|
NEWSLETTERS
NEWSLETTERS
| |
561-683-8383
November 2007 |
|
In this issue
|
| • |
Case Study: Injury management program reduces annual losses from
$163,675 to $6,074 for machine maintenance company
|
| • |
Storm clouds on horizon in 2008: calm seas of Workers' Compensation threatened
|
| • |
Q & A: Your Experience Modification Factor
|
|
Case Study: Injury management program reduces annual losses from
$163,675 to $6,074 for machine maintenance company
|
Insured
This machine maintenance company employs 130 people in five states and has annual revenues of approximately $9 million.
Situation
Because the company is a multi-state risk, injury management was becoming a problem, especially since there was no onsite claims supervisor at any of the locations. The result were claims totaling $163,675 in 2005.
Assessment
Certified WorkComp Advisors (CWCAs) reviewed the situation and determined that the company needed comprehensive injury management services. The company had a great HR department but lacked the needed knowledge for handling claims and did not realize how each claim affected the overall cost. Therefore, a plan was developed to treat each situation as if all the employees were under one roof.
Solution
A four-step process to handle employee injuries in multiple locations was established:
1. Trained a Designated Claims Coordinator to oversee ALL claims, instead of processing claims through individual HR Departments.
2. The Claims Coordinator is proactive and is the key contact with the injured worker, medical staff, HR Department and insurance adjuster.
3. Initiated a medical-clinical relationship in each state.
4. Implemented a Zero Loss Time program by having jobs inter-related to expedite a quicker return to work.
Result
By working with the Certified WorkComp Advisors, the company saw losses of $163,675 in 2005 drop to $18,611 in 2006 and $6,074 in 2007. In addition, the Mod, which was at .97 in 2006, is expected to drop to .83 in 2008 that will result in an annual savings of $51,334.
|
|
Storm clouds on horizon in 2008: calm seas of Workers' Compensation threatened
|
Declining Workers' Compensation injury claims and the impact of legislative reforms bode well for employees, employers and insurers as rates have gone down in most states in recent years.
Yet, as always, in long tail coverage such as Workers' Compensation, there are challenges that cloud the future. The Workers' Comp outlook for 2008 is one of caution and concern. Here is an assessment of what employers can look forward to in the year ahead and even beyond.
1. Rising costs and utilization of medical treatments. Analogous to other health care systems, escalation of medical costs in Workers' Compensation is well documented and expected to continue. While these burgeoning costs will adversely affect Workers' Compensation, the issues in Workers' Compensation are even more complex than medical inflation. The causes of rising medical costs are multifarious and compounded by alarming increases in utilization of medical services.
Taking a closer look at the medical expenses that drive the costs of claims, an NCCI study, "Measuring the Factors Driving Medical Severity: Price, Utilization and Mix," concludes that the key driver is not price but growth in the number of medical treatments and a different mix of treatments. For all diagnoses combined, the number of treatments increased 45%. In some instances such as sprain of knee and legs, the increase was as high as 80%. (Study compared 2001/2002 with 1996/1997).
What's more, there is a shift to more complex and expensive treatments. For example, complex surgery and anesthesia increased 60% and complex diagnostic testing increased 57%, while physical therapy increased 67%.
The seismic shifts in medical innovation and the corresponding increase in treatment options coupled with consumer demand for the latest and greatest treatments will continue to propel the spiral of increased utilization in 2008. Unchecked, the combination of these factors mean soaring medical costs.
2. A sundry of health care standards. While the ability to direct care is governed by states, none have programs as extensive as those in California. A cornerstone of the state's successful sweeping reform legislation is the mandated use of a Utilization Schedule based on the American College of Occupational and Environmental Medicine scientific evidence-based treatment guidelines.
A powerful means for increasing the effectiveness of medical care to injured workers, these benchmarks enable employers to measure the actual versus expected duration of absence based on the injury and determine whether or not treatment matches the prescribed protocols.
Together with capping utilization of high-volume services such as chiropractic manipulation, establishing designated medical provider networks and dispute resolution solutions, the application of evidence-based guidelines has been effective in constraining Workers' Compensation medical care costs. In 2003, employers paid an average of $6.47 per $100 for coverage - the highest in the nation. By the first quarter of this year, the cost had fallen to $2.93.
