Lynch: Eight Essential Steps to Controlling Workers' Compensation Costs

Friday, June 2, 2017 | 0

Many U.S. companies have recognized two basic truths about workers’ compensation: The workplace is the best place to control loss costs and they, as employers, more than any other group are best positioned to reduce and control loss costs.

These employers do not hand the problem off to their legislators, their insurers, their third-party administrators or their attorneys. Instead, they manage workers’ compensation as a controllable expense, an accountable business program providing a competitive advantage. They partner with their insurers and TPAs to get the most out of everyone.

You would think 17 years into the 21st century that this kind of business intelligence, really nothing more than Management 101, would be so widespread we’d never need to talk about it. But such is not the case. Many employers of all sizes and shapes continue to find themselves paying more than their industry peers, and we still have myriad conferences every year where anyone and everyone pays good money to hear “experts” impart the secrets to safe workplaces and low workers’ compensation costs.

But there really are no secrets. It’s pretty much common sense and sound management. I should know. For more than 30 years, our company, Lynch Ryan, has been privileged to assist many of America’s leading corporations as they attacked this issue.

Here’s what we’ve learned after all that time: There are eight essential strategies that help progressive employers turn workers’ compensation liabilities into assets. The principles are simple, founded on basic human values. They involve a concrete action plan and sound management. More important, they work.

Today, we’ll focus on the first two steps. Monday, we’ll post three through five, and Tuesday finish up with the last three.

Step 1: Make a commitment

Harder to do than you’d think. C-Suite leaders are busier than the Ed Sullivan plate spinner. However, as with any major corporate endeavor, commitment starts at the top. You’ll need a pithy and cogent argument to convince your leadership team that workers’ compensation should be afforded priority status throughout the organization. You’ll also need to educate the team that realistic, attainable goals should be set and communicated to the organization from the top down, and then measured religiously.

If you approach injury management simply as the “idea of the month,” you will certainly fail. Commitment involves building safety and injury management into the very fabric of your organization. You should never lose sight of your goals. And you should never compromise your commitment to safety by drifting toward expedient, short-term objectives that place production quotas above the safety of your people.

Corporate commitment should be in writing, signed by the chief executive and communicated to the entire organization.

Step 2: Focus on reducing lost time

Chances are, your company has been working to create a safe working environment. That’s good. Safety is essential in controlling workers’ compensation, but it’s only half the equation. Good safety programs have a positive effect on the frequency of injuries, but the best safety program in the world will not eliminate all accidents. People being human, injuries will happen. Try as we all do, work conditions change and we make mistakes.

To really attack workers’ compensation costs, you need to focus on reducing severity — the length of time injured employees stay out of work. Severity is the real cost driver in workers’ compensation. Every day that an employee is off the job costs you money.

When your machines break, you fix them immediately. Think of something as simple and common as the department copier. An out-of-commission copier slows everything down.

When you purchased or leased that machine, you insisted that prompt maintenance or even replacement was part of the deal. You need to treat your most important resource, your employees, the same way. The goal must be to keep days away from work to an absolute minimum. You need to focus, laser-like, on the goal of returning every injured employee to work, through modified or transitional duty, and thereafter to the original job as quickly as possible. That’s good for you and it’s also good for the injured worker.

Many will argue that severity is no longer the prime mover — medical expense is. While it is true that we spend a lot more on medical expense than on indemnity, consider this: The longer someone stays out of work, the more medical costs he incurs. And often, this medical expense is nothing more than justification to extend absence beyond what is medically necessary. Focusing on severity reduction significantly reduces the growth of medical expense.

That’s it for today. If you’re interested in the other strategies, steps 3 through 5 will be right here Monday. Come back Tuesday for 6 through 8.

Tom Lynch is a principal with Lynch Ryan & Associates, a Massachusetts-based employer consulting firm. This column was reprinted with his permission from his Workers' Comp Insider blog.