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Fighting Back against Rising
Workers' Compensation Premiums
By Scott Schneider
Workers' compensation premiums are skyrocketing. And they can have a big effect on the competitiveness of a contractor and their bottom line.
Yet, injury rates are the lowest they have ever been. Some of the rate increases are due to the rising costs of health care, but some also are reflected in record insurance industry profits.
"Workers' compensation insurance is a cost of doing business, but it is one that can be managed to a contractor's advantage," says LHSFNA Management Co-Chairman Noel Borck who is, also, Executive Vice President of the NEA-the Association of Union Constructors. For maximum impact, he urges a combination of long and short-term approaches.
- Prevention – reducing the number of injuries
- Better case management and effective return-to-work programs
- Getting out of the system through ADR, carve outs or insurance pools
- Getting or negotiating discounts (or group rates) from the insurance companies or states
- Creating state task forces to root out workers’ compensation fraud
- Legislative solutions – calculating premiums on hours worked, state-run systems and safety grant programs
The best way for an employer to contain premium hikes is to prevent injuries that are costly, such as sprain and strain (e.g. back) injuries which make up about 40 percent of lost workday and direct medical costs. The LHSFNA has a number of programs to help contractors that want to improve their safety programs, reduce injuries on the job and lower their EMR (the experience modification rating, sometimes called the X-Mod, which is multiplied times the "manual rate" to generate the company's actual premium). Many insurance companies also offer preventive (loss control) services.
Many owners now require companies to have EMRs below one (the national average) in order to bid work. The problem is that the EMR is calculated on a rolling, three-year average so improvements in a company's safety program will be fully realized only after three years of effort.
States with Workers' Compensation Discount Programs
|Alabama||5% Drug Free Workplace; Good Safety Record|
|Arkansas||5% Drug Free Workplace; Safety Program|
|District of Columbia||5% Employers Safe Workplace Program|
|Florida||5% Drug Free Workplace; Safety Program|
|Georgia||7.5% Drug Free Workplace|
|Idaho||Up to 5% Drug Free Workplace|
|Maine||5 - 15% Safety Program|
|Mississippi||5% Drug Free Workplace|
|Montana||5% Safety Program|
|New Hampshire||Safety Program|
|North Dakota||3% Drug Free Workplace|
|Ohio||10 - 20% Drug Free Workplace|
|Pennsylvania||5% Safety Committees|
|South Carolina||5+% Drug Free Workplace|
|Tennessee||5% Drug Free Workplace; Safety Program|
|Virginia||Up to 5% Drug Free Workplace|
|West Virginia||Up to 5.4% Return-to-Work|
Several states or insurers offer discounts to employers that institute specific programs such as drug free workplace programs, health and safety committees or fall prevention programs. These vary from state to state and by insurer. The LHSFNA is compiling a list of discounts (see box), but it is worth asking your insurance company or state workers' compensation bureau what types of discounts are available in your state.
Normally, about ten percent of cases account for a large fraction of workers' compensation costs. Through good case management and effective return-to-work programs, costs can be cut dramatically.
Generally, workers should be back at work as soon as medically possible. Having good medical advice about workers' limitations and putting them back to work at light duty jobs accelerates recovery and reduces lost. Having a case manager keep in close contact with injured workers often makes sure they get appropriate treatment and recover sooner.
Through collective bargaining in states that allow for it, LIUNA and signatory contractors have set up alternative dispute resolution (ADR) programs under which workers are assigned an ombudsman, use prescribed medical facilities, and receive compensation in a timely manner. Much of the litigation that is commonplace in workers' compensation claims is eliminated through arbitration procedures, and the legal costs are saved.
Some states explicitly allow ADR in their workers' compensation statutes (CA, MA, NY, ME, MD, PA, FL, MN, KY and to a lesser extent CO, OR and HI). In others (GA, CT, RI and MO) it is possible to design a comparable system but workers cannot be required to use it. In Illinois, a medical network can be achieved through bargaining.
In California, a law was passed about ten years ago to allow employers and unions to negotiate a separate workers' compensation system known as a carve-out. It was modeled on a similar project in Massachusetts (Pioneer Valley Agreement). Carve-outs also have been used in Florida.
These agreements normally include an ADR system. They result in lower claims rates, more effective medical care delivery, effective dispute resolution and savings of about 30 percent. Some concerns, however, have been raised: the potential for inadequate due process, limited choice of physicians, employees not sharing in the savings, lack of continuity for long-term disabilities and potential liability for the union (duty of fair representation).
High Deductible Policies
As with most insurance policies, workers' compensation premiums will decrease if the deductible is increased. Some companies have taken out primarily catastrophic policies with $1 million deductibles. As a result, they pay out of pocket for all smaller costs and their safety program reflects this. They pay attention to small details and try to prevent even small injuries. These companies tend to have very good safety programs.
Some larger, creative contractors have formed insurance groups to pool their resources and get a better deal from the insurance companies. One example is the American Contractors Insurance Group (ACIG) which is a group of about 35 contractors. They have regular meetings to work with each other on their safety programs. They support and learn from one another and as a result have a very good track record and lower rates. Many contractor associations have group rates for those members that insure with a selected company.
Some states like Florida have tried to control rising workers' compensation costs by cracking down on fraud. Task forces on fraud have found that the most common fraud is employer misclassification of employees into lower risk classifications. Working with the state to crack down on misclassification fraud will help level the playing field for union contractors and lower rates for everyone else.
While a lot of attention is paid to employee fraud, the problem is relatively small by comparison and can often be addressed by having independent medical examinations or reviews. Medical claims fraud by doctors is another significant problem.
Some workers' compensation problems will only be solved through legislative action. Some creative efforts include:
- CALCULATING PREMIUMS BASED ON HOURS WORKED, NOT PAYROLL. One state (Washington) does this, and it makes a lot more sense since the risk of injury has nothing to do with how much workers are paid (in fact, low wage workers tend to have high risk jobs) but is related to how much people work. This system also eliminates the disadvantage union contractors have for paying workers more. Insurance companies oppose this reform because they would not get the automatic rate increases (as wages increase) that the prevalent system provides. Yet, Washington has one of the lowest workers' compensation costs in the country (45th).
- STATE-RUN (MONOPOLISTIC) SYSTEMS. Six states (WV, OH, NV, WA, ND and WY) have state-run workers' compensation systems that do not allow private insurers to offer insurance. As a result, the system becomes a non-profit operation and can produce substantial savings. The state also has the power to enact reforms more easily and control the system better (e.g. offer incentives for good safe contractors).
- SAFETY GRANT PROGRAMS. Some states have programs to actually give employers money to purchase equipment that will make their jobsites safer, for example mobile scaffolding. Ohio provides safety grants to employers because, in the long run, the workers' compensation system will save money. Connecticut uses workers' compensation money to provide training grants to employers in the state. New York uses some money to fund a network of occupational health clinics.
For help in assessing and addressing workers' compensation cost containment efforts, call the LHSFNA Occupational Safety and Health Division.
[Scott Schneider is the LHSFNA's Director of Occupational Safety and Health.]