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.