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.