Eight costly myths about
Workers’ Compensation
Many employers believe Workers’ Compensation is “what it is”
and few really understand it. Yet, two identical companies in the same industry
can have widely varying premiums. The company with the higher premium accepts
reports at face value and believes that it cannot alter the system, whereas
the company with the lower premium is proactive and has an ongoing process
in place to prevent injuries, manage claims and return employees to work
as expeditiously as possible.
Here are some common myths often held by employers that unnecessarily drive
up the costs of Workers’ Compensation:
#1. As long as losses remain the same, rates will not increase
Unlike other insurance, Workers’ Compensation functions like a credit
line to finance the cost of injuries. The premium is calculated by rate
x $100 payroll x Experience Modifier (a complex calculation that reflects
the expected loss performance of an employer). When rates are declining,
it is assumed that expected loss rates will also go down. If all other factors
remain the same, the lower expected loss rates would result in higher Experience
Modifiers. When rates and expected loss rates are declining, employers
have to continually improve just to remain the same.
#2. Experience Modification Factors are correct
Calculating the Experience Mod is a complex process and errors are often
made. There can be errors in payroll amounts, open claims, payroll classifications,
claims in the wrong year, clerical errors, and calculation errors. Verifying
Experience Mods can save money.
#3. Workers’ Compensation audits are routine
Workers’ Compensation audits are full of errors. Employees can be
put into wrong classifications, legally entitled deductions overlooked,
subcontractors charged improperly, excluded remuneration included, etc.
Audit mistakes default to the insurance company and are costly to the employer.
#4. Uncontrollable medical prices are driving the costs of Workers’
Compensation
Medical expenses are 57% of the claims dollar and are climbing. While price
increases are a minor factor, the growth in utilization is the key driver.
An NCCI study found that Workers’ Compensation pays more than group
health to treat comparable injuries and that utilization differences explain
80% of the overall treatment cost disparity. Chronic pain-related injuries
such as bursitis, back pain and carpal tunnel have particularly large variances.
Utilization can be managed and controlled.
#5. Managed care saves money
In many cases, managed care discounts are defined as savings to the employer.
When discounts equal savings, there is no incentive to reduce utilization.
In fact, more utilization means more savings and employers are being “saved
to death!” A better definition of savings is the difference between
the cost of the claims using managed care compared to the cost of the claims
outside the program. (Health Strategy Associates)
#6. Treatment of Workers’ Comp injuries is the same as all
other medical care
A CWCI study assessed the impact of the volume of Workers’ Compensation
cases and the impact on outcomes. Comparing the most and least experienced
physicians found the average cost per case to be 56% lower, the average
disability duration 41% lower and the attorney involvement rate 58% lower.
Working with physicians experienced in Occupational Medicine and Workers’
Compensation will reduce costs.
#7. Employees want to abuse the system and fraud drive costs
Most employees value their job and fraud represents a very small percentage
of claims. Those that do occur are often the result of poor hiring choices,
so by doing the proper background investigation before hiring, an employer
can minimize the chances of fraud. The biggest problem is workers who
don’t get well as expected, not as a result of intentional malingering,
but as a result of delayed recovery that is created by the system.
#8. Bidding and quoting is the best strategy to drive down costs
The view that Workers’ Compensation is a commodity is shortsighted
at best. To manage premiums over the long term requires expertise in claims
management, medical cost containment, injury prevention and management,
return to work, and supervisor training. There must be a proven process
in place to minimize the cost of injury and expedite injured employees return
to work. One mismanaged claim can drive up future premiums and result in
the loss of a valuable employee. |