Workers' compensation insurance is both a requirement for doing business and a major expense for businesses. And the trend is not likely to change anytime soon, according to Microsoft's Small Business Center.

Companies everywhere are understandably trying to reduce costs wherever possible, but now is not the time to cut corners at the expense of employees' safety or protection.

While workers' comp insurance is a requirement for doing business, there are many controls that business owners and managers can put in place to ensure an employer provides benefits for workers who are legitimately injured on the job. Here are a few.

Prevention: Ensure an Effective Safety Program.
Address the purpose of workers compensation in the first place: Aim to reduce work accidents and injuries. An organization's first asset is its people, so invest in safety resources for them: training, equipment, instruction and systems.

"Make safety a common goal, not an area of friction," Microsoft's Small Business Center advises. "When employees realize that workers' comp is a benefits cost that ties in directly to what a company can pay in compensation, they also recognize the advantage of helping reduce those costs," according to James Walsh, author of Workers' Comp for Employers: How to Cut Claims, Reduce Premiums, and Stay Out of Trouble.

Examine More Than Base Price.
When examining the total cost of an insurance program, consider more than the price of a premium or an annual third-party administrator (TPA), risk management services provider PMA Companies advises.

Instead, examine each carrier's and TPA's track record of success in your industry, and look at the service and support provided, along with ongoing flexibility to adapt to your company's specific needs, PMA Companies recommends in a new whitepaper, titled Top Ten Workers' Compensation Considerations in Recessionary Times.

Build a 'True Partnership" with Your Carrier.
Often, building a better relationship with the current claims administrator is "the best way to reduce workers' compensation costs," according to Rebecca Shafer, an attorney and risk consultant specializing in cost containment. Bill Hitselberger and Kyle Morhardt at PMA agree, saying that the relationship between the employer and carrier/TPA is "an ongoing conversation rather than a one-time transaction."

Lack of communication is the major cause of discontent between a carrier and the insured, causing "a perception that something is being done improperly," Shafer writes in Myths & Realities of Workers Compensation Cost Containment at ReduceYourWorkersComp.com. Shafer recommends building a better relationship by "becoming more informed about the services your claims administrator offers." The PMA paper states the values that should be expected of workers' compensation insurance carriers: responsiveness, accessibility, flexibility, accountability and communication.

Look Beyond Immediate Payback.
"With a proper cost containment program, loss costs will fall immediately," Shafer writes. "But premiums may take several years to fall because they are calculated on a company's experience modification."

PMA notes that workers' compensation costs operate on a three-to-five-year cycle. "The results of successful risk control and cost containment programs initiated today may not yield significant decreases in your premium or TPA fees until three or more policy years down the road... ."

Make a Formalized Return-to-Work Program.
Half the cost of workers' comp is lost wages, according to Shafer. "If you can reduce the number of 'lost days' and bring your employees back to some sort of transitional duty position, you will be taking a giant step toward controlling your comp costs," Shafer writes. "Because for each day your employees are out of work, you pay more in indemnity payments.

Not only that, but it bears reminding that knowledgeable and experienced workers are difficult to replace and invaluable to an organization's productivity. That is why the sooner employees go back to work, the more money an employer will save.

A carrier/TPA can help establish a return-to-work program based on best practices in similar industries. Comprehensive return-to-work programs include established "light duty" or "modified duty" positions for workers who are unable to perform their pre-injury duty, which can eliminate the need to hire less-experienced temporary workers. "[I]t is always better to have partially productive employees at work than entirely unproductive employees at home," Shafer notes.

Investigate and Pursue Fraudulent Claims.
The National Insurance Crime Bureau says that workers' comp insurance fraud — employees faking or exaggerating injuries — is a significant contributor to the country's $30 billion insurance scam problem. "Examine the validity of workers' comp claims and injuries," PMA recommends, "and know how to act on the invalid ones."

While workers' compensation rules vary among states, most offer free and helpful ways to create safety plans, often referred to as injury/illness prevention programs, Robert Miller, director of human resources for the Greater Los Angeles Vector Control District, recently told Workforce Management. PMA recommends having an anti-fraud team to recognize the red flags known to pop up in fraudulent claims. Detecting and correcting insurance fraud helps save on insurance costs. A thorough assessment of this causal area (in addition to all other cost drivers) can identify even the smallest inconsistencies.

"When the signs of a fraudulent claim arise, it's important to promptly report them to your insurer," HR411's Human Resources Blog says.

Employers often don't know what is causing their workers' comp costs to rise, attributing rising costs to "the price of doing business."

"Looking closer, employers are surprised to find that there are actually several pre- and post-loss areas that, singly or together, drive up their workers' comp costs," Shafer wrote in another report.

While workers' comp programs vary in design, application and degrees of service, and the problems can stem from lack of communication or resources, inadequate personnel and other gaps within a company, all can be corrected once the problems are identified.

"An effective workers' compensation cost containment program is a systematic and thorough approach to cost reduction — not a quick fix," Shafer writes. "It focuses on multiple areas that are all tied together with an effective communication strategy."

Resources

How to Put a Cap on Workers' Comp Costs
by Joseph Anthony
Microsoft Small Business Center

Top Ten Workers' Compensation Considerations in Recessionary Times
by Bill Hitselberger and Kyle Morhardt
PMA Companies, May 11, 2009

PMA White Paper Details How to Reduce Workers' Comp Costs in Recessionary Times
PMA Companies, May 11, 2009

Myths & Realities of Workers Compensation Cost Containment
by Rebecca Shafer
Risk Management Magazine (via ReduceYourWorkersComp.com), November 2006

Workers' Compensation Claimant Fraud and Medical Fraud Prevention Tips
The National Insurance Crime Bureau

Workers' Comp Fraud Can Be Pricey for Employers
by Patty Kujawa
Workforce Management, April 2009

12 Simple Measures for Reducing Workers' Compensation Costs
by Kim Lerner
Human Resources Blog, Jan. 26, 2009

Grabbing Control of Workers' Compensation and Litigation
by Rebecca Shafer
Risk & Insurance (via ReduceYourWorkersComp.com), April 16, 2007