3 Ways To Cut Worker's Compensation Costs 10% or More

Do you remember why you made the decision to move your workmen’s compensation into a self insured plan? The obvious first reason was to save money. You’re in a labor intensive business and worker’s compensation insurance premiums were creating a serious stress on the organizations financial position.

You felt that by self insuring you would be eliminating the sales and administrative expenses that the insurance company was passing on to you in the form of increased premiums. You were also frustrated with what you considered unfair business practices, practices and policies that would lose you a client in a heartbeat if you tried to use them on your own customers.

Take for example when you learned from a source (not your broker) that premium pay for overtime and holiday work can be excluded from the payroll your premiums are calculated on. When that insurance auditor arrived, his sole purpose was to insure that you were paying enough; he had no obligation to tell you that you were paying too much. Consequently, those premium payments were included in the total payroll and you overpaid.

So yes it was time to cut the insurance company costs and gain tighter control of the entire program so you took it in-house.

While you certainly cut the insurance company out of the picture, you obviously still had to deal with the rest of the players in the work comp industry. In fact those vendors probably welcomed your business because you can’t provide the volume leverage of a national insurance firm and as a result they can probably charge you more. However, even with paying a bit more to vendors a self insured program made financial sense.

Or so you thought.

Your actual experience is proving different. The number of claims are down but the overall cost is up. What you don’t realize, and there was really no way to know this before you made your decision, is that the culture of the work comp industry is broken when measured by any sane business standard. Think about it for a moment. There are literally no vendors in the industry that are compensated on productivity. In fact the longer a vendor takes to perform his function, be it medical treatment, claims processing or administrating the program, the more money he makes.

Does it have to be that way?

The answer is no but you have to get aggressive in holding vendors accountable. Here are three quick ways to start.

Start with your TPA

This is the firm you hired to administer the program but what do you really know about them? If they hold themselves out as a full service administrator and claim to provide all of the vendor services including medical treatment themselves, then it’s a safe bet that they actually are outsourcing those services and are receiving commissions from the real vendors for the referrals. Their "cost per claim" fee may have been lower than other TPAs but that’s because the real money is in the referral commissions.

Deal direct with your vendors

Contract directly with vendors and pay them directly. This is the only sure way to eliminate commissions paid to a referring TPA. Referral commissions can run as high as 30% so you should expect to negotiate a reduction in service rate equal to at least the amount of commissions that the vendor will no longer pay.

Corporate governance

Make it absolutely clear that you are changing the rules of the game. Aggressively impress upon everyone involved in the system that your organization has a viable return to work program and that you expect workers to start recovering on the job as soon as there is no medical risk in doing so. Establish benchmarks for performance and make consistent compliance with those benchmarks a condition of continued service.

Of course implementing these changes is going to require time and they will create a new administrative burden but the results will be well worth it.

You may be a bit intimidated by these tasks as you are not a workmen’s compensation professional and you may be uncertain as to how to best tackle this project. One solution is to call in the pros at the risk management firm of CX07 who have performed countless work comp analysis for Fortune 500 companies with the express objective to reduce costs and gain control of the system.

If you’d like to learn more ways you can save (minimum of 10%) take a look at CX07’s 7 Worker's Compensation Secrets video series right now.

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