Three cost drivers affecting your Workers’ Compensation rates

By Dave Randall      

While the economy is starting to show signs of overall improvement, it continues to take its toll on local government. Coupled with this strain on your costs and budgets, many governmental agencies are also seeing dramatic increases in workers’ compensation costs. These rising costs can be blamed on a combination of economic, societal and legislative factors. It is imperative that you have an understanding of these loss drivers so that you can properly address the issues within your jurisdiction and hopefully lessen the impact that these cost drivers can have on your program.

1. Lagging Economy

The pace of economic recovery has been slow, in general, and the full impact of an economic downturn on local government usually lags two to three years behind the general economy. Evidence suggests that the downturn is just now reaching its bottom for public entities and we’re seeing the dramatic impact it is having on workers’ compensation programs. First, the sluggish economy has caused public entities to reduce staffing levels. In addition, skilled workers are retiring from the workforce and their positions are being eliminated due to budget constraints. Positions are often being filled with more inexperienced workers who are working longer hours and, thus, are more fatigued.  In many jurisdictions, some of these functions are now being handled by volunteers.

In addition, city/county loss control programs may also fall victim to tight budgets. Many governments are discontinuing proper training programs, the purchase of personal protective equipment and delaying necessary maintenance on vehicles and other equipment. Unfortunately, cutting loss control activities now in an effort to manage costs will often result in increased claims and expenses later. Finally, when your employees get hurt on the job there are fewer light-duty jobs available as part of their return-to-work program. Simply put – fewer total jobs equate to fewer light-duty jobs. If there are no light-duty jobs available to help transition workers back to full duty, they must remain off the job. This extends their time away and increases the likelihood that they may never return.

2. Increased Medical Costs

Medical costs and the severity of workers’ compensation claims are on the rise. Why is this? First, U.S. workers are getting older and, if they can return to work, it takes these aging employees longer to heal. We are also seeing a rise in co-morbidities. The term “co-morbidity” refers to the presence of additional conditions that work in concert with the work-related injury to create greater overall disability or impediments to reaching maximum medical improvement.. Obesity, hypertension, and diabetes are the most-common co-morbidities that appear with workers’ compensation claims. According to a study performed by the National Council on Compensation Insurance, Inc. (NCCI), claims with a co-morbidity diagnosis have about twice the medical costs of otherwise comparable claims and the frequency of claims involving comorbidities has nearly tripled over the past 10 years.

Another contributing factor, which has become a massive problem in the workers’ compensation field, is opioid misuse and abuse. The significant increased use of pain management drugs is leading to much higher pharmacy costs in claims. In fact, another study presented at the 2012 NCCI Annual Issue Symposium found that the disability duration on claims where opioids were prescribed was 50% greater than comparable claims.  This is due to the fact that opioids are designed for short-term use during the acute phase of an injury. Unfortunately, we often see the injured worker prescribed a significant dosage of opioid medication for long-term pain management. Such long-term use of this medication not only renders the employee unable to work, but it can also lead to addiction and other health complications.

3. Laws Requiring Expanded Coverage & Benefits

The presence of presumption laws in most states is having a tremendous impact on workers’ compensation costs. Collectively, 43 states have presumption laws established for public safety employees – namely police, fire, and emergency medical personnel. Typically, workers have to prove that they were injured on the job to collect workers’ compensation benefits. Under presumption laws, however, states have ruled that certain diseases such as heart, lung and, sometimes, cancer-related illnesses are presumed to be work related, unless the employer can prove otherwise. It can be very difficult for employers to take on this burden of proof because they usually do not have the resources or the evidence to prove that the disease was not a direct result of the job and these claims end up being paid instead of contested. Many of these laws were enacted within the last 10 years, so the full impact is still to be determined. One thing that is for certain is that these laws are major workers’ compensation cost drivers.

As a local official, you recognize that resources used to pay for workers’ compensation expenses take away from other critical programs. To try and offset these expenses, it is critically important that you provide your workers with the safest possible working conditions and adequate safety equipment.  It is equally important to monitor employees’ working habits and help them return to work as soon as possible after an injury. Finally, it’s good practice to be watchful of law changes like presumption laws, which are creating new unfunded liabilities for your entities.  Ultimately, preparing today can help offset some of tomorrow’s cost drivers affecting workers’ compensation claim costs experienced by many governmental agencies.

Dave Randall is the Public Entity Underwriting Manager at Safety National. Safety National is the leading provider of excess workers’ compensation coverage to self-insured employers and groups nationwide, and has provided that type of coverage longer than any other company in the United States. Learn more at www.safetynational.com.