CLAMP Down on Costs - 5 Cost Reduction Strategies

Sunday, April 11, 2004 | 0

There are a number of effective ways to reduce your workers' compensation costs; but employers will gain the greatest results by focusing on those strategies that will lead to the greatest returns. I use the acronym CLAMP to describe the top five strategies employers can use to have a significant impact on your premiums. In order to CLAMP down on costs, you need to...

1. Catch Errors
2. Lower Rates
3. Assume More Risk
4. Manage the Cost of Injuries
5. Prevent Injuries

Three of the five CLAMP strategies will result in a reduction to your experience rating, or ex-mod, bar any significant changes in the company's payroll or Bureau rules. The goal is reduce your mod to the lowest possible mod your company can achieve, known as the ZERO Mod.[TM] The ZERO Mod is the closest you can come to paying zero for your workers' comp insurance. Zero Mod is different for every company and even among employers in the same industry.

Let's examine each of the strategies in greater detail:

1. Catch Errors

Have an expert conduct an audit of your payroll records, premium audits, classification codes, and experience modification. Look for errors that will lead to...
* Refunds of overpaid premiums
* A recalculation of your ex-mod

Some ways to reduce your costs include...
* Reclassification into a lower workers' compensation class code
* Segregating payroll and excluding officers from workers' compensation coverage

Many employers are concerned about their workers' compensation classifications; most think they are being overcharged-and they may be right. Learning the rules regarding overtime, Section 125 plans, severance pay, and other excluded payroll will help you avoid overpaying workers' compensation premiums.

Your workers' comp broker can point you towards a premium audit experts who will meticulously comb through payroll records and uncover errors. Then, of course, you or your broker will need to take the initiative to recover those overpaid premiums for you.

2. Lower Rates

Reduce your workers' comp rates to the lowest the law allows by qualifying for the maximum premium discount your insurance company offers. Discounts represent big money that can be saved-or lost-depending on how proactive your broker is. Among the discounts you may be entitled to but not yet receiving are...

* Premium Discounts
* Association or Group Discounts
* Merit Rating Discounts

A proactive broker knows what each carrier is offering in discounts, and presents your company to the carriers in the best possible light to achieve the full discounts. That involves staying up-to-date on carrier filings and practices. And if there are areas where you are lacking or deficient and would fail to qualify for a discount, a proactive broker will provide the solution to those problems so that you can obtain the maximum discount.

Discounts can provide a substantial savings or loss of savings. State Fund, the state's largest carrier, offers up to 42.5% in discounts or surcharges up to 25% from their base rates. These discounts are not automatic and can vary on how your account is presented to underwriting. Your broker must specifically request, for example, to place you in a Group Association program - you will not be offered this option even if you qualify, without your broker first requesting it. This one discount alone is worth 6% plus an additional dividend.

3. Assume More Risk

Your insurance broker should be examining all legal options for you and show you ways to assume more risk to obtain lower costs with alternative funding arrangements. Some of the alternatives a pro-active broker will discuss with you include:

* Self insurance
* Group self insurance
* Retro plans
* Large deductible plans
* Small deductible plans
* Captives/pools

Few CEOs and top managers have countless weeks to learn about and compare all the many workers' compensation insurance alternatives that are out there. That's why you want to employ a top-notch insurance broker to help you make these critical decisions.

4. Manage the Cost of Injuries

There are numerous ways to manage the cost of injuries. For example, if you pay first aid claims, use a bill review service. Most employers do not realize the crippling effect small claims have on the cost of workers' comp. The system penalizes frequency of claims rather than severity of claims. Small claims can cost an employer from 300% to as much as 700% of the actual claims cost. Every opportunity you have to pay a first-aid claim or to make the decision on whether a claim meets the first-aid criteria represents huge savings for you. But be forewarned: there is a wrong way and a right way to handle first aid.

Have your clinic bill you directly for first aid claims; do not submit first aid claims to the carrier. In the California Code of Regulations, Title 8, Section 9780, "first aid" is defined as any one-time treatment, even if provided by a physician or registered professional personnel, and any follow-up visit for the purpose of observation of minor scratches, cuts, burns, splinters, etc., which do not ordinarily require medical care. It is not necessary to report such first aid claims to your workers' compensation carrier.

A good bill review service will save you up to 40% on your medical bills that get sent directly to your company, not the insurance company for payment as first-aid claims. If your company is large enough, hiring a nurse to administer first-aid can provide tremendous savings.

5. Prevent Injuries

If you are focusing your cost-containment efforts only on what happens after an injury, you're only doing half the job. Every injury you prevent saves you money, because the least expensive claims are the ones that never occur. By putting safety first, you'll avoid both medical costs and lost-time costs. A corporate culture that values safety all the time, every time, will do more than save out-of-pocket injury costs. You'll be keeping your people on the job, which enhances your company's productivity and profitability. And your demonstrated commitment to keeping employees safe from harm sends a strong message to them that they are important, which helps build a positive workplace culture.

Your safety programs should encompass every aspect of safety, from building a culture that puts safety first to helping you avoid the top five Cal-OSHA violations (the ones that cause 80% of all safety problems). Safety programs should address for problems specific to your industry and ensure that your supervisors and foremen are well-trained and able to effectively train and observe their people.

CLAMP Works! Over a period of time, once you implement these strategies successfully, you will reap the benefits of fewer injuries, fewer claims, less costly claims, and a reduced ex-mod. CLAMP down on workers' compensation costs!

Brent Heurter is the Founder and Chief Solutions Officer of ClearComp, a workers' compensation alternative for companies that desire to control and reduce their workers' compensation costs. Brent can be reached at 888-CLEAR-89 or email brent@clearcomp.com.

The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.