The runaway costs of workers’ compensation appear to be an unavoidable problem for many
While we believe in our insurance companies’, human resources’, or workers’ compensation departments’ ability to handle workers’ compensation issues, new developments in medical benefits, indemnity payments, legislation, and rehabilitation expenses make our old approaches ineffective. It is time for a drastic overhaul: CEOs must step in and provide guidance on this complicated issue, possibly with the help of a third-party adviser. As an example, Warnaco worked with one such firm-Industrial Consultants Group-to help it not only handle existing claims and focus on those that are grossly abusive, but also to address preventive measures and reduce the number of claims filed.
In the process, ICG’s plan for Warnaco corrected some deep-seated misconceptions about workers’ compensation, involving the reasons employees file, the cost-effective options available to companies once they do, and the roles corporate and external specialists play in the claims process. The most common misunderstandings include:
- The main reason for filing a workers’ compensation claim is an employee injury.
Many workers’ compensation costs can result from an unusual assortment of complex circumstances rather than simply injury. For example, an alcoholic or drug addict might be injured while working with dangerous machinery; he or she should be directed to a drug rehabilitation program. A law office located near a plant that is shutting down might try to capitalize on this situation by enticing disgruntled workers to file claims. An employee who has been collecting workers’ compensation for months often becomes a “role model” for other employees and can infect them with the workers’ compensation bug. An employee bearing the increasing costs of health care might discover his or her condition could be treated for free through workers’ compensation and might disguise the claim as a work-related injury. According to the Worker’s Compensation Monitor, an LRP Publications newsletter covering the workers’ compensation issue, abuses such as these and others sent workers’ compensation medical costs soaring 14 percent faster than overall health-care costs.
Because the reasons for workers’ compensation are so diverse, preventive measures must go further than providing a safe working atmosphere. The measures must include investigating every possible reason a workers’ compensation claim is filed and developing strategies to forestall unnecessary claims.
- Once a workplace injury occurs, few choices are available to curtail the accumulation of doctor bills.
When an employee is hurt on the job, he or she usually sees a local general practitioner who is easily accessible to the plant managers. The doctor may refer the patient to a specialist, who may issue a referral to yet another specialist. After the diagnosis, the employee is most apt to revisit the local practitioner, in some cases unnecessarily.
How can these unnecessary and expensive doctor visits be controlled without sacrificing the health of employees? One approach to this problem, proposed by ICG, is hiring an on-site occupational health coordinator (OHC). The OHC assigns the employee to a specific doctor and manages a complete cost-control system for one or more working environments.
- The employer’s insurance company manages its workers’ compensation problems.
Here’s an interesting fact: A self-insured firm bears the full cost of workers’ compensation claims until the deductible on each employee’s claim is met. But many deductibles can average $250,000 per claim so that a claim rarely becomes an insurance company’s responsibility. Since today’s claims average $24,000, most insurance companies neglect workers’ compensation management until their dollars are affected.
On the other hand, insurance companies cannot prevent a claim from being filed. Only after the claim has been filed and the damage has been done do they arrive on the scene. Prevention is a key factor in controlling the cost of workers’ compensation, yet most insurance companies are not involved in it.
- The workers’ compensation department is handling the problem.
A company’s management rarely has the resources, expertise, authority, or objectivity to make sweeping changes needed to eliminate a workers’ compensation problem. The sheer complexity of workers’ compensation and the attendant corporate bureaucracy are roadblocks to a solution. Only the CEO’s personal involvement can remove those obstacles. Working with the CEO, ICG analyzes workers’ compensation claims with its own team of ergonomists, physicians, and other safety professionals.
- Consultants already have come in and improved the workplace.
Past research into the strategies of workers’ compensation agencies reveals two popular directions to approaching the issue. One type of agency manages claims like a third-party administrator, calling doctors to investigate costs, conducting utilization reviews, and managing claims that appear abusive. The second type teaches middle managers responsible for workers’ compensation how to prevent future claims from their area of expertise (the type of consultant you hire, be it an ergonomist, safety engineer, lawyer, or insurance auditor, defines the type of analysis you receive). You may have a legal problem in workers’ compensation and not know it, and the safety engineer you hire to tackle your workers’ compensation problem will never discover it either. Thus, the time and money spent will be for naught.
