Workers' Compensation

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Best Practice Strategies of a Workers
Compensation Program

• August 26, 2010
• Bill Unger, CPCU

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• Note
• State and Federal Laws vary by jurisdiction.
  ALWAYS check with your attorney or insurance
  agent for specialized counsel.

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• Focus of this presentation
• A new look at a common issue
• Best outcome of a WC claim
• Manage it right for employee and employer
• Minimize Cost
• So, What are the best practice strategies that
  companies use to lower their Workers Compensation
  cost of risk?

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• Most manage by reacting
• Some manage whole process with greater
  effectiveness and savings
• Those that do.have a succinct process for the
  best outcome

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Have the greatest impact on your employers
largest insurance cost

• Workers Compensation premiums comprise 62 of
  total insurance costs
• Human Resources Risk Managers need hard
  numbers to sell their program and show value to
  the organization

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Work Related Injuries and Costs

• Workplace injuries in the US have a direct cost
  (wages, medical cost, etc.) on employers of
  131,000,000,000
• Indirect costs (productivity, overtime, training,
  administrative overhead) are estimated at
  381,000,000,000. (nearly 3 times direct)
• Total estimated costs 512,000,000,000

information reported by National Safety Council
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Work Related Injuries and Costs

• More than 80,000,000 lost work days are due to
  occupational injuries
• The Bureau of Labor statistics - 1.2 million
  employees lost an average of seven (7) days due
  to their injury/illness.

information reported by National Safety Council
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National Trends

• During the last 10 years the rate of lost time
  injuries has decreased by an average of nearly 3
  per year
• However, the overall cost of injuries and illness
  increased 6.4 per year. In the past 5 years it
  has increased by over 10 annually.

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National Trendscontinued

• Demographic changes to the work force are
  challenging
• Over 60,000,000 workers are 55
• 53 (32,000,000) are 65
• An aging labor force will create greater injury
  severities, longer lost time disabilities, and
  more challenging RTW situations

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• Sometimes there are opposing incentives by
  Employer and Employee in a WC claim
• Employer Return the employee to work at all
  costs
• Employee Maximize the amount he or she cannot do

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• Understand all the Principles in Play
• The definition of disabled under WC and ADA
  statute are different.
• An injured employee claiming WC benefits may be
  subject to FMLA and ADA laws.
• Employer must make a determination early in the
  claim to understand rights and obligations
• Seek legal advice early to avoid a retaliation
  claim or costly WC mistake

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Core Principles of Workers Compensation Claims

• Identify where accidents/ injuries are occurring
  or likely to occur. Eliminate or lessen the
  exposure
• Prompt Reporting of Claims to Management - Late
  reported claims after 29 days can increase the
  cost by 45.
• Have a solid, written Return to Work Program
• Should be defined as temporary, not a regular
  job, and be composed of pieces or parts of
  regular jobs.

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ContinuedCore Principles

• Utilize medical payment specialists, PPO
  networks, and pharmacy management. Savings can
  be up to 35.
• Focus and communicate early and often with your
  injured employee Adjuster
• Litigation increases cost of a lost time claim by
  70
• Human element part of a claim is very important
• Establish very early in a lost time claim the
  adjusters strategy for closure
• Know risks and costs if employee termination is
  inevitable

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• The end result of all your efforts will show
• Experience Modification Factor
• Premium Savings / Cost
• Indirect Cost Savings
• Bottom Line!

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• When do losses really count?
• What can you do to minimize the future cost of
  insurance?
• Medical Only claims vs. Lost Time Claims
• ERA states
• Net vs. Gross Reporting States
• State Waiting Periods
• Managing the Claim, Employee

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NCCI States (in blue)

• Monopolistic States
• Wyoming, Ohio, Washington, North Dakota (orange)

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Experience Modification Factor
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How can you lessen your actual losses? Your past
history follows you for four years. For
example, 2010 year is calculated with 2006, 2007
and 2008 losses
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State Differences for ERA

• Employers must know what States have ERA
• Nebraska Big impact with medical only claims
• Iowa RTW will have no impact on EMOD. Every 1
  counts the same. However, IA is a NET reporting
  state (more later).

