September/October 1997
Workers’ compensation insurance may be an unavoidable cost of doing business, but it’s only as costly as you make it. Here’s a look at reducing those costs without losing coverage.
By Kristina Rundquist
Kristina Rundquist is an associate editor of Scrap.
For more than 80 years, employers have been legally required to help defray the costs of injuries their employees suffer on the job. The initial aim of such workers’ compensation insurance was straightforward and trifold: Give financial restitution for lost time due to work-related accidents or diseases, provide medical care, and return injured employees to work as quickly as possible.
Today, the intent remains the same, but the stakes have grown considerably higher, in part because of inflation, but also because of the litigious nature of society.
To be sure, lawsuits filed by injured employees against their employers have skyrocketed in the past decade, a trend that has driven workers’ comp insurance premiums—and the general cost of doing business—higher and higher. These escalating premiums, in fact, have driven some smaller firms out of business, while the potential legal expenses from accident claims have caused larger companies to protect themselves to the hilt at great expense. Unwieldy premiums, often running into the hundreds of thousands of dollars, have also had a multitude of other negative effects from forced layoffs to reduced benefits.
While workers’ comp insurance costs can’t be eliminated, they don’t have to debilitate your company. Here’s a sampling of advice on how to keep your costs in check.
An Ounce of Prevention...
One of the best ways to reduce accident-related expenses, of course, is to minimize the number of employee accidents that occur in the first place. How can you do this? These tips can help.
Safety Matters. Annaco Inc. (Akron) used to pay more than $400,000 a year in workers’ comp insurance premiums, whereas today it pays a mere $40,000, says Bob Toth, human resources manager. Not to be outdone is Nashville-based Steiner-Liff Iron & Metal Co., which has cut its workers’ comp costs more than two-thirds, says Faye Carver, director of human resources. And Louis Padnos Iron & Metal Co. (Holland, Mich.) now averages a lost-time accident once every 16 months, down from its all-time high of 27 in one year, notes Bill Clay, vice president of operations.
How did these companies accomplish the seemingly impossible?
Through effective safety programs, that’s how. As Carver asserts, “I attribute almost all of our cost cuts to an aggressive safety program.”
More than simply having safety policies on paper, an effective safety plan requires that all employees—from the owners on down—be committed to practicing what they preach. “Management has to walk the talk,” says Sunday Vogler, vice president of loss control for CNA Insurance Cos. (Chicago). “Employees look to management to see how they should behave, and if they see that a manager isn’t wearing a hard hat in the yard, then they know he can’t fault them for doing the same.”
Safety committees and mandatory safety meetings are just two ways in which companies show their commitment and keep their employees focused on safety. Padnos Iron & Metal also makes its employees personally involved in enforcing safe practices around its plants. The company follows the DuPont Stop program, a series of safety sequences in which first supervisors, then hourly employees are trained in preventing accidents, explains Clay.
Whenever an employee discovers an unsafe work situation, he or she first “stops the other person involved and lets them know there’s an accident waiting to happen,” Clay says. Subsequently, the employee fills out a report detailing when the situation was discovered, as well as who and what was involved. When completed, the card is turned in to a supervisor. To make employees even more interested in the program, a safety incentive plan is linked to the number of near-accidents each employee discovers. Then, at the firm’s weekly safety meetings, the cards are tallied and reviewed to see if there’s a problem that needs addressing.
Other processors have similarly linked incentive programs to safety. Steiner-Liff Iron & Metal, for one, has a safety slogan contest in which the creator of the winning slogan earns a cash award. After that, management periodically tours the facility, handing out $25 to any employee who can recite the winning catch phrase. “It creates so much awareness,” says Carver. “And if you can make someone more aware of safety, it makes a world of difference.”
Fit for the Job. Fitness is linked to the issue of safety in that fit employees are less likely to be injured on the job or succumb to repetitive motion injuries. To promote fitness among its employees, Steiner-Liff Iron & Metal offers to split the cost of a health club membership with interested employees and publishes a monthly health and wellness newsletter.
Even without regular gym workouts, ergonomic workstation design can reduce the number of soft-tissue injuries such as those associated with improper lifting. “We’re seeing a growing number of repetitive motion injuries,” Vogler states. “These are the kinds of injuries you might not notice right away, so you want to make sure that if someone is doing the same task over and over that their workstation is set up correctly. You also want employees to rotate tasks so they get a break from any one movement.”
