Control Your Workers’ Comp Costs: The Top 10 Drivers
Workers’ compensation costs are not random. They are the direct result of specific, measurable factors. If you want to control your costs, you must first understand what drives them.
Most businesses are impacted by the same core issues. Here are the ten most significant factors that inflate workers’ compensation claims and the practical steps you can take to manage them.
1. Weak Hiring and a Poor Workplace Culture
Problems start on day one. When you hire someone who isn’t physically capable of performing the job, an injury is not a risk—it’s an inevitability. A conditional job offer followed by a post-offer, pre-placement physical and drug screening is a critical step to ensure you are putting the right person in the right role.
Once an employee is on board, the relationship you build with them directly impacts claim costs. If an injury occurs, a workplace built on trust sees prompt reporting and a collaborative return-to-work process. A negative environment breeds fear and suspicion. Employees delay reporting injuries, assume the worst, and are far more likely to seek legal counsel.
2. Ignoring the Financial Impact of Safety
Injury prevention is not an expense; it is one of the highest-return investments a business can make. You must move beyond thinking of safety as a compliance issue and start viewing it as a core financial strategy.
Ask yourself: How many products must we sell or how many hours must we bill to pay for a single lost-time claim? When your finance team understands the direct line between injury prevention and profitability, safety becomes a budget priority, not an afterthought.
3. Escalation to Lawsuits
When a lawyer gets involved in a claim, the cost multiplies. It is that simple. The incentives in a litigated claim are not aligned with a positive outcome. An employee’s attorney is often compensated based on the severity of the disability, creating a financial motive to prolong recovery and time away from work.
Litigation is almost always a symptom of failed communication. When an injured employee feels ignored, disrespected, or fears for their job, they seek an advocate. A simple phone call from a supervisor to check in, ask about their medical care, and offer help can have a massive effect on reducing the likelihood of a lawsuit.
4. Delayed Recovery Risk Factors
Not everyone recovers from an injury at the same pace. Some employees face personal challenges—such as a lack of support at home or other psychosocial stressors—that can turn a simple physical injury into a long-term disability.
Identifying these “red flags” early is critical. This allows for proactive intervention before a minor sprain spirals into what the industry calls the “sisterhood of the traveling body parts,” where one small issue leads to a cascade of unrelated complaints, surgeries, and massive costs.
5. The “Bridge to Retirement” Claim
Be aware of claims filed by employees who are within a few years of retirement. For some, a workers’ comp claim can be viewed as an unintentional “bridge” to Social Security or a pension.
These claims are often characterized by a lack of progress in recovery despite medical treatment. When you identify a claim that fits this pattern, the most effective strategy is to move toward a fair and prompt settlement.
6. Paying for Unapproved Medical Treatment
A significant amount of money is wasted paying for medical procedures that were never authorized. This happens because the system that approves medical treatment (utilization review) is often disconnected from the system that pays the medical bills (bill review).
When this connection is not automated and seamless, unauthorized bills get paid. You must verify that your insurance carrier or third-party administrator has a system that automatically prevents payment for any unapproved medical service. An independent audit can reveal costly errors.
7. High-Risk Prescription Drugs
Any claim involving opioids or other powerful psychotropic drugs is an immediate red flag. These prescriptions are statistically proven to dramatically increase the total cost and duration of a claim. While a necessary tool in some cases, their use in the workers’ comp system must be managed with extreme vigilance to prevent dependency and delayed recovery.
8. Medical Provider Fraud
While many employers worry about employee fraud, the reality is that it’s rare. The far more significant and costly issue is fraud and abuse by medical providers. This can range from billing for services never rendered to providing excessive and unnecessary treatments to increase their fees. Educate your claims adjusters to spot suspicious billing patterns and report all suspected fraud immediately.
9. Pre-Existing Health Conditions
An employee’s overall health has a major impact on their recovery. Conditions like obesity, diabetes, or high blood pressure (known as comorbidities) can significantly complicate healing, extend disability, and increase medical costs.
It is essential to inform your claims adjuster of any known pre-existing conditions at the very beginning of a claim. This allows them to anticipate potential complications and develop a more effective case management strategy.
10. Flawed System Incentives
The workers’ compensation system contains built-in incentives that can work against a fast, fair resolution. You must understand them to counteract them.
- Attorney Fees: Lawyers are often paid a percentage of the final disability award, which incentivizes prolonging the case.
- Fear of Reporting: Employees may hide an injury for fear of being fired, while employers may fail to report a claim to avoid a premium increase. Both delays drive up the ultimate cost.
- Fee-for-Service Medicine: Workers’ comp is one of the last areas of medicine where doctors are paid for each individual service they provide. This can encourage over-treatment rather than a focus on outcomes.
Your Action Plan
These ten drivers are not uncontrollable forces; they are business problems that have business solutions. The first step is to analyze your own claims data to identify which of these factors are having the biggest impact on your bottom line. From there, you can develop an operational plan to mitigate those specific risks. Proactive management is the only way to gain control over your workers’ compensation costs.