Posts Tagged ‘Workers Compensation’

Watch Your Workers Compensation Costs With Extra Care at This Time

Thursday, May 7th, 2009
It Escalates!

It Escalates!

An economic and financial crisis is a non-natural disaster and poses different risks to small business workers compensation. The first is cost-shifting. The National Council on Compensation Insurance reports that medical losses constitute more than one-half of total losses attributed to workers compensation insurance. An employee who is without medical insurance would easily be tempted to report an injury as job-related in order to avail himself of the medical coverage. Likewise, as deductibles and co-payments rise, employees who are under financial stress may face the same temptation. The shift of medical costs to workers compensation insurance may increase the burden to the small business. I recommend mitigating this risk by using a higher-deductible medical plan (first dollar losses are always the most expensive) and then funding the deductible on behalf of the employee.

The second risk concerns fraud. I remember a discussion I had more than one decade ago with the chief financial officer of a major underwriter of disability income who reported the impact of pending healthcare reform in California. Specialist physicians faced caps on their reimbursement rates and so, the insurer was able to prove, injured themselves to benefit from own occupation provisions of their disability coverage and workers compensation insurance. I had a similar conversation with the chief executive officer of a top five underwriter who reported the same phenomenon. Unfortunately, this is what happens in times of economic stress. Mitigate this risk with careful product design: your benefit should cover medical, psychological and occupational rehabilitation with an emphasis on returning the employee to work.

The problem with these costs is that they tend to be “sticky”: the costs rise in an economic downturn, but when the economy recovers, they don’t fall back to pre-disaster levels. So the small business owner is locked in with higher experience-rated premium payments. In a tough economy, where we are all looking for cost savings, this is an important area.