Protect Yourself. Too much can’t be said about the importance of personal protective equipment. “Buy hard hats, buy steel-toed boots, buy glasses, and give them to your employees,” advises Toth. Though some employers may balk at the cost of providing such equipment, it’s nothing compared with the potential insurance, medical, and legal costs associated with an employee injury.
And beyond providing this equipment, it’s imperative to enforce its use, Vogler says, noting, “We’re seeing a lot of burns and eye and foot injuries—all things that could’ve been avoided.”
The reality is that catastrophic accidents are rare. What jacks up premiums are the little injuries. “That’s where we’re spending most of our money, and they’re the ones that are easiest to control,” agrees Clay. To illustrate his point, he tells the story of an employee who failed to properly lockout a conveyor belt and subsequently cut his finger, which in turn became infected. The result? What could have been a $100 injury turned into a hefty $5,000 bill.
On the Hiring Line. One of the hidden expenses of workers’ comp premiums walks through the door of many scrap operations every day in the form of new hires and temporary employees. As Vogler states, “The most serious accidents happen to people in their first few months because they just don’t have the training.”
A critical first step with all new employees, therefore, is to provide detailed job instruction and training. The results will speak for themselves. Neil Cohen, president of Hamilton Scrap Processors Inc. (Hamilton, Ohio), says his company has reduced its workers’ comp costs 28 percent thanks to its safety training. “All employees are trained before they put on a glove, even if they’re only working for one day,” he says. (It’s also important to provide review sessions for veteran employees. The reason, as Toth points out, is that “the longer you do a job and the better you are at it, the more careless you get.”)
Out in the plant, one way to make sure newer employees stay out of harm’s way is to require them to wear brightly colored hard hats or vests, which signal other employees to watch out for them, notes Vogler. The best way to keep scrap neophytes safe, however, is to “make sure they’re supervised at all times,” she adds. Some processors, for instance, “buddy” all newcomers with an experienced employee who is responsible for supervising them and advising them on safe work habits.
When it comes to hiring new employees, Cohen and Toth advise using a temporary agency. This approach not only gives you a chance to “test drive” potential hires, but also can alleviate some of your workers’ comp burden. As Vogler explains, “temporary workers are exposed to the same hazards, but if they get hurt, they’re on the temp agency’s policy. The good news is that your rates won’t go up. The bad news is that they can come back and make a liability claim against you.” To prevent problems in this regard, she suggests confirming that an agency does indeed have a workers’ comp policy before allowing any of its employees onto your property.
Good hiring practices are critical for several reasons. For one, Vogler notes, “when you have high turnover, that drives up costs.” In addition, “if you don’t have good hiring practices, you’re more likely to be on the receiving end of fraudulent claims,” she states. For instance, “you might hire someone with a prior injury. And even what might start out as a legitimate accident can become fraudulent because they just don’t have allegiance to the job. If they don’t like how they’re being treated or see it as an opportunity to make money, they’ll milk it as long as they can.”
To prevent such hiring nightmares, Toth advises conducting the most thorough background check allowed by law. Notably, while potential employers are barred from asking questions about prior injury claims or disabilities, they are allowed to ask about the employee’s ability to function within the confines of the job description.
Incentives to Be Drug-Free. Currently, 10 states offer workers’ comp premium reductions to companies that can prove they have a drug-free workplace. And 40 have language in laws that calls for a reduction or ban on workers’ comp benefits for accidents in which intoxication or substance abuse was involved, Vogler says.
Annaco, for one, not only requires new hires to submit to a drug test, but also conducts post-accident screening. Hamilton Scrap also tests all new hires, including temps hired for a week or longer and anyone who will be operating machinery, says Cohen. In addition, the firm performs random drug tests on a quarterly basis.
Before implementing any type of alcohol or drug tests, however, you should consider consulting an attorney to ensure you don’t violate any employee’s legal rights, says Vogler, noting, “There are companies that can help you set up a testing system. It’s not something you want to do on your own because of the legal issues.”
A Pound of Cure
While accident prevention may be worth a pound of cure, there’s no denying that accidents will happen. Then what? Here are ways to minimize their effect on your workers’ comp program.
Become a Sleuth. One of the best ways to learn from accidents and prevent fraud is to document and investigate accidents. Says Carver, “We put down exactly what the conditions were, what the employee was doing, and we look for patterns and common factors so that we can pull out the root causes and change them.”
