What to look for in Workers’
Comp in a down economy
In a recent weblog, Managed Care Matters, Joseph Paduda explores
what the recession means for Workers’ Comp. He points out that costs
tend to increase for two reasons – claims rates increase, as does
disability duration.
There’s a common belief that injuries spike when workers fear for
their jobs. Although it is a good idea to let your agent and carrier know
of any downsizing plans so strategies to prevent questionable claims can
be developed, research suggests that such abuses may be exaggerated. Although
injury rates rose during the recession of the early nineties, they usually
decline during down economies.
Whereas some workers may try to go out on Workers’ Comp, others do
whatever they can to stay in the good graces of their employers. It’s
quite possible that injury rates will continue their decline during this
down economic period, both for factors unrelated to the recession and because
production slows and the remaining workforce is more experienced than those
laid off.
However, indemnity costs will likely increase at a faster rate than wages,
as recessions are marked by flat or declining incomes. “Research (May
2002 bulletin) conducted by Minnesota’s Department of Labor and Industry
showed that declines in employment appear to have caused modest, temporary
increases in Workers’ Compensation payments. The data suggests a decline
in hours worked in an industry will lead to a nearly proportionate increase
in the next month’s Workers’ Compensation costs in that industry.”
Another economic factor that will have an impact on Workers’ Compensation
costs is the performance of financial markets. Insurers collect premiums
up front and pay benefits later. When investment returns are high, insurers
can charge employers lower premiums, but reduced investment returns often
lead to higher premiums.
Yet, there are other factors that may very well have the largest impact
on Workers’ Compensation. They include rising drug costs, high medical
cost inflation, extended utilization, cost shifting by providers who are
pounded by reductions in Medicare and Medicaid reimbursements, higher facility
costs and a de-emphasis on loss prevention as employers look for immediate
ways to cut costs. Coupled with this, Standard & Poor’s Ratings
Services said that the ratings on Workers’ Compensation insurers could
face negative pressure late this year and next as Workers’ Compensation
rates continue to decline, reducing carriers’ margins.
Even in difficult economic times, it benefits employers to stay the course
with their injury management program. Hiring properly, quick reporting and
monitoring of claims, establishing clinical relationships so that injured
employees receive the most appropriate and cost-effective care in accordance
with established protocols, training supervisors, offering wellness programs
and executing a well managed Return-to-Work program will help control Workers’
Compensation costs now and long after the recession is over. |