Are you seeking ways to lower workers’ compensation costs? If not, it’s crucial to understand the serious risks that these troublesome claims pose to your business. When such claims arise, it’s essential to be prepared with a plan in place. After all, reduced workers’ compensation costs translate to higher profits and improved employee-employer relationships.
Table of Contents
- Introduction to Workers Compensation Claims
- What is the workers’ compensation act?
- Which injuries are covered under the workers’ compensation policy?
- What is the treatment received by injured workers?
- What are the benefits received by injured workers?
- Do you need to buy worker’s compensation insurance?
- What costs do workers’ compensation cover?
- What is the average settlement for workers comp?
- What causes workers’ comp insurance costs to rise?
- How to reduce workers’ compensation costs?
- Wisely handpick the insurance policy that suits you the most
- Ensure that you are following workers’ compensation claims management best practices
- Proactively reduce the number of accidents
- Have a physical injury methodology set up
- Put an impetus and motivation program for recently recruited employees
- Actualize policies for quick return to work
- Ensure you’re availing discounts available in your state
- Audit your worker orders
- Envisage and prevent fraudulent claims which sum up to 80% of the workers comp costs
- Motivate employees with well being rewards
- Analyze the effect of your Experience Modification Factor (EMF)
- Understand how insurance carriers view your claims history with benchmarking reports
- Incorporate an employee wellness program
- Proactively Predict cost of claims and set aside premium amount
- Use AI to proactively assign your most experienced adjuster on claims which may turn up severe
- Grapple with recidivism (or) reopening rate
- Instruct, Train and educate your employees
- Gather feedback from workers
- Communicate with your injured employees
However, reducing workers’ insurance costs is no easy task. Workplace injuries can be profoundly serious, occasionally even fatal. From a simple ankle sprain to a severe spinal cord dysfunction, readiness to address these injuries is essential. Neglecting them can diminish employee productivity and significantly impact your business.
Unsurprisingly, reducing workers’ compensation costs is a heavily debated topic within the Klear.ai team. Our aim is to ensure that all our technological solutions prioritize employers’ needs, maximizing profits by ethically predicting and calculating workers’ comp claims using AI.
The chief reasons behind it being worried about reducing workers compensations costs:
Let’s consider the case of an employee, David, who works at your company. Unfortunately, he recently suffered an electric shock. According to the Safety Pays tool, the estimated total of direct and indirect costs resulting from the injury amounts to $252k.
The direct costs borne by the employer vary based on the nature of the employer’s workers’ compensation insurance policy. However, certain inevitable indirect costs, such as property repairs and decreased employee morale, accompany workplace accidents. These serve as further disadvantages of on-the-job incidents.
This underscores the importance of reducing the expenses related to workers’ compensation insurance. In this article, we outline 19 effective strategies aimed at lowering workers’ compensation insurance costs. Read on to discover more.
Introduction to Workers compensation claims:
Before we get started, a brief understanding of the Workers Compensation Act is a must. The following sections will discuss the act and its relevance to employers and workers.
What is the workers’ compensation act?
According to the guidelines outlined in the Workers’ Compensation Act of 1923, certain employers are mandated to provide compensation to their workers for injuries resulting from accidents.
The act establishes legal obligations for employers to maintain a safe workplace. However, despite precautions, accidents can still occur. In such unfortunate instances, workers’ compensation insurance plays a vital role.
Workers’ compensation insurance serves several key purposes:
- Ensuring injured workers receive necessary medical attention.
- Providing compensation for the income lost during treatment, as affected workers may be unable to return to work.
- Protecting employers from lawsuits filed by injured workers due to work-related incidents.
- This policy offers support to workers regardless of fault in the accident, emphasizing the importance of providing assistance and coverage in case of work-related injuries.
Which injuries are covered under the workers’ compensation policy?
Injuries covered by the Worker’s Compensation Policy include those sustained by employees anywhere on the premises of the workplace and while performing duties within the ‘course and scope’ of employment.
It’s important to note that in certain cases, such as when an employee is commuting to or from their workplace, death compensation claims may not be covered by the policy.
