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to Articles list Getting Out of the Workers’ Compensation Trap By Judy A. Jacobs Getting caught in the trap One of the biggest problems with Workers’ Compensation is that only a few employers really understand it. Worse yet, most employers don’t know even know there’s a problem. They are unaware of the true make up of Work Comp Insurance and tend to believe that it is what it is. This applies to employers of all sizes, whether they have thousands of workers or only a few. They’re oblivious to the overcharge traps that are scattered throughout the Workers’ Compensation Insurance process. Unbeknownst to the employer, the list of possible overcharges is long. It ranges from premium audit problems, incorrect or mismanaged experience modification factors, poor employee injury management, inept and inadequate hiring and employee management practices that create unnecessary claim problems to a misalignment with medical services. What employers do know is the date their Workers’ Compensation payments are due and the rates, which are often set by the state, are “too high”. The problem isn’t caused by a lack of employer interest. The problem is companies are leaner than ever and personnel tend to be stretched. They have time to handle only the most urgent issues and put aside seemingly “less urgent” matters such as reviewing Workers’ Compensation claims and payroll history, job classifications, experience modification worksheets, and auditor reports. They have never been told that they should prepare for a Workers’ Comp premium audit with the same care that they do for an IRS audit. Even those who have attempted to go through audits are at a loss to understand the figures. Without receiving copies of the auditor’s worksheets, they are uncertain as to what they are looking for or even how to interpret the information. They are unaware of which types of remuneration can be excluded or what other classifications are available. Thus the premium audit process is completely controlled by “the auditors” from the insurance company. In effect, there is no independent, third-party analysis of the Workers’ Compensation reports of most companies. This may be seen as “leaving it to the experts.” However, in this process all mistakes default to the benefit of the insurance company, not the employer. If these same companies had a significant property loss, they would not settle simply on the basis that the insurance company’s adjuster made a recommendation. They would require the opinion of at least one independent claims adjuster. Not so with Workers’ Compensation. We assume the audits, worksheets, and reports are accurate. But it isn’t insurance Much of the misunderstanding that occurs with Workers’ Compensation is caused by the belief that it works like other insurance. There are similarities—“claims” are filed, “premiums” are paid, and in some cases, “dividends” are declared. But the parallels stop there. Workers’ Compensation is essentially a method insurance companies use to help employers finance the costs of providing coverage. It is, in effect, a “loan,” a way for the employer to pay the high cost of injury over time. Sounds reasonable. Yet, it’s one of the most expensive financing contracts you have—for every dollar the insurance company pays out for an injury, you pay $2 to $3 back to the insurance company. Employers not only pay for past claims, but if it’s determined that a claim will be “open” for an extended period, the insurance company creates a reserve to cover the anticipated costs of the claim. The reserve amount has the same impact as claims—increased premiums. Without question, there are employees who take advantage of the system. To a large extent, this occurs because insurance companies have failed to require employers to take the steps necessary for curbing the cost of claims. Many large employers have stepped up to the plate and installed systems, procedures and programs that keep costs down, while delivering the highest quality of medical care to the injured worker and getting the employee back to work as quickly as possible. They help their employees understand that insurance companies don’t pay for job-related injuries, the employer does. Ultimately, the cost of injuries is felt by all employees when it comes to wage increases and benefits. At the same time, the willingness of some insurance companies to “settle” claims quickly may reduce costs but sends a signal to employees that there’s money on the table. So whom will the employee believe? Escaping from the Workers’ Compensation trap Any employer, no matter how few employees, can take steps to minimize the possibility of injury: • Develop safety awareness. Whether it’s proper lifting procedures or something as simple as ergonomic chairs or adhering to standards for positioning computer screens and keyboards. • Identify where injuries are occurring and make changes to avoid their unnecessary repetition. • Establish a relationship with a medical facility with job-related injury competence and provide them with an understanding of your business and employees. • Maintain close, continuing contact with injured workers. • Engage a claims management service to work with the injured worker. • Develop a back to work program that lets injured employees know they are needed even on a limited or lighter work basis. While the focus thus far has been on the more systemic problems in Workers’ Compensation, there are other steps employers can and must take if they want to get out of the Workers’ Compensation cost trap. Here they are: • Demonstrate to employees that the employer is serious about minimizing injuries • Make certain that injured employees receive the best medical treatment • Get the worker back on the job as soon as possible. The results are even more dramatic if employers make an equal effort to reduce their costs by focusing on the other half of the Workers’ Compensation equation. Here are several suggestions on how to do this: • Make employment checks mandatory for all new hires. In addition to other factors, does the applicant have a record of job-related injuries? If so, what was involved? • Have an independent, overcharge–proof audit before the insurance company performs its audit. It’s your money that’s going to premiums. • Verify that your experience modification factor is correct. Don’t assume that it is. If it’s not, the mistake can be expensive. The question, of course, is how this can be done. While there are firms that specialize in this analysis, they tend to take 50 percent of any money that’s recovered from errors they uncover. While there’s a place for this type of service, the insurance agent or broker, the one who sells the Workers’ Compensation coverage, should be expected to deliver it. Today, the insurance agent should serve as an advocate for the purchaser of insurance. Since the agent is far more familiar with your company and its operations than is the insurance company or Compensation Bureau Workers’, it’s the role of the agent to analyze Workers’ Compensation reports for accuracy and to prepare the employer. The agent should have the expertise and specialized training to help and educate the employer in all aspects of Workers’ Comp. The cost of Workers’ Compensation is such that it deserves the full attention of every employer and there’s no one more appropriate to provide the required expertise than an insurance agent … and that’s a service every employer should expect. Even more to the point, it’s the way out of the Workers’ Compensation trap. Judy Jacobs is sales manager for Mosinee Insurance Agency, Mosinee, WI. She has worked in the insurance industry for 24 years. She can be contacted at judyj@mosineeins.com or 715-693-2100. Back to Articles list |
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