Workers' Comp: Forgotten Expense?

By
Eric Bolduc, Vice president of property and casualty

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Convenience store retailers in July learned that they won’t be penalized for not providing health insurance in 2014. The Obama administration has delayed that requirement until 2015. This is only a delay and not a removal of the requirement; retailers will still face compliance and other related issues. The Affordable Care Act continues to provide anxiety about the impact on an organization’s bottom line.

Much attention has been paid to the effect increased benefit costs will have on retailers, while health-care reform’s effect on workers’ compensation has received little notice. The economic factors of health-care reform are far-reaching, and workers’ comp insurance is not exempt.

Public, Private Connection

During the health-care reform debate, it was often said the United States needed a government health-care system. The nation already has a robust government health-care system. In fact, the government system is larger than the private insurance system.

The private system, which includes workers’ compensation insurance, is inextricably linked to the government healthcare system. Perhaps it is not the lack of a government health-care system that makes private health insurance so expensive, but it is the presence of our government system that contributes to the high cost of health insurance in America.

The majority of U.S. hospitals receive less money in reimbursements from Medicare than the actual cost of delivering care. The underfunding of Medicare, Medicaid and other government programs results in higher required reimbursements from the insurance industry. This historic pattern of shifting costs to the private sector will worsen as Medicare reimbursement reductions within PPACA take effect.

Also, workers’ compensation healthcare expenses are anticipated to increase due to the rising costs of medical services. These costs will affect your business any time you have a workers’ comp claim.

Best-in-class retailers will place an even greater emphasis on loss control to avoid potential claims. And they will look to get more aggressive with claims management and explore ways to get their workers back to work at a faster rate. It is important to develop a defined strategy with your insurance broker on the best ways to avoid, reduce and transfer risk in this area.

Dollars and Cents Formula

What a company pays for any good or service can be captured in this formula: price multiplied by use equals cost. How much you purchase multiplied by the price per unit is your total expense. Health care within either employee benefits or workers’ compensation insurance is no different.

Workers’ compensation claim costs are made up of indemnity (lost time) and medical expenses. Indemnity expenses accounted for the majority of claim dollars in the 1980s. Indemnity and medical expenses were roughly equal in the 1990s. Medical-expense inflation has made the medical component the dominant expense since the 2000s.

The trend rate for cost per claim in workers’ compensation is eerily similar to, if not worse than, health insurance inflation rates.

The bottom line is workers’ compensation costs cannot be controlled unlessspecific steps are taken to ensure the price paid per medical service represents value, the services provided are appropriate and accidents and injuries are avoided, thereby eliminating the claim altogether.

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