The scope of coverage also extends to expenses related to illnesses resulting from workplace injuries. This encompasses costs associated with emergency room visits, ambulance charges, consultation fees, and diagnostic tests. Additionally, the policy safeguards workers from illnesses and diseases contracted due to work-related conditions. For instance, individuals working in toxic environments may suffer from health issues due to continuous exposure to chemicals.
Moreover, the Worker’s Compensation Act covers injuries resulting from other events, including terrorist attacks, natural disasters, and incidents of workplace violence.
What treatment do injured workers receive?
Injured workers receive comprehensive medical care and necessary treatment whenever needed. Due to the potentially high medical expenses involved, many states have implemented measures to effectively manage and control these costs. Utilization management rules have been established, defining specific diagnosis and treatment protocols for various injuries.
Insurance policies commonly include deductibles, ensuring that employers do not shoulder the entire treatment cost for injured workers. This system is designed to ease the financial burden on employers by providing a mechanism to effectively share the treatment expenses.
What benefits do injured workers receive?
Income compensation is determined by the disability level of the worker. Total disability results in permanent compensation, while partial disability leads to temporary compensation. The impairment or disability is defined based on criteria outlined by the American Medical Association.
The majority of states offer benefits throughout the entire impairment period, while some specify a certain number of weeks. These benefits typically amount to a fixed percentage of the worker’s usual weekly salary.
In most states, policies pay up to 66 percent of the worker’s regular weekly salary on a tax-free basis. Some states also provide a ‘Loss of Earning Power’ benefit, offering partial compensation if the worker returns to work on a limited basis.
If a worker dies while on the job, worker’s compensation provides death benefits to the worker’s dependents. Additionally, in some states, it covers funeral expenses.
Do you need to buy worker’s compensation insurance?
Sole proprietors and Partnership:
In most states, purchasing workers’ compensation insurance is not mandatory unless you employ individuals who are not owners. However, you have the option to purchase a compensation policy to provide coverage for yourself and your partners. Employees working solely on commission may not necessarily need to be covered under the act.
A minimum number of employees required:
In most states, if your business employs fewer than five people, purchasing insurance is not mandatory. However, the threshold number varies from state to state, and you may be exempted from purchasing mandatory insurance based on this criterion. For instance, in California, purchasing insurance is mandatory even if you have a single employee.
Notably, Texas stands as the only state with no obligations regarding workers’ compensation, irrespective of the number of employees.
Immediate family members, such as parents, children, and the spouse of the business owner who are employed within the business, are typically not considered employees for the purpose of workers’ compensation coverage. However, these exceptions do not extend to other family members, such as siblings and in-laws.
In the context of workers’ compensation insurance, several states categorize independent contractors as employees, which means that the business owner can be held liable if these contractors sustain injuries while working.
Despite these considerations, it’s prudent to always invest in workers’ compensation insurance. A single claim resulting from a severe work-related injury has the potential to disrupt your business significantly and could hold you legally accountable. By paying premiums, you proactively manage this risk with a predictable cost.
What costs do workers’ compensation cover?
The costs covered by workers compensation include:
- Insurance premium amounts
- Payments made under deductibles
- Administrative costs associated with handling claims
- Expenses related to making reports to the state and insurer.
Obligations to the Employer:
- Most states require business owners to keep records of workplace accidents.
- Work-related accidents must be reported to the state and insurer within a specific timeframe for prompt action.
- Early reporting allows insurers to expedite the provision of medical benefits and treatment.
- Filing a ‘first notice of injury’ with the relevant state agency is often essential to initiate the claims process quickly and facilitate prompt access to treatment.
What is the average settlement for workers comp?
The average workers’ compensation cost for an office worker is about 12 cents for every $100 in revenue. Workers’ compensation costs vary by industry type, meaning companies in different industries with similar annual payrolls will have to pay different amounts.
Below are some examples from the NCCI (National Council on Compensation Insurance) for your reference:
The administration fee is charged annually by the insurer, and the amount is determined by the insurance carrier.