While the efforts in California have been closely watched, only a handful of states have adopted similar extensive reforms. If you're asking why, there is no mantra to adopt this system as a national model. In the United States, Workers' Compensation is a multiplicity of systems governed by the states. In a climate of declining rates that fosters lethargy and with unique political obstacles in each state, it is unlikely that state policies will ever converge.
The adoption of evidence-based guidelines will be agonizingly slow. In 2008, many job-related health decisions will continue to be made by health care professionals without appropriate training and expertise in occupational injuries.
3. Declining rate cycle to bottom out. The expectation that rates will remain low belies logic. Historically, the Workers' Compensation price cycle has proven "what goes down, must go up." The price cycle has repeated in a predictable fashion: rising rates precipitate a public outcry that triggers legislative reform; these reforms create attractive market conditions for insurance companies that drop their prices to compete; businesses shop for "the best deal"; employers lose their focus on injury prevention and cost containment as complacency sets in; claim costs do not fall in relation to the reduced rates so Experience Mods go up; returns on the legislative reform erode or flatten; insurance companies' profits diminish; and rates increase.
All eyes are turned again to California, often a precursor for the nation, where a key insurance industry group is urging the Insurance Commissioner to recommend a 4.2% rate hike in 2008 citing the cost of legal work, fraud investigation and other claims management tasks.
While dramatic rate increases are unlikely, the tide is turning and the days of double-digit percentage rate reductions may well be over.
4. Unnecessary loss of skilled workers. There is a broad spectrum of responses that occur when workers are injured on the job. Frequently, the employer sends injured workers to the emergency room where they may wait for hours to be seen by those who are not familiar with occupational medicine. A prescription is issued and an appointment scheduled several days later with a primary physician.
Let's say the injured employee is experiencing back pain. The treating physician requests the insurance adjuster to schedule an MRI. It could be as long as six to eight weeks before the employee has the MRI and the results are read. This means that physical therapy is not scheduled until 10 weeks post-injury.
This prolonged process can easily produce a "disability mentality" - the employee begins to think that there is something seriously wrong. When employees are off the job more than 12 weeks, there is only a 50-50 chance that they will return.
While studies show that 90% - 95% of injured employees should be back to work by the fourth day following the injury, nationally 24% of workplace injuries result in lost time greater than three days (ManagedComp survey). In effect, the system creates unnecessary disabilities and there is no evidence that this will change in the coming year.
5. Injuries to older workers will continue to cost more. The aging workforce poses a dilemma for many employers, especially in blue-collar fields. On the one hand there is the need for retention, since fewer young workers are entering the skilled trades and finding qualified, experienced employees is a pressing challenge. On the other hand, older workers have higher cost injuries (albeit, fewer) and take longer to recover than do younger employees.
By the year 2012, approximately 20% of the workforce will be 55 years or older.
Now is the time to become attuned to the implications of the maturing workforce and implement programs that foster retention and prevent injuries. Without proper planning, this unprecedented growth in the number of aging workers will lead to more serious injuries and increases in Workers' Compensation costs in the years ahead.
6. Drug use - legal and illegal - will continue to plague the workplace. A recent study by the US Health and Human Services Department found that one in 12 full-time US workers acknowledged using illegal drugs in the previous month. While greater vigilance by employers in the use of drug testing has made inroads, substance abuse remains a daunting problem, with alcohol topping the list. Add to this the aggressive advertising by drug manufacturers that has fueled the public's demand for new prescriptions and the risk of prescription and illegal drugs leading to workplace injuries is considerable.
As sadly demonstrated by the recent controversy surrounding the death of two fire fighters in Boston, this is a thorny issue fraught with resistance. If there is to be success, it will depend upon a high level of employee education as well as increased drug testing. This will take time; look for continued problems in 2008.
7. Wellness programs require continued commitment. There is little doubt that the lifestyle of the American worker is a threat to productivity. A Duke University Medical Center analysis found that obese workers filed twice the number of Workers' Compensation claims, had seven times higher medical costs from claims and lost 13 more days of work a year from work-related injuries or illness than did non-obese workers.
Recognizing the high economic costs of poor health, many employers are implementing wellness programs ranging from health risk appraisals to personal health coaches. Aimed at encouraging employees to adopt more healthful lifestyles, the programs are intended to reduce medical care costs, lower absenteeism and injuries and boost worker productivity.