Companies need a combination of these approaches, ideally provided by an independent team with an unbiased vision.
For every dollar spent on workers’ compensation claims, three more are spent on hidden expenses, such as replacement employees, broken equipment, lost work time and productivity. Although some of these aren’t normally recorded on the profit-and-loss sheet, they certainly impact the company’s bottom line. For Warnaco, ICG created a six-phase plan that eliminated 60 percent of our workers’ compensation costs in only two years’ time:
Preparation. The process began with a series of “strategy sessions” that created a blueprint for the project. These sessions analyzed the condition of our present workers’ compensation system.
Communication. Employee support meetings informed all levels of the plant of the company’s new objectives. These “communication” meetings pointed out the seriousness of the workers’ compensation issue to management, thus creating support for future changes. The CEO should be involved in both the management meetings and the separate meetings for all staff levels to reinforce the issue’s importance to all employees.
Systems. Creating an in-house medical control system allows a company to track and manage claims before they become costly. Four steps for an effective medical control system are: €. Identifying trends from previous claims.
A thorough approach to workers’ compensation should include a computerized data base to track and document treatment, testing, and diagnosis of all past claims, and to identify referral patterns of the doctors who treated your employees. €.Monitoring potential claims.
An in-house computer system should be established and periodically checked to detect potential problems. Your independent workers’ compensation consulting firm should oversee this for the first several years.
- Hiring an occupational health coordinator.
According to ICG, the average injured worker remains out of work three to four times longer than is medically necessary. Hiring an OHC is probably one of the most obvious, yet uncierused, approaches to solving this problem. An OHC implements the day-to-day elements of the overall cost-control program. The independent workers’ compensation agency identifies a quality person it will put through a college OHC training program. This will train the OHC through job analysis and tasks performed for each individualized plant with the workers’ compensation problem.
Hiring an OHC demonstrates to your employees that your company cares enough about them to keep them healthy, prevent injuries, and treat existing ones.
- Implementing an ongoing system of review and education.
Cost-containment efforts also can be enhanced by periodic plant-based training sessions; ongoing development of a “health unit log” that tracks the flow of individuals to outside physicians to detect any patterns; analysis of prominent physical demands of performing a particular task, operator postures used during specific tasks, and employees’ adaptive behaviors or personal patterns that could lead to an injury.
Prevention. Historically, most injuries are single-event episodes. However, a different type of injury repetitive motion disorders-is becoming more widespread and costly.
To prevent such injuries, ICG conducted an ergonomic analysis inside Warnaco’s plants to observe body postures and motions to see if they were likely to cause future disabilities.
Education and training. Ideally, you won’t need to depend on third-party consulting services forever. ICG’s plan includes educating and training supervisors on workers’ compensation, its legal implications, and accident investigation.
Employee education is equally important. The company must help employees understand workers’ compensation and reinforce protective and preventive behaviors.
Closing existing claims. If your company has never investigated the health of its current workers’ compensation management system, chances are, more than half of its outstanding claims are poorly managed. Case-by-case insurance reviews conducted by your independent workers’ compensation management company and your insurance carrier is one of the many approaches to this problem. Legal action for abusive and fraudulent claims is another.
STARTING THE PROCESS
CEOs must involve themselves in reforming and monitoring the worker’s compensation process. I can’t emphasize that point enough. Once you think in terms of assigning this task to the department that “handles the issue,” you negate any effort you put into reducing workers’ compensation and neglect the unbiased assessment and recommendations an outside agency can offer. Assigning the problem to middle management-which doesn’t have the power to make changes within the structure of your corporation-may prove fatal. Only a hands-on CEO can effectively manage a successful workers’ compensation effort.
Workers’ compensation need not be a recurring problem. Through a well planned program, workers’ compensation will no longer be the problem business has struggled with in recent years. A direct mandate from a company’s CEO or upper management facilitates a more effective approach to workers’ compensation, one of the quietest liabilities to corporate
Linda J. Wachner is chairman and chief executive of New York-based Warnaco Group, a $700 million maker of intimate apparel and menswear. She is also chairman of Authentic Fitness Corp.