To illustrate, let’s consider the case of a painting contractor with 4 workers and a total annual payroll of $140,000:
Class code: 5474
Rate per $100: $8.99
Rate for $140,000 annual payroll: $12,586
Administration fee: $250
This totals to $12,836 for the employer.
The table and the example above highlight significant differences between business classifications. It’s important to note that the mentioned values apply to businesses with no loss or claim history.
What causes workers’ comp insurance costs to rise?
In nearly every state, workers’ compensation rates are regulated by the state. Usually, each worker classification, i.e., the type of job, is assigned a rate per $100 of payroll, and then that rate becomes a multiple.
States categorized as NCCI states have their own rate structure.
The four primary factors that will affect your workers’ compensation costs are:
- The state where your business operates
- The industry in which your business operates
- The annual payroll of your business
- The claims history of your business
How to reduce workers’ compensation costs?
Here are our top 19 tips to help you reduce workers’ compensation costs.
1. Wisely choose the insurance policy that best suits your needs.
Much like shopping around for the best health or car insurance, selecting the right workers’ compensation insurance policy requires exploring options from different companies.
If your state features a competitive market, it’s advisable to engage with various companies. This allows you to inquire about the monthly rates they offer for you and your business. Insurance companies often adjust their prices every few years. Therefore, it’s prudent for business owners to periodically reassess their options, ensuring they adopt the best practices for workers’ compensation.
2.Ensure that you are following workers’ compensation claims management best practices
Adhering to best practices in adjusting your claims is paramount. Verify this through regular checks with your claims management, as it can significantly reduce payouts by approximately 50 percent.
Such savings hold great importance for businesses, often involving simple tasks that minimize expenses and streamline processes. Here are four best practices to help save on workers’ compensation claims:
Engage in direct communication with medical professionals and employees in person to address any emerging issues effectively.
Ensure all paperwork is completed accurately and submitted in a timely manner.
Verify the coverage for each claim to avoid discrepancies.
Maintain detailed records of all work completed on each claim.
3.Proactively reduce the number of accidents
Focusing on and cultivating a culture of safety stands as one of the most effective methods to reduce workers’ compensation costs and enhance employee morale. However, achieving a sense of safety is not an easy task. Consider our top four recommendations to decrease the number of accidents:
Provide your employees with comprehensive knowledge of essential resources and best practices.
Arrange periodic safety checks if these measures are not already in place.
Conduct regular safety checks to ensure the safety of your employees within the business premises.
Schedule more comprehensive safety checks on a monthly basis.
While focusing on safety helps decrease the number of accidents, it also demonstrates to your workers that you prioritize their well-being.
4.Have a physical injury methodology set up
Being prepared for injuries and accidents is essential, constituting a crucial aspect of the safety culture within your business. Everyone should understand their designated roles in the event of an onsite work injury. The plan should allocate tasks to all employees including supervisors, other staff members, and claims adjusters.
Once a prepared plan is in place, employees can respond proactively, thereby minimizing the severity of workplace accidents and injuries. Moreover, employees can rest assured that they will receive appropriate care in the unfortunate event of an accident.
5.Put an impetus and motivation program for recently recruited employees
Newly hired employees often benefit from incentive programs that reward their knowledge of safety protocols. Extending these programs to older employees can encourage them to assist new hires in learning about the safety culture, using group incentives.
These incentives not only have the potential to decrease employee dissatisfaction at the workplace but also reflect your business’s values and concern for its employees. Encouraging safety-oriented incentives contributes to making the business premises more secure.
6.Actualize policies for a quick return to work
Research indicates that businesses maintaining contact with employees affected by injuries during their time away from work are more likely to have lower costs on claims. Implementing a program that encourages and motivates workers to return to work as soon as they recover from their illness is highly beneficial.
Upon returning to work, the injured worker resumes earning at their full potential. Moreover, if they return earlier, the company pays out less money. This creates a win-win scenario for everyone involved.
7.Ensure you’re availing of discounts available in your state
Each state has varied rates for different classifications of businesses. However, it’s important to check with your state policy management for any available discounts. Most states provide discounts to certain types of businesses.
You can inquire whether your state offers discounts to employers who prioritize safety when providing workers’ compensation. For instance, some states offer discounts to employers maintaining a drug-free work environment.
