by Joyce A. Long and Charles F. Martin
Workers' compensation remains a top concern for virtually every employer. Regardless of whether a company is fully insured, self-insured, or has a guaranteed cost program, workers' compensation loss costs continue to rise—a trend primarily driven by the rising cost of claims. Together, the cost of claims, claims administration, and risk control represent 91 percent of every workers’ compensation dollar spent. So, if an employer is able to control its claims cost, it likely will be able to control the total cost of its workers' compensation program.
Employers can make decisions that will help minimize their workers’ compensation risk beginning with the hiring process, moving on through the development and implementation of safety programs and procedures, and continuing with effective claims management. Best practices for managing workers’ compensation claims costs promote an integrated approach that includes diagnostics, safety management, proactive claims administration and, finally placement.
A good starting point in determining how to prevent losses is to perform a workplace diagnostic assessment. Before any workplace safety program can be improved or fixed, one needs to know what is wrong with it. A workplace diagnostic should:
provide baseline information that allows managers to assess the current state of a program or process;
identify gaps between the current state of a program and best practices;
identify areas within a process that can be improved;
flag regulatory compliance issues; and set the stage for continuous improvement.
It is important to perform diagnostics regularly in order to drive continuous improvement. It is also critical to run diagnostics after a major change within an organization, such as an acquisition or divestiture.
Every employer should establish basic safety and health processes and procedures to create a safe work environment. This consists not only of various physical controls—such as guards on machines or protective eyewear— but also of procedural controls and methodologies for safely performing work tasks.
According to the National Council on Compensation Insurance (NCCI), the recent decline in frequency of lost-time claims is due to continuing efforts to make workplaces safer. Employers should consider developing a formal safety management system that, at a minimum:
promotes safety-related management goals and objectives at the same level of importance and reward as other outcomes;
asks leadership at all levels of the organization to commit to a safe environment;
creates an environment that visibly supports safety and productivity; and
uses a management system that systematically supports safety and continuous improvement.
Safety personnel should be familiar with the claim and accident investigation process as required by the U.S. Occupational Safety and Health Administration (OSHA) and as necessary to determine workers’ compensation compensability. A formal safety program should be benchmarked against an industry’s best practices.
Proactive Claims Administration
Although safety programs strive for zero tolerance of accidents, workers’ compensation claims may still occur. To reduce costs, claims should be managed prospectively and retrospectively. Risk managers need to address legacy claims, current claims, and claims that have just recently occurred. Claims that are 3- to even 50-years old are a liability on an organization’s balance sheet. An aggressive claims closure campaign can settle legacy claims, lower an organization’s collateral requirements, and free up capital.
A risk manager should manage today’s claims better than yesterday’s—ensuring that each claim meets compensability guidelines and is properly investigated by the organization or claim administrator. It is crucial to keep an eye on the medical component of claims, especially as medical costs have been rising faster than wages. By employing such strategies as bill review, medical case management, and pharmacy-benefit management, employers can put themselves in a better position to manage costs.
A well-designed return-to-work program will help manage costs. Employees who are recovering from work-related illnesses and injuries and return to the workplace in some type of modified capacity typically have a faster recovery, whereas the longer an employee remains off work the less likely he/she is to return.
A proper analysis of claims administration fees can yield savings for employers. Vendor comparisons are commonly based on unit costs, such as claim handling fees, bill review fees, and other administrative fees. These costs, however, make up only a small percentage of the variable costs associated with the claims. By incorporating into the analysis variable costs, such as actual loss costs, employers can compare and choose claims administrators based on claims outcomes, and ultimately lower their program costs.
While controlling the total cost of a workers’ compensation program may seem overwhelming, with the right tools and an integrated pre- and post-loss program such costs can become more manageable. In fact, an organization that takes an integrated and outcomes-based approach often sees the total cost of workers’ compensation risk minimized, freeing up capital for further investment in its business, people, and a safer workplace.
Joyce A. Long, ARM is the leader of the Global Workforce Strategies Practice of Marsh Risk Consulting. In this role, Joyce oversees new product development, operations and service delivery, product strategy, and development of marketing and communications for a variety of work-related issues including ergonomics, loss control, behavioral safety, risk information, and occupational health. She writes and speaks frequently on workforce risk issues, in particular pre-loss strategies for workplace environment improvements.
Charles F. Martin is the leader of Marsh Risk Consulting’s Claim Consulting Practice. His responsibilities include oversight management of highly specialized post-loss, claim-related product and service offerings designed to assist clients in identifying, analyzing, and reducing their exposure to the cost of risk as well as improving bottom line performance. Charlie is a renowned thought leader on claim-closure strategies.
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