To be effective wellness initiatives require the support of top-level management and continual motivation of employees. Employers are still grappling to understand what particular interventions, programs and incentives yield the greatest return on investment. Privacy and legal issues also continue to be significant concerns.
This noteworthy and beneficial trend will continue in 2008, but the effort needs to be constant - much like the anti-smoking campaigns - in order to be effective.
8. The bar will be raised on return-to-work programs. While early and safe return to work is a recognized "best practice" in Workers' Compensation, there are still employers who resist transitional work assignments, offer demeaning or "make-work" jobs or run ineffective programs.
Simply getting the employee back to work is not enough. A successful return-to-work program is intended to facilitate the transition from temporary medical restrictions to the resumption of full duty in the usual job within a limited time frame. As such, employers need to understand and enforce medical restrictions, establish realistic and evidence-based guidelines for the resumption of duties, monitor progress, integrate human resources with risk management, and train employees and supervisors on the value of such programs.
Health care providers have a role, too, by being accountable and becoming an active partner in the return-to-work process. At the same time, case managers must work to minimize lag time in treatments and communications. Only those employers who recognize the value of return-to-work in retaining employees, improving productivity and reducing costs will commit the time and resources required. Progress will be made in 2008, but changing attitudes take time and there is much work ahead.
9. There will be limited use of technology as a strategic tool for cost containment. Sophisticated Internet tools, software and online access to information are available to help employers quickly respond to injuries, predict claims that are likely to spiral out of control, monitor benchmarks, detect fraud, and improve communication and collaboration between all parties involved in the Workers' Compensation process.
Insurance agents need to become the early adopters and take the lead in using the tools and educating employers. This requires a change in attitude by agents and employers. Agents can no longer "sell" Workers' Compensation insurance, but must become experts and consultants to deliver a full range of injury management services. Employers need to recognize that Workers' Compensation is not an expense but a controllable business cost that, when managed properly, will have a measurable and positive return on investment.
According to Dr. Spencer Johnston, "If you do not change, you can become extinct. Get out of your comfort zone and adapt to change sooner. Take control, rather than let things happen to you." The few who take charge will change the risk management paradigm in 2008.
Clearly, managing Workers' Compensation costs is not an "on/off" intervention to be used when injuries occur or rates rise, but a never-ending process that encompasses all aspects of the workplace. Workers' Compensation needs to be top of mind in the year ahead and long after. |
|
Q & A: Your Experience Modification Factor
|
Q. "My company's Experience Modification is .94. Since it is below 1.00, is this considered a "good " Mod?
A. It's a common misconception that a Mod of 1.00 is good. While the details of the formula that calculates the Mod are quite complex, the rating system is designed to measure whether your company's Workers' Compensation losses are better or worse than expected. If your experience is worse than expected, your Mod will be greater than 1.0. Conversely, if your experience is better than expected your Mod will be lower than 1.0. Therefore, a mod of 1.0 is average - much like getting a "C" on a report card.
In assessing whether or not you have a "good" Mod, the three most impact factors to look at are:
1. The gap between your current Mod and the lowest possible Mod
2. Actual vs. expected losses
3. The cost of each loss
Q. "If we have a really good year with few losses, will our Mod be reduced?"
A. It's important to understand that the Mod is computed using data for an experience rating period. Generally, this covers three years and the most recently completed year is excluded. For example, the mod for 1/1/2007 would contain experience from policies that were effective 1/1/2003, 1/1/2004 and 1/1/2005. If your "really good year" was in 2006, it will not come into play until 1/1/2008 and will be included along with years 2004 & 2005.
Q. "What happens if our company has one very large loss? Will our Experience Mod go through the roof?"
A. The experience rating system has checks in place to limit the impact of one very large loss. The losses for a company are divided into two categories: primary losses and excess losses. For most states, the first $5000 of each loss is called primary and the balance is excess. The experience rating formula uses all of the actual primary losses in the calculation of the Mod. However, only a percentage of the excess losses is used. In addition, single loss limits are set by states.
Q. "Our Mod is higher than I'd expect. We have had no large claims, but several smaller claims, all of which were less than a few thousand dollars."