8.Audit your worker orders
Although this is quite simple, an audit is often overlooked. Each type of business has a specific overall rate. Similarly, each type of employee will also have different costs with regard to their classification.
Did you know we are generating 2.5 quintillion bytes of data each day? Despite that, we’re stuck on a paper-based audit system. An end-to-end automated AMS (Audit Management System) like the Klear.ai Audit can help not only in audit runs but the assignment of audits to designated auditors and recording evaluations of auditors against every claim.
For instance, consider a sheet metal worker and a bookkeeper at your business. The sheet metal worker will obviously have a different standard rate in comparison to that of the bookkeeper (who is rarely situated on the manufacturing floor).
Therefore, it is your duty to review at regular intervals and see that employees are correctly classified. The classification has to be on par with their current job. This simple tip can in fact help you a good deal of money.
9.Envisage and prevent fraudulent claims which sum up to 80% of the workers’ comp costs
Get your data to work for you! Did you know that by leveraging data mining capabilities, complex statistical modeling, text mining, and graphical reporting, you can harness your past data to predict and prevent fraudulent claims?
Request a demo of our highly accurate Fraud Detection Tool, specially developed for complex workers’ compensation claims.
Bonus Tip: Social Network Analytics
Pay close attention to ‘Social Network Analytics’ to uncover connections between multiple claimants. Monitor the level of interaction or transaction between two actors within the ecosystem. Highlighting these connections, which show a higher-than-expected proportion of interactions, can aid in anticipating false claims.
10.Motivate employees with well-being rewards
After implementing safety measures and incentive programs, you may notice a reduction in the number of accidents. Check with your insurance provider to see if they offer a credit policy for a year of improved safety.
Typically, such credit rewards are granted after the policy expires, requiring a period of significantly fewer accidents at the workplace within a year. However, these reward schemes can vary among insurance carriers. While it’s not guaranteed, it’s worthwhile to inquire if they are available. Such credit schemes can also serve as a motivating factor for owners to maintain proper safety measures.
11.Analyze the effect of your Experience Modification Factor (EMF)
An EMF (Experience Modification Factor) significantly influences premium costs and loss history. It compares an employer’s claim profile to a similar-sized company within the same industry.
A higher EMF signifies increased losses and workplace injuries. Consequently, a high EMF leads to higher monthly premium amounts and affects bidding for various businesses.
Your insurance provider is likely to determine their pricing structure based on your business’s experience modification factor. Moreover, they can glean insights into your past claims history by examining this score.
12.Understand how insurance carriers view your claims history with benchmarking reports
Benchmarking holds significant importance in assessing the overall performance of your business, facilitating continuous improvement. By comparing your current insurance claims costs with the previous year’s and industry standards, you can monitor your experience ratings and claim history.
The ‘experience rating’ system determines how insurers evaluate your business, allowing modifications to class rates based on your business’s claims history. This categorization of classes is crucial as it contributes to cost savings. Rates are determined by grouping similar scores from five years of claims history into specific classes.
This system ensures fair control for employers/owners over their workers’ insurance costs. Safe businesses are rewarded with lower monthly premium amounts, while unsafe businesses face penalties and are required to pay higher monthly premiums.
13.Incorporate an employee wellness program
Develop a wellness program for your employees that promotes healthier lifestyle options while also offering rewards. Consider providing them with the following:
Healthier food choices: This allows them to improve their physical and mental health while developing a stronger immune system.
Exercise Programs: Exercise significantly enhances physical and mental strength, aiding in improved focus and endurance. It also enables workers to recover more easily from physical injuries.
Gym Memberships: This serves as an effective way to demonstrate care for your workers.
14. Proactively Predict cost of claims and set aside the premium amount
There are two aspects to reducing workers’ compensation costs: losing control and loss prevention.
Loss prevention involves conducting thorough investigations into the root causes of accidents and implementing corrective measures. This approach helps prevent the recurrence of unexpected incidents.
