Workers’ compensation premiums are skyrocketing. And they can have a big effect on the competitiveness of a contractor and its 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 going into 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. These are reviewed below.
“Managing workers’ comp costs is vital,” Borck adds, “but, if possible, we also need to reform the system. One of the most important reforms would be adoption of hour-based, rather than payroll-based, premiums.”
Washington is the only state that now sets premiums based on hours worked, and it has some of the lowest workers’ compensation costs in the country. “An hour-based formula makes a lot more sense because the risk of injury has nothing to do with how much workers are paid, but is clearly related to how many hours they work,” Borck says. “Plus, it denies an advantage to nonunion contractors who pay less. It levels the playing field.”
Many owners now require companies to have experience modification ratings (EMRs) below one (the industry-wide average) in order to bid work. The EMR is based on actual claims paid by a company’s insurer. The best way for a contractor to reduce its EMR 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 improve their safety programs, reduce injuries on the job, lower their EMR and, thus, reduce their premiums. Also, many insurance companies offer loss control services.
EMR is calculated on a rolling, three-year average, however, so the benefits of an improved company safety program are fully realized only after three years of effort.
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.
Workers’ Compensation Discount Programs
|Alabama||5% Drug Free Workplace; Safety Program|
|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|
Normally, a small percent of cases account for a large fraction of workers’ compensation costs. For these cases, good management and effective return-to-work programs can cut costs 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 loss.
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 their compensation in a more timely manner. In exchange for this more focused attention to their members’ claims, the union agrees to arbitrate disputes, litigation is curtailed and legal costs are saved.
Some states explicitly authorize 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 system, but workers cannot be required to use it. In Illinois, a medical network can be established through collective bargaining.
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 and pay out-of-pocket for all smaller costs. As a result, their safety program pays attention to small details and tries to prevent even minor 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. They have regular meetings to work with each other on their safety programs. As a result, they have very good safety records and lower rates. Similarly, many contractor associations have group rates for those members that insure with a selected company.
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.
While attention is often paid to employee fraud, the problem is relatively small by comparison and can be addressed by having independent medical examinations or reviews. This also will help check medical claims fraud by doctors.
For help in assessing and implementing workers’ compensation cost containment efforts visit the LHSFNA website or call its Occupational Safety and Health Division.