of management and front-line workers. Your committee will also require a facilitator (this might be your insurance agent, a safety professional, or someone within your company).
The facilitator of this committee plays a vital role. This person needs to engage the other members of the committee and cast a vision for the importance of safety policies, improvements, and measures.
To help with your workers’ compensation costs, your committee needs to be certified by an approved person. A representative from your insurance company or a risk management firm will be able to certify your committee and to conduct the required annual training.
Your committee will do the following:
- Discuss your workplace environments seeking to uncover any risks
- Conduct a safety review of a site inspection or job inspection
- Discuss any accidents, incidents, or near misses
- Define appropriate actions to avoid risks moving forward
- Plan job safety talks for employees
- Notify supervisors of recommended training for employees
- Make recommendations on policies to organizational leadership
Often serving on a safety committee is a thankless job. It can be difficult to institute safety changes within an organization, and often committee members do not receive extra compensation for serving. To encourage the success of this committee, you should celebrate the contributions this team makes. Giving appreciation and attention to those working on these efforts will go a long way!
#6 Drug Testing
Drug use among your employees can have very costly consequences for your business and are a significant problem in the United States. In terms of workers’ compensation, drug and alcohol use is a prevalent and extensive problem.
- Drug and alcohol abusers are 3.6 times more likely to have an accident on the job and 5 times more likely to have an accident off the job.
- Drug and alcohol users are 5 times more likely to file a workers’ compensation claim
- 38% to 50% of all workers’ compensation claims are related to the abuse of alcohol or other drugs in the workplace
If you do not have a drug-testing protocol in place for your hiring process, on-going random drug testing, and post-accident testing, you need to get this in place as soon as possible.
Drug testing is a key tool for you as the employer to minimize workplace accidents. It also minimizes potential liability that might result from an employee operating a vehicle or equipment under the influence and injuring themselves or someone else.
Pre-employment Drug Testing
In most industries, drug testing before hiring is essential. When drug testing is required before employment, chronic drug users are often discouraged from even applying.
Ongoing Random Drug Testing
It is also very important to have a policy of random drug testing in place for your business. When no such policy is in place, it is more difficult for an employer to drug test their employees after they have been hired and open you up to possible discrimination claims
Random drug testing should take place regularly, and your employees should be informed in advance that you have scheduled the testing to take place. This prevents an employee from claiming discrimination, and it also deters drug users from applying for employment at your business. Many firms offer this service.
Post-accident Drug Testing
If an employee is involved in an injury while on the job, drug testing any employee involved in the accident immediately afterward is very important. Post-accident testing protects your employee and your business. This practice allows you to take swift action if an employee was working under the influence. It protects other employees and your business from being further endangered.
#7 Employee Interviews
Confidential employee interviews can help your business get information and feedback you are not otherwise likely to get. While these interviews help you gather information to improve your safety culture, you can also gain valuable information about inefficiencies within your business and employee morale issues.
To maintain confidentiality, these interviews are conducted by an outside party – usually a risk management specialist.
What do these interviews look like?
- The employer identifies key employees within their organization whom they trust to be interviewed. These employees should be trusted employees that work in various spheres within the business.
- Each key employee will be notified ahead of time that a confidential interview will take place.
- An outside-party comes to the workplace to conduct a 45-90 minute interview with each person.
- The third-party compiles information from the interviews and presents the findings to management/leadership in an anonymous fashion.
- The employer uses the information to make safety changes in the workplace, improve employee morale, and improve areas of inefficiencies in the workplace.
What kinds of questions will the third-party ask?
Depending on the type of business you operate, the third-party will ask questions to help expose any safety issues that may leave you at a greater risk for an employee to be injured on the job.
Here are a few examples of questions that your employees might be asked:
- Is there any component of your job that should be done more safely?
- Is there any area of your work that could be done more effectively or efficiently?
- Is there anywhere in the organization that you see people cutting corners on safety or quality?
- Is there any equipment that you feel ill-equipped to use safely?
Remember, these interviews are designed to help you create a work atmosphere that is safe and supportive. Because employees can share while remaining anonymous, their unfiltered feedback will provide you with information that will only improve your business.
Start Taking Control of Your Workers’ Compensation Costs
Well, that was a ton of information! Isn’t it good to know that many factors within your control will help you lower your workers’ compensation costs?
But where should you start?
When I begin working with a new client to help them lower their costs, we usually start by choosing one or two of the above practices and begin prioritizing, planning and executing in the areas that will generate the biggest return on your investment of time.
Sometimes we find that their company already has some practices in place that we can use as a springboard to make their workers’ compensation program more effective.
Unfortunately, your agent is paid the same regardless of whether they help implement the best practices listed above or not (and in some cases they are paid MORE if they don’t help in these areas). As a Certified WorkComp Advisor at Baily Insurance, I am committed to helping businesses manage their workers’ compensation risks and not just sell you a policy. We will focus on creating a safe work environment, and implement best practices in the areas mentioned above to lower your workers’ compensation cost now and for years to come.
If you haven’t already, I would also recommend taking a look at our article on how your workers’ compensation premium is calculated. Knowing what insurance companies are looking at when they calculate your premium will help you identify areas where your business can make improvements. It will also help you understand why taking a long-term approach to your workers’ compensation program is the only way to truly lower your rates.