It might surprise some to know workers' compensation was born on the decks of pirate ships hundreds of years ago. At that time, pirate captains paid injured pirates in plunder for their injuries-that is, if they were still alive. Today, workers' compensation is a legal reality for businesses, as well as a financial burden for many. The Insurance Information Institute reports that workers' compensation premiums have climbed an average of 50 percent over the past three years.
Many believe workers' compensation costs are driven by the insurance industry or the legal system. However, when one looks at the breakdown of the direct and indirect costs associated with workers' compensation, more than 50 percent are medically related. It doesn't take long to realize that, while it's legally mandated insurance, the health care industry drives workers' compensation costs. According to insurance executive James Smith, many factors fuel the rising costs of workers' compensation, including:
- Medical providers protracting treatment given the high reimbursement rates of workers' compensation.
- Injured workers who intentionally drag their feet and the medical providers who fail to recognize it, thus prolonging the workers' time in the disabled role.
- Employers indirectly prolonging recovery by not providing modified or restricted return-to-work opportunities.
- Litigation.
Add to the financial equation indemnity costs like administrative tasks and hiring, training, or replacing employees, and these costs often grow exponentially.
A business colleague told me he's expected to reduce department costs 15 percent per year for the next five years. Putting this into perspective, if the annual department budget is $100,000 this year and he successfully reduces his costs to meet the company's expectations every year, the resulting budget in five years will be only $44,371. This is a 56 percent decrease in budgetary spending in five years. If the department is an information technology department, the answer might be upgrades in technology, though the figure still appears awful steep. However, if the department is a warehouse, maintenance, or housekeeping department, it's hard to imagine technological advances or process improvements could reduce costs 56 percent over five years in a labor-intensive environment.
One piece of the solution, especially for the blue-collar sector, is effectively managing work-related injuries. It's been illustrated that there are significant costs-both direct and indirect-associated with a work-related injury. Consider the impact if injuries are merely managed effectively on the medical front.
- What if injured employees' lost workdays decline or even disappear?
- What if employee morale drastically improves?
- What if workers' compensation costs plummet?
- What if the administrative nightmares related to workplace injuries decline?
- What if goods and services costs decrease, giving you yet another competitive edge?
- What if you had all of these advantages over your competitors? Would it be worth your efforts?
Over the next year, this column will offer Peoria's employers insight and practical suggestions for controlling workers' compensation costs. From ideas about the hiring process to the management of workplace injuries, the focus is to provide industry professionals suggestions and strategies to manage-even conquer-this often-dreaded problem. The goal: staying competitive and reducing costs. IBI