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Reducing lost time pays big dividends

Every day that an injured employee is off the job costs employer money; but those costs mount exponentially when the claim moves from medical-only to lost-time. A recent article in Business Insurance, "Costs mount quickly as workers comp claims age," cites data from Sedgwick Claims Management Services Inc. showing that 90% of claims closing within thirty days are medical only and cost an average of $287. When comp claims close between one and two years, Sedgwick's data shows their average cost jumps to $19,888, when only 21% are medical-only claims. Claims that close between two and three years incur average expenses of $36,792, when the medical-only proportion drops to 13%. After three years, when fewer than 10% of cases are medical-only claims, the average cost is $63,087.

Unlike many types of insurance, Workers' Compensation works as a financing mechanism with the insurance company paying for the injury and then recouping the costs plus 200 - 300% through the Experience Modification factor. A Certified Work Comp Advisor (CWCA) in Missouri notes that while the cost of an employee injury at a feed manufacturer in Iowa was $897, the increase in the Experience Mod cost the employer an additional $2,150 in premium. Although the employee could have returned to work, the employer did not understand the financial consequences of letting the employee stay home.

Many states have in place what is called an experience rating adjustment (ERA). This adjustment allows a 70% reduction in medical-only expenses used in the calculation of the Mod, if these injured employees come back to work before the insurance company makes a payment to them for lost wages (known as an indemnity payment). Even if there is only a small amount paid in indemnity costs, the full amount of the medical and indemnity is used to calculate the Mod.

As for getting employees to return to work as soon as possible, each state has its own rules on how long an injured employee can be out of work before lost wages kick in. In some states, lost wages begin after the injured employee is out of work for seven consecutive days; in other states, it's three consecutive days. And a few states have other waiting periods.

This is when having a well thought-out return-to-work program in place is imperative. The only reason you shouldn't bring an injured worker back to work immediately is if they are hospitalized, medicated, contagious or physically unable to do any type of transitional work.

It's important to remember that the Experience Mod is a controllable element of an employer's Workers' Compensation premium. Think of it as the employer's injury report card. If the Mod is 1.0, it's a "C", or just average. Knowing how low the Mod can go, identifies what dollars are truly at stake in your Workers' Compensation program. And the best way to achieve the lowest possible Mod is to keep "days away from work" at an absolute minimum.