By paying attention to health-care costs and safety practices, a company reduced workers' comp claims by 70%.
How to reduce your workers' compensation costs -- and make life better for your employees in the process. One company's experience
You don't need us to tell you workers' compensation expenses are skyrocketing. Employers' costs for these once-benign state programs ratcheted up 75% between 1984 and 1989. More recent official data aren't available, but the anecdotal evidence is plain enough to most company owners: workers' comp is out of control.
That was Janice Oatman's conclusion two years ago. Oatman handles all insurance matters for Frontier Enterprises, a restaurant-chain company in San Antonio, Tex. In 1990 she noticed that although her company's employees were experiencing fewer and less severe injuries, "the cost of the claims for medical expenses and settlements were suddenly going crazy -- sky high."
Frontier's insurance carrier, she concluded, wasn't monitoring injured workers or managing costs closely enough. And Frontier would end up paying for that mismanagement. The company's annual insurance premiums for workers' comp coverage had hovered around $500,000, thanks to Oatman's aggressive shopping among insurers, but the rising costs, she knew, portended giant rate hikes.
Frontier, with revenues of $28.5 million for the fiscal year that ended June 1992, is particularly sensitive to workers' comp claims. With two restaurant chains, its operations are both labor intensive and hazard filled. Most of its 600 full-time and 500 part-time employees work with knives, slicers, grills, broilers, and hot fats. They lift heavy trays and tread floors that are sometimes slick. Despite Frontier's solid safety program, those conditions were all too amply reflected on the company's income statement. Workers' comp costs had crept up to more than 5% of total payroll. That was too much.
Oatman decided on the most radical course of action available to her: to drop out of her state's workers' compensation program. (Opting out of a state program is extreme, and is possible only in Texas, New Jersey, and South Carolina.) It meant that the company would lose the protection of the state workers' compensation board and thus would be vulnerable to employee lawsuits.
But Frontier didn't "go bare" to increase its risk. So it took a fresh look at managing worker safety and medical care in order to reduce both the risks and costs of job-related injuries. Frontier's work-related injury plan has produced magnificent results. Wages and medical expenses related to on-the-job injuries totaled $156,300 last year, 70% below the $522,500 in claims costs during Frontier's last year as an insured company.
Because of state statutes, dropping out, as Frontier did, isn't possible for most companies. But about half the states will allow companies to self-insure -- the next best thing to being entirely on your own. That increasingly popular option means you still have to hew to your state's statutes, but you pay all claims yourself. Companies taking on that kind of risk are similar to Frontier -- they have a huge incentive to manage costs better.
Perhaps the most important step you can make, however, has less to do with whose jurisdiction you fall under than with how attentive you are to your workers' comp program. Any company -- insured, self-insured, or uninsured -- can make many of the changes Frontier instituted and realize notable savings.
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As Oatman recognized, the key to taming workers' comp costs is wresting back control from distant -- and often uninterested -- insurers, hospitals, and doctors. When an employer takes charge of the safety and treatment of its injured workers, two things happen. First, a bone-deep level of accountability begins to pervade its approach. Aside from the employee, no one cares quite as much as an employer whether multiple X rays are taken when one set will do or whether an injured worker's paycheck comes on time.
Employees, too, react very differently when they know that their company, not a faceless insurance company, is opening its wallet in their behalf. Fraudulent claims, which are wreaking havoc on many employers, fall dramatically when an employer gets actively involved in its injured workers' welfare. The bottom line: employer-controlled workers' comp plans make people feel that their company cares about them.
Here, then, based on Frontier's experience, is how you can go about reducing both injuries and workers' comp costs in your company.
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Emphasize Safety
Take a good look at your past workers' comp claims to figure out your most expensive and frequent types of injuries. If you're insured, eliminating frequent, minor injuries first should quickly reduce your carrier's administrative burden -- and your premium. For companies paying medical and payroll expenses out of pocket, such as Frontier, eliminating the most costly accidents is more important than reducing the frequency of all injuries.
At Frontier, slips and falls were the biggest problems because they are a common occurrence and could mean weeks away from work as well as a variety of medical tests and forms of treatment. Next on the list were back strains and cuts. By understanding which accidents it wanted most to prevent, Frontier was able to tailor its safety program accordingly.
Training. All new hires read Frontier's Safety Operations Manual, which includes an outline of the safety-training program, accident-reporting guidelines, and general safety procedures. Since it's easy to ignore a document, Frontier also has a trainer review the manual with each new hire. New workers also watch "A Sense of Safety," a 25-minute video that Frontier produced. Featuring Frontier employees, the film demonstrates proper work procedures such as lifting and knife handling.
The most important safety instruction, however, takes place on the job. Restaurant managers, assistant managers, and fellow employees, all of whom teach new employees how to use equipment, emphasize safe operations. Because slips and falls are Frontier's top priorities, all workers are emphatically instructed to mark spills with "caution" cones and to clean them up immediately. Your training doesn't have to be that elaborate to be effective, but it does have to be taken seriously.