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Experience Rating Adjustment ERA States
ERA States reduce med-only claims by 70
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What is the impact on direct cost?

• All medical-only claims receive a 70 discount
• Any claim with 1 or more indemnity reserve loses
  the 70 discount
• If employee returns to work within the waiting
  period, demand that no reserve be put in the
  indemnity category

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• Focus Point
• Losses are assigned a numeric injury (IJ) code by
  your carrier. This indicates what kind of loss
  you have. i.e. 6 medical only
• Experience Rating Adjustment (ERA) was introduced
  in 1998. The change was due to employers paying
  their own small claims out of pocket
• ERA reduces medical only claims by 70 before
  they are calculated in the mod

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Codes 1 9 indicate the severity of the claim(s)
5 temporary total or temp partial 6 Medical
only 9 Permanent partial disability
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• Focus points
• Have periodic claim reviews
• Do not allow reserves in wrong bucket
• Important NCCI snap shot is 6 months following
  your effective date for the 3 prior loss years
• Audit your results

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Audit your results!
Error 1
Error 2
Open or final claim
Codes 1 9 indicate the severity of the claim(s)
5 temporary total or temp partial 6 Medical
only 9 Permanent partial disability
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ERA Example 1

• Company has a 4,000 medical only claim (6)
• Loss into EMOD at 1,200 (30)
• Impact on EMOD - .15 of 1 point (.0015)
• 3 year premium impact - 1,350 (33 of total)

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Example 2

• Company has a 4,000 claim and includes two days
  of indemnity (only 213 of lost time)
• Loss into EMOD at 4,000
• Impact on EMOD - .50 of 1 point (3 times greater
  impact)
• 3 year Impact - 5,880 (147 of loss)
• Cost variance is 4,530 vs. medical only

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Example 3

• Claimant has knee injury from slip and fall.
  Returned to work on 3rd day. (not a lost time
  claim) 4 weeks of therapy and all expenses
  totaled 14,000.
• Loss limited to 4,200 in EMOD
• Impact on EMOD - .32 of 1 point
• 3 year premium impact - 3,840
• Compare that to 2

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Example 4..same claim but,

• Claimant has knee injury from slip and fall.
  Returned to work on 9th day. 4 weeks of therapy
  and all expenses totaled 14,000.
• Loss of 14,000 in EMOD
• Impact on EMOD 1.05 points
• 3 year premium impact - 12,600 vs. 3,840

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Example 5

• Company has a back claim with surgery. Lost time
  claim with 22 weeks of disability with a total
  cost of 150,000
• Loss into EMOD 150,000
• Impact on EMOD 7.82 points
• This customer has a premium of approximately
  500,000 per year. IF this claim did not
  happen, the premium could be nearly 40,000 less
  per year.
• Note Insurance carriers get paid twice EMOD
  and loss ratio

Assumption of annual policy premium of 500,000
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• Small Claimsit does not pay to handle on your
  own.
• Missing out on any PPO discounts and
  customary/usual
• discounts
• Statute of Limitation never starts if not
  reported
• Every state is different
• NE prohibits any payment.
• Note - IA encourages small payments

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Second Strategy Gross Reporting vs. Net
ReportingNCCI allows a few states to exclude
medical only losses if on a deductible
NE is not a net reporting state IA, KS, CO, and
MO are Losses within the deductible are not
reported on the unit stat card to NCCI for
promulgation. (thus ability to push down emod
rate)

• Maine
• Maryland
• Missouri
• New Mexico

• Oklahoma
• Oregon
• South Carolina
• South Dakota

• Alabama
• Colorado
• Georgia
• Hawaii

• Idaho
• Iowa
• Kansas
• Kentucky

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Does a medical deductible make sense?
This insured has a 1.20 EMOD and averages 50
claims per year
Deductible Level Total Losses with Ded. Applied Mod Factor Unlimited Mod Deductible Level Total Losses with Ded. Applied Mod Factor Unlimited Mod
100 1,002,439 1.16 1.16 1,000 953,564 1.13 1.13
200 996,939 1.16 1.16 1,500 926,564 1.11 1.11
300 991,439 1.15 1.15 2,000 899,564 1.09 1.09
400 985,964 1.15 1.15 2,500 873,939 1.08 1.08
500 980,564 1.15 1.15 5,000 779,610 1.01 1.01
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• Managing a claim to its best outcome regardless
  of claimant

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• Proactive Steps to avoiding WC claims
• Pre-screen applicants prior to hiring
• Do you have a process?
• Are you hiring the right people?
• Are they passing a thorough background check?
• Are they passing a compliant ADA physical?

