Reprinted with permission from Security Management.

Workers’ Comp – A New Perspective.

American companies spend an average $30 billion annually on workers’ compensation premiums alone, according to the National Council on Compensation Insurance. This figure does not include self insurance or related expenses, such as lost productivity. While fraud gets the lion’s share of attention in discussions about curbing these runaway costs, the poor management of legitimate claims may be as big a contributor.

A major factor is the way businesses respond to individual claims. They typically permit workers to stop working, and they let the insurance company determine when an employee can return. Companies often compound the problem by encouraging or requiring the use of medical services based on their cost or convenience, rather than their effectiveness.

Companies need not take such a passive approach to workers’ compensation claims, says Marcia DeWitt, CEO of the Guilford Group (now called GuilfordPare), a privately owned consulting firm that provides worker management services. GuilfordPare advocates what it calls company-managed workers’ compensation. Federal Armored Express, the largest independent armored car company in the United States, credit this philosophy with reducing its workers’ compensation costs from nearly $2 million in April of 1993 to less than $1 million in April 1994.

"If we [had] continued at the pace we were going, from 1992-1995, our workers’ compensation costs would have exceeded $5.5 million," says Gretchen Benchoff, vice president of human resources for Federal Armored Express.

The strategy that turned the tide involves several major initiatives: assuming more of the risk, an aggressive return-to-work policy, a new emphasis on effective medical services, and most recently, the establishment of a safety training program.

Assuming more of the risk. According to Benchoff, the company embraced this concept to gain control over their claims payments. Previously, Federal Armored Express was insured by the states in which it operated, with different policies in each. However, these programs offered poor injury and risk management, as well as inadequate claims services.

Federal Armored Express left the states’ assigned risk pools and funds and switched to a private insurance shared-risk policy where it bears the risk up to $7 million. If Federal Armored Express improves its injury management, it will benefit by paying out less money in claims.

Under the program, Federal Armored Express pays into its own discrete fund managed by the insurance company. According to Lawrence Melocik, senior executive of GuilfordPare, if a worker gets injured, the insurance company pays the injured worker from that fund up to specific limits – $250,000 per incident and $7 million total.

The program is less risky than pure self insurance because the insurance company would come in if the caps were exceeded. According to Melocik, when a company assumes the first-tier risk of $7 million, premiums are drastically reduced.

Russ Daniels, vice president of administration for Federal Armored Express notes that last year’s costs would have been $2.5 million with a typical third-party insurance arrangement. However, in 1993, when the company assumed some of the risk, workers’ compensation costs were about $858,000.

Returning to work. It has typically been left up to the insurance company to decide when a worker should return to the job. Under that arrangement, Federal Armored Express did not even necessarily know how the employee was doing. "We would call [the insurance company] to check on a case and they wouldn’t have a clue what we were talking about because they handle so many cases," says Benchoff.

The company’s mistake was not having a return-to-work policy, she says. When employees stay home, they receive two-thirds of their wages tax free. In addition, the company must pay someone else to do the job while they are gone.

Now, the company encourages workers to return to work sooner to perform other, less strenuous tasks. For example, someone who lifts all day long may have to be out of work for six months. However, in three months, he or she may be able to return to work to answer the phone or do clerical duties. With the new policy, the amount of time lost for work-related injuries has decreased 35 percent in one year, according to Benchoff.

Medical services. Under the old system, workers were not receiving the best medical care. The selection of medical providers was based on convenience and sometimes included consulting the Yellow Pages. "It wasn’t unusual for an employee to be out for one year," says Benchoff. Though the company at times pays a higher fee, the workers are now receiving quality care. "Now, we change our provider if they’re not getting the best care," Benchoff adds.

Training. Many people may believe that workers at a company like Federal Armored Express would suffer from gunshot wounds and other combat injuries. Instead, back injuries are one of the company’s biggest problems. The company is now beginning to focus on work safety awareness, particularly with regard to procedures for proper lifting. Training is provided and the company does not tolerate breaches of safety procedures.

In addition to reducing costs, the new workers’ compensation program has yielded intangible benefits such as support from senior management. According to Benchoff, no negative attitudes have surfaced from employees.