A. Actually, loss frequency is a great concern of underwriters. A company with 10 small losses is considered more risky than a company with one large loss, because frequency can reflect a negative pattern. Each time a loss occurs, it is possible that the severity could be significant. If you reduce the frequency of losses, you reduce the possibility of having a severe loss.
As noted in the question above, losses are divided into primary and excess. All things being equal, if you have 20 losses, totaling $50,000 and another company has one claim of $50,000, you will have a higher Mod.
Q. "How are 'expected' and 'actual incurred' losses determined?"
A. Expected losses are based on actuarial models of how others in your industry are performing. Actual incurred losses include not only what the insurance company has paid out for the claim, but also the reserves that the insurance company has set aside to pay for the claim. If the claim is closed, it is the total amount paid.
If your losses are higher than expected loss, then you are at a competitive disadvantage because your costs will be higher than your competitors. The lower your losses, the more competitive you can be.
Q. "The classification system is baffling me. I don't understand why I can breakout some workers into their own classification, whereas others go into the governing classification."
A. You are not alone; the classification systems used for Workers' Compensation are unique and confusing. It's important to remember that it is your business that is classified, not each and every job function. Almost all businesses will have more than one classification code used in their policy and the rate per hundred dollars of payroll varies by classification. Therefore, it is critical to work with your Advisor to be sure that all employees are properly classified. Mistakes often result in unnecessary increased premiums.
|
Background checks: essential but tricky
|
Businesses of all sizes are moving beyond simple "reference checks" to more thorough "background checks." And that's big business. Google those two words and there are 2,890,000 hits!
"Gone are the days of a simple reference check and a few phone calls to screen new employees," writes Darrell Zahorsky, in the Small Business Information Guide for About.com. "Amid security concerns, corporate scandals, and workplace violence, pre-employment screening has been gaining ground." Many companies are screening temporary employees, vendors and consultants, anyone who could put a business at risk.
ADP publishes an annual screening index that shows the areas in which background screening can help employers by highlighting where data inconsistencies can exist. These are the major findings of the checks performed:
* Reference Verifications - 41% revealed a difference in information between what the applicant provided and what the source reported. These include education, employment and credential verifications.
* Criminal Background Checks - 5% revealed a criminal record in the past seven years.
* Driving Records - 35% had one or more violations or convictions.
* Credit Reports - 43% showed a judgment, lien or bankruptcy or that the individual had been reported to a collection agency.
* Workers' Compensation Claim Records - 8% revealed an existing claim.
At the same time, a tight job market creates serious pressure to speed up the hiring process to avoid an applicant taking a job elsewhere. It's not surprising that a recent survey by the Society of Human Resource Management discovered that about half of the HR professionals who responded had used Google, Yahoo! or a similar search engine before making a job offer. According to an article in HR Magazine (October 2007), "About one in five of those HR professionals who conduct such searches said they have disqualified a candidate because of what they uncovered."
While HR professionals may have the skill and experience in evaluating information, the popularization of search engine searches for information about people should be not necessarily taken as fact, since fake, falsified, inaccurate and incomplete information can be found there. It's also worth noting that Facebook and MySpace prohibit the use of information on their sites for other than personal purposes.
In addition, such searches may be in violation of the federal Fair Credit Reporting Act, as well as state consumer protection laws, which require an individual's permission before a search can be conducted.
There is also the issue of "negligent hiring." Failing to perform an adequate background check can result in legal action by putting the safety and welfare of your employees and clients at risk.
When utilizing background checks, be sure to comply with the Fair Credit Reporting Act by making all applicants aware that there is a background checking policy and that a consent for a background check must be signed.
|
|
Previous Newsletters
May-2009
Apr-2009
Mar-2009
Feb-2009
Jan-2009
Dec-2008
Nov-2008
Oct-2008
Sep-2008
Aug-2008
Jul-2008
Jun-2008
May-2008
Apr-2008
Mar-2008
Feb-2008
Jan-2008
Dec-2007
Nov-2007
Oct-2007
Sep-2007
Aug-2007
Jul-2007
Jun-2007
May-2007
Apr-2007
Mar-2007
Feb-2007
Jan-2007
Dec-2006
Nov-2006
Oct-2006
Sep-2006
Aug-2006
Jul-2006
Jun-2006
May-2006
Apr-2006
Mar-2006
Feb-2006
Jan-2006
|
