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It’s natural to want to trim costs wherever possible, but doing any serious cost cutting in this area presents special challenges. For one thing, you can’t cut benefits levels as you can with health insurance because states mandate full treatment for on-the-job injuries.
Another issue: Your cost cutting steps must be done in conformance with the law, and when it comes to workers comp, the state is all-powerful. “With the exceptions of federal employees, state laws control workers compensation,” says Christopher M. Fox, an associate in the Philadelphia office of Littler Mendelson.
Unfortunately, juggling the various state laws can get complicated. “Each state has specific rules regarding how you notify employees of their rights, how they can file claims and what doctors they may or may not see,” adds Fox. “Your state laws will also detail what steps you must take to report workplace injuries.” (You can obtain information about your own state’s laws from the U.S. Department of Labor at www.dol.gov/owcp/dfec/regs/compliance/wc.htm.)
No Fault
Nobody wants to deny workers comp benefits for legitimate accidents, but how about those instances when accidents are partly the fault of the employee? Suppose the worker failed to use a safety device, engaged in horseplay, did something foolish, or worked while intoxicated? What if an injury were deliberately self-inflicted?Many employers would like to weed out such questionable claims as a way of controlling insurance costs, but, unless some clear-cut fraud is involved, prevailing in court can be difficult. “Most workers compensation systems have become very liberal as to the definition of an accident,” says James J. Moore, president of J&L Risk Management Consultants, a Raleigh, N.C.-based firm. “The fact is that courts deny benefits only rarely.”Why? One reason is a matter of judgment: Legitimate claims often arise because employees were not paying attention to what they were doing or performed tasks out of the normal work routine. Trying to draw a bright line between legitimate and improper situations can be problematic.
Another reason is a matter of perception: “In any workers comp case it becomes the ‘big bad insurance company’ against the one little employee,” points out Moore. “Workers compensation judges tend to lean toward the testimony of the employee.”
Lawsuits Avoided
While it seems the workers comp laws are stacked in favor of employees, note that employers are also protected from costly lawsuits by injured workers.
“The tradeoff for a no-fault system is that workers compensation is generally the exclusive remedy for employees injured in the workplace,” notes Fox. “Only in very limited instances may an employee circumvent the system and sue the employer in tort.”
And what are those instances? Once again, state law rules, notes Fox. “Using Pennsylvania as an example, an injured worker could sue their employer outside of the workers compensation system if the employer failed to maintain workers compensation insurance, or the injury was intentionally caused by the employer. That being said, Pennsylvania courts have held that even a willful violation of OSHA safety regulations will not expose an employer to civil liability.”
Safety First
There is one highly effective way to control workers comp costs: Launch a workplace safety program and constantly work on improving it. If you experience fewer accidents, you will incur lower medical costs, and that should translate into lower workers comp premiums.
While safety programs can become quite detailed, it’s wise to start out small and build by first identifying accidents most likely to happen around the office or shop. Straighten your rugs and make sure they stay flat; dry your entryways after a rain and guide customers around wet areas; avoid cluttering walkways with cartons or stacks of debris.
Control Fraud
As mentioned previously in this article, the “no fault” nature of workers comp laws usually means that employers find it difficult to defend against claims. But that doesn’t mean that steps should not be taken to ferret out cases of clear fraud.
Fraudulent activities result in increased workers comp exposure and higher premiums, and that can affect profits whether the employer is a small mom and pop operation or a national corporation.
“Workers compensation fraud comes in many forms,” says attorney Fox. “An injury can be staged. Or there can be simple malingering by an employee who is content collecting indemnity payments but who is really able to work. Or the employee may be collecting indemnity payments while working elsewhere.”
Insurance companies often contract with third parties to engage in surveillance that can be helpful in debunking workers comp fraud. For example, video footage may show the employee doing yard work or engaged in other physical labor that undermines an allegation of inability to work. Or detective work might uncover evidence that the worker has obtained employment elsewhere.
Stay Involved
Employers should stay involved with the injury cases until the employees return to work.“Vigilance is absolutely key in managing workers compensation claims,” says attorney Fox. “It starts at the time of injury with an investigation to determine if a claim is compensable under workers compensation laws. Beyond that you need to be involved after claims are filed. If your claims are being managed by a third-party administrator or an insurance company, make sure that organization is keeping an eye on the claim, assuring the claimant is not working elsewhere and checking periodically with medical providers to assess the status of the claimant’s medical condition.”
Workers comp benefits are typically divided into medical (the reimbursement of doctor and hospital bills) and indemnity (payments for lost wages). “Controlling medical costs is very important because they now represent a much larger portion of total workers compensation costs than they did 20 years ago,” says Fox. “And there is no indication that this trend will be reversed.”
You can contest medical procedures that seem too frequent or costly to the extent your state law allows, notes Fox. In Pennsylvania, for example, if proper postings are in place and proper notification is provided to an injured worker, you can control the doctors seen by that employee in the first 90 days following a claim, but after that period the patient may go to any doctor. New Jersey, in contrast, allows the employer to control medical care for life of the claim.
State law can also affect how you monitor the ability of the employee to work. In Pennsylvania, for example, you can require that the employee see a doctor of your choosing twice a year for that purpose.
Progress Ahead
Safety programs have proven themselves effective tools for reducing workers comp costs, and employers have climbed aboard the bandwagon. “Safety has improved considerably over the years,” says Wilkinson of the Insurance Information Institute. “Employers are increasingly focused on making the workplace safer and reducing worker exposure to hazardous activities.”
Bear in mind that safety doesn’t happen by itself: It must be managed. “A safe work environment starts with the attitude of top management,” says Moore. “Water runs downhill: If managers don’t care about safety then employees won’t.” And the attitude of concern must be understood by all: “If your top managers don’t communicate their concerns about safety then nothing else you do to reduce accidents will make any difference.”
To read how one wood flooring contractor reduced his workers comp costs, read "Are You Paying Too Much for Workers Comp?"