Managing costs is one of the best ways to maintain control. Utilizing specialized software for tracking and analyzing claims enables you to set aside appropriate amounts to handle regularly arising premiums following an injury. Avoid over-reserving or under-reserving by utilizing our workers’ compensation reserve prediction tool.
15. Use AI to proactively assign your most experienced adjuster on claims which may turn up severe
Insurance claim adjusters encounter numerous challenges while fulfilling their responsibilities in verifying claim authenticity—a crucial step to prevent fraud. Indeed, fraudulent claims represent significant financial losses.
AI solution like Klear.ai can be tailored to track claim histories and expedite settlement processes. Leveraging deep learning, statistical, and neural network algorithms, these solutions aid in resolving complex cases. By analyzing insightful trends derived from claims data, they facilitate quicker authentication, resulting in swift payouts for genuine claims without lengthy delays. Moreover, these tools assist claim adjusters in identifying recurring patterns in data, enabling the identification of fraudsters and repeat offenders.
16. Grapple with recidivism (or) reopening rate
In the realm of workers’ compensation insurance, recidivism refers to claims where an injured worker did not return to work, resulting in multiple disability periods.
To prevent this, it’s essential to offer comprehensive medical coverage and income benefits to all injured employees. Consider the following strategies to minimize disability periods:
- Reimbursement of medical expenses
- Provision of rehabilitation services
- Offering disability income support
Extended absences due to multiple disability periods can significantly impact work operations. The longer the employee remains absent, the higher your insurance costs may rise.
To mitigate such issues, provide a safe work environment equipped with appropriate tools and equipment. Educate your workers about potential hazards, and enforce safety regulations.
17.Instruct, Train and educate your employees
Ensuring the education and training of each employee is crucial. Practicing proper safety procedures plays a vital role in preventing hazardous accidents. Employees should receive training not only in equipment usage but also in appropriate workplace behavior.
Maintaining awareness of safety measures at all times is essential. Regular reminders and frequent training sessions can reinforce this awareness. Additionally, implementing a system of accountability improves overall business operations. Holding both employees and managers accountable is important. Promptly resolving any issues that arise helps prevent worksite problems.
18. Gather feedback from workers
Obtaining honest feedback from your employees is essential for running a satisfactory business. However, collecting such feedback can present challenges. Here are several effective ways to do so:
- Open-door policy: Establish an open-door policy to foster a welcoming environment where employees feel comfortable sharing their views.
- Regular performance assessment sessions: Schedule regular sessions to evaluate performance and gather feedback.
- One-on-one sessions: Conduct casual one-on-one meetings to encourage open dialogue and feedback.
- Team meetings: Utilize team meetings as a platform to gather feedback from members collectively.
- Anonymous feedback options: Offer anonymous feedback channels to encourage employees to share their opinions candidly.
After receiving employee feedback, it’s crucial to follow up. This not only shows appreciation for their input but also motivates them to continue contributing to the success of your business.
19. Communicate with your injured employees
The longer a worker’s compensation claim remains open, the more expensive it becomes. For instance, if they return to work much later, the claim must cover more replacement income.
Injured workers are often concerned about their jobs and financial stability. Therefore, it’s crucial for you to assure and empathize with them. Providing reassurance that their job will be available once they’ve recovered sufficiently is essential. This approach also helps mitigate the potential risk of facing litigation charges.
Workers often seek the support of an attorney due to the fear of job loss. Thus, empathizing and maintaining constant communication with workers helps alleviate their anxiety, significantly reducing potential high litigation costs.
ANOTHER BONUS TIP!
20. Analyze past injuries in your industry using statistics and deep learning models
Research has identified the most common injuries resulting in claims:
- Strains and sprains (30 percent)
- Cuts or punctures (19 percent)
- Contusions (12 percent)
- Inflammation (5 percent)
- Fractures (5 percent)
It’s imperative to take proactive steps to prevent these common injuries, which could otherwise escalate into significant claims.
Conclusion on how to reduce workers compensation costs
Even minor injuries can significantly reduce an employee’s productivity, causing disruptions in business operations. Preventing the most common injuries requires implementing proper safety measures on-site. To address these issues effectively and reduce workers’ compensation insurance costs, consider following these 19 steps.