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• Management must foster sense of safety
• and injury prevention
• 85 of all accidents are from employee error
• 10 of all accidents are from unsafe workplace
  conditions
• 5 are other
• Safety Committee must be involved and active.
• Review all accidents, unsafe issues, communicate
  with rest of employee base

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• Ergonomics and Body Mechanics
• Review of workstations
• Rotate repetitive motion tasks
• Older workforce creates challenge

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• Reactive Steps to a WC claim
• Investigate and Report immediately
• Communicate to the 3rd power
• Return to work is a must!
• Direct medical care when possible
• Manage claim until closure

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• Investigate and Report immediately
• Take notes, pictures, eye witness statements, and
  note environment
• Communicate to the 3rd power
• Show care and concern
• Be an advocate for the employee
• Inform them on what happens next
• Provide a WC take home information packet

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Return to Work

• If employers opt to keep the employee out of work
  until MMI or a release to full duty, the cost
  impact can be tremendous.
• Being unaware of waiting periods will drive costs
  up because every day counts including weekends.
  
• After 12 weeks of disability 50 of injured
  workers never return to work.

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• Advantages of a RTW program
• Employee feels in control
• Recovery is faster thus less medical and
  indemnity
• Reduce Fraudulent claims
• Fosters communication with injured employee

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Return to Work - RTW

• Published with versions of modified positions
• What has to happen for this injured worker to
  return to work on the FIRST day following an
  injury?
• The original job should be the goal/focus from
  the moment of injury.
• How will you coordinate the transitional duty
  program with Team Leader, Supervisor or Manager?

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Return to Work

• Waiting Periods
• Nebraska 7 days
• Iowa 3 days
• Kansas 7 days
• Missouri 3 days
• South Dakota 7 days
• Colorado 3 days
• California 3 days
• Texas 7 days

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Barriers to RTW

• Disconnect between Employer and Employee
• Unaware of work available
• Adversarial start due to injury
• No communication between Employer and Physician
• Patient provides the only information - every
  employee lifts 100 lbs over their head
• No job descriptions with no information on
  transitional duties available.

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Barriers to RTW

• How does a Dr. decide on the length of
  restrictions and time off?
• Length of time between Dr. visits
• There is not set standard and mostly subjective
• It is imperative the Employer is involved
  immediately with the Clinic when the Employee
  first goes for treatment.

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• Direct medical care when possible
• The most central and important relationship in a
  WC claim is the patient/physician relationship
• Obtain timely IME if questions
• Demand a written treatment plan from Physician
  for employee/employer. This should provide
  detailed description of restrictions

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Choice of Physician

• Nebraska Employee (form 50)
• Iowa - Employer
• Kansas - Employer
• Missouri - Employer
• South Dakota Employee
• Colorado Employer
• Illinois Employee
• Texas Employee
• California - Employer

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• Form 50 - Choice of Physician Rule
• Established in 1999
• Employer must inform the employee of their right
  to choose a family physician as the primary
  treating physician
• Must be done after every notice of injury

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• Manage Claim until closure
• Stay involved with employee
• Employer has strong incentive to stay involved
  due to EMOD
• Provide assistance to Insurance Carrier

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Claim Service Excellence

• Same day return phone calls on possible lost-time
  claims
• On-line tools with ability to review adjuster
  notes
• Reserve change and settlement notices email
  alerts
• Quarterly claim reviews
• Claim review at 5th month before NCCI snapshot

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• What are the key components to reducing Workers
  Compensation Costs?
• Evaluate each State and how losses apply
• ERA and Gross/Net States
• Waiting periods
• Gross/Net reporting States
• Understanding the Experience Modification Factor
• Identifying and Mitigating Losses
• Early return to work program
• Directing care when possible
• Managing Claim until closure

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• Remember, savings from your Workers Compensation
  Program become.Profit!
• Questions?