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Workers’ Comp: Tactics to Get the Best Rates

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Workers’ compensation is a must-have if you want to comply with the law, limit liability, and provide a safety net for employees injured on the job. As construction moves upward since the recession, there has been an increase in benefit payments as well. However, changes to workers’ comp programs are increasing risks for employers and affecting rates. 

Trending Numbers

According to the Social Security Office of Retirement and Disability Policy, benefit payments under workers’ compensation programs increased 3.4% from 2010 to 2011. These paid benefits account for about $1 for each $100 of covered wages. Employers pay the costs of workers’ compensation, and in 2011 those costs averaged $1.27 per $100 dollars of covered wages. That comes out to about $612 for each protected employee, nationwide. 

While employer costs increased in 2011, they were still lower in 2009, 2010, and 2011 than they had been for three decades. Between 1990 and 2000, employer costs for workers’ comp declined to a new low of $1.34 per $100 in covered wages. They then rose from 2000 to 2005 before beginning the latest decline, according to a National Academy of Social Insurance study.

Workers compensation costs for construction employers are higher than that of most other industries. For example, in 2015, workers’ compensation made up 3.3% of total compensation in construction. For production, transportation, and similar businesses, the rate was 3%; for manufacturing it was 1.4%; for services it was 1.3%; and for information, education, and health services, it was 1%, according to the Bureau of Labor Statistics.

Workers’ Comp History

There’s anecdotal evidence regarding worker compensation for injuries and illness that date as far back as the 13th century. More recent evidence comes from 19th century United States, which passed the first worker’s comp laws. In 1908, the federal government covered its civilian workers engaged in hazardous work and then in 1916, they covered the rest of the federal workforce. By 1911, there were nine states that had enacted workers compensation laws and by 1921, all but six states and the District of Columbia had workers’ comp. Today, all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin islands have workers’ compensation laws and programs.

Benefits and Changes Underway

Workers’ compensation is supposed to pay for the medical costs of injured workers along with cash benefits for time lost from work. There are also death and funeral benefits for the workers’ family, and most programs allow lump sum settlements.  

However, in about 75% of cases, medical benefits are the only area that is compensated for. Workers’ comp programs also make disability payments for both temporary and permanent conditions. Recent reports from the Occupational Safety and Health Administration and the Center for Economic and Policy Research suggest that in many states, workers’ compensation reform is shifting the costs of workplace injuries from businesses to workers and society. That means that families and safety net programs like Social Security, Medicare, and Medicaid are picking up the tab. 

While businesses may view this shift in costs as positive, there are risks and negative consequences. Firstly, companies lose one of the  original advantage of workers’ compensation programs: the “exclusive remedy.” Once this is gone,employers are vulnerable to lawsuits that workers’ compensation laws have traditionally guarded them from. Because most workers’ comp programs are run by states, any changes complicate compliance and administration for employers operating across state lines. “Opt-out” workers’ comp programs can also expose owners and general contractors to greater risk because project participants don’t have to comply with any standards. 

Fraud Indicators

Sources agree that 1% to 2% of all workers’ compensation claims are fraudulent. Fraud happens in two categories: by businesses or by workers. Premium fraud is when businesses misrepresent their payroll, classify people as independent contractors instead of employees, or falsely change their business records. Claimant fraud is when workers put in false claims, continue working while collecting benefits, or exaggerate claims. There are warning signs for fraud for each of the categories. 

Indicators of premium fraud include:

  • A policyholder using a mail drop or PO box as a business address

  • A policyholder with an address from a different part of the state than the insurer’s address

  • A policyholder that changes carriers frequently

  • A business that has a high rate of clerical employees

Indicators of claimant fraud include:

  • Conflicting descriptions of the accident

  • Refusing treatment

  • No witnesses

  • A history of claims

  • Late reporting

The above factors are only guidelines. It’s possible that even when more than one exists in a case, they don’t indicate fraud. But, while fraud happens in very low percentages, it still amounts to large dollar losses across the entire workers’ compensation system. Employers that stay aware of the potential for fraud stand a better chance at spotting it in their own businesses, or in their partners’ or stakeholders’ businesses. That’s especially important in construction because of the dependencies between all the players. When one participant runs into operational or legal problems, it spills over and affects others.

Cost Reduction Tactics

While many employers focus heavily on preventing worker fraud, this approach is often counter-productive and causes an adversarial relationship between management and staff. It even causes injured workers to ignore their injuries and not report them. That leads to worsened conditions, higher costs for treatment, and extended employee time off. Therefore, the first step in holding your workers’ compensation costs in line is preventing injuries. That requires a hiring program that includes making sure new hires know how to perform their jobs safely, and a safety program that effectively prevents injuries while also identifying new health and safety risks as they arise.

Here are other tactics that can help reduce your workers’ compensation costs over time:

  • Work on lowering your MOD rate because changes in 2013 in how these are calculated now include claim frequency and severity

  • Report accidents and injuries immediately 

  • Take advantage of training and workplace assessments offered by your insurer

  • Set up a return-to-work program and make sure employees, supervisors, and managers know what’s expected

  • Promptly notify your insurer of any company changes like claim counts, employee classification changes, and payroll because small changes can affect premium costs  


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