When it comes to investigating accidents, check out every one, not just those that seem peculiar. “If employees know that each accident will be checked out, they’re not as likely to file a false claim,” Vogler attests. “The mistake many companies make is that they don’t do it. Then later, when they find something isn’t the way they thought it was or the injury turns out to be more serious, it’s too late.” Toth advises bringing in someone from another department to conduct a little sleuthing. And, if you have a company nurse, it can’t hurt to call him or her in to determine the extent of the injury and how it matches the disability an employee is claiming.
But don’t stop the investigation at your door. If the claim goes to trial, Toth is a firm believer in getting actively involved. “Attend every hearing,” he says, and when all else fails, consider settling out of court. “In Ohio, the state workers’ compensation bureau pays [settlements] and it goes on your record,” he notes. “But it could still be cheaper than letting it linger and sit on your rating for five years.”
Make Medical Friends. Establishing a trusting relationship with a local physician or urgent care facility can prove to be another big money-saver. Not only can it translate into reduced—or at least, reasonable—fees, but it can seriously lessen the likelihood that fraudulent claims will make it through the system.
While Clay examines medical bills related to employees at Padnos Iron & Metal, Steiner-Liff Iron & Metal turns over its larger claims to its insurance company’s caseworker. “They’re excellent at reviewing charges and going back and saying, ‘This isn’t acceptable, you need to sharpen your pencil again,’” Carver says. “They’ve reduced claims by as much as 25 percent by working with the doctor and hospital.”
Both processors have developed preferred relationships with local health care providers and made it a point to give them a plant tour so they’ll be familiar with a scrap operation. A bonus of this personal relationship, Clay notes, is that many times his firm’s paperwork is processed a little faster.
Speeding the process is also beneficial to the injured employee in that the sooner an ailment or injury is diagnosed, the sooner treatment can begin, especially with those who have a chronic illness or handicap. While you can’t force an employee to see a specific doctor, having one at the ready can go a long way toward making sure the employee actually goes and is treated as soon as possible.
Then there’s the issue of rehabilitation and physical therapy, with the advice being to make sure your employees follow through.
Welcome Back. Once an employee has recovered sufficiently, experts advise getting him or her back to work promptly. “I don’t know of any instance where getting the employee back to work quickly isn’t beneficial, even if it’s just counting ceiling tiles,” says Toth.
Not only have studies shown that people who return to work sooner recover faster, but it gets them in the “work mode” again. Light or restricted duty, such as data entry, can be the perfect solution to returning an employee to work. “Our efforts are always concentrated on finding something for them to do, even if it’s sitting in my office filing,” Carver says. Peer pressure, too, can get an employee back to work sooner.
For employees who aren’t ready to return even on a limited basis, there are other ways to keep them involved. “We like for them to come in and pick up their paychecks,” says Carver. “It gets them out of the house and gives us the chance to let them know we miss them and are looking forward to their return.”
Reaffirming that the injured employee is part of the company family reduces the chance that he or she will file suit. With larger claims, however, Steiner-Liff Iron & Metal relies on its caseworker to stay in touch. “We don’t want to give the employee the impression that we don’t believe they’re injured and that we’re checking up on them,” Carver points out. “But we do call to see if there’s anything we can do for them. Lawsuit or not, it doesn’t change how we deal with them.”
Flock Together. Some states require companies to be covered under the state-run workers’ comp fund, with some such as Ohio allowing companies to band together to receive reduced premium rates. “If you’re sponsored by a third-party administrator, you can go into the state workers’ compensation bureau and ask for lower rates by virtue of the volume of your payroll,” says Toth. That can add up to big savings for members in good standing, with reductions of 30 to 40 percent compared with going it alone.
Conversely, companies with high-risk ratings can find it hard to join such a group—“You’re left out in the cold paying top dollar,” notes Toth—which serves as an added incentive to maintain a superlative safety and workers’ comp record.
* * *
As these points illustrate, holding down workers’ comp costs isn’t an easy task, but it is an essential one. Only by taking aggressive steps can you protect your firm from the potential financial and legal fallout that could result from employee injuries and workers’ comp claims. And while such costs won’t disappear, they can at least be reduced. n
Editor’s note: For more information, contact Sunday Vogler at CNA Insurance Cos., 312/822-4272, or Mike Mattia, ISRI’s director of risk management, 202/662-8515. •
Workers' compensation insurance may be an unavoidable cost of doing business, but it's only as costly as you make it. Here's a look at reducing those costs without losing coverage.