Does the following exchange, found in a sketch called “Mama Compensation” from the 1990’s comedy show Kids in the Hall, hit close to home?
Foreman: I thought I recognized that look.
Employee: What look?!
Foreman: The look of a guy who's daydreaming about a disabling but non-disfiguring injury.
Employee: How did you know?
Foreman: Hey! I'm a foreman! Look, there’s a way for the average guy to get what's coming to him; it's called "compensation,” it comes from a Latin word meaning "free money," and it’s a glorious way to live life at its fullest; well, 2/3 of its fullest. Compensation is a river of goodness, flowing through the industrial heartland of America, dispensing its bounty to the blue collar hero brave enough to lap at its shores.
Employee: Sounds great!
The sketch ends with the employee asking a coworker to hit him on the head with a claw-head hammer, after which he is visited by the Goddess of Workers Compensation.
Well, employers who have been visited by Mama Compensation quickly find themselves paying for the rich bounty she bestows upon employees through increased premiums. And while there are a variety of things employers can do to reduce or even prevent work comp claims from occurring, in this post we’ll focus on one way to potentially manage claim costs after the injury has occurred.
The insurance business is a great racket. You pay premiums in perpetuity for insurance you hope you never have to use. And if, heaven forbid, a claim actually is filed, the insurance carrier will jack up future premiums to make up for the loss it has suffered by paying out on a claim. Brilliant!
Work comp coverage is no different, in that almost every dollar paid out on a claim will impact the employer’s “experience modification,” which is a multiplier that can increase or decrease the cost of your work comp insurance above or below your industry standards. A work comp mod above 1.00 means you are paying more than the standard rates for your industry, and a mod below 1.00 means you’ll pay less.
In turn, the two most common types of work comp payments are for the purposes of indemnity (e.g., wage replacement) or to cover medical costs associated with the claim. And while there may be relatively little you can do to directly control medical costs, you do have the ability to influence potential indemnity costs.
In fact, did you know that a medical-only claim for which no indemnity is paid at all – because the employee doesn't suffer any wage loss – will typically be reduced by 70% when it’s applied toward your mod? In other words, only 30% of the cost of the medical bills will impact your mod, which means you’ll take a far smaller hit on your future premiums.
So how do we make a claim “medical-only”? There are three potential tools employers have in this regard:
In all three cases, the conceit is the same: if the employee doesn’t lose any wages (either because she missed no time from work, because she was paid to volunteer, or because her employer continued to pay her wages during her absence), there shouldn’t be any indemnity payments, and the claim should stay medical-only.
I won’t go into a lot of detail in this post about this option, as we’ve spoken elsewhere about the importance of having a return-to-work (RTW) program, and have even presented webinars on the subject. However, it may be worth noting that such programs typically reduce work comp costs by 20 - 40%, and have a variety of additional benefits, including the following:
In addition to a number of employer benefits, RTW programs also can have benefits for employees, who get the opportunity to:
Under a paid volunteer program, employers who can’t find viable light duty work inside their organizations will send injured employees to perform tasks for local charities that have work within the employees’ restrictions.
In addition to most of the benefits of a more traditional RTW program, paid volunteer programs have the benefit of generating some community goodwill for the organization. The charities for whom the work is being performed get free labor (after all, you’re paying the employee, not the charity), and you get to give back to the communities in which you live and operate by donating the time of your employees.
If you choose to offer such a program, you should coordinate with several local charities so that they know what you’re doing, and so that you can confirm they have available light duty-type work. And when you send an employee to work with a charity, you should make sure the charity receives a copy of the employee’s restrictions, so that the charity is careful not to make the employee work beyond his/her restrictions and risk re-injury.
A wage continuation program is exactly what it sounds like: you agree to continue to pay an employee’s full wages for a finite period of time. In order to avoid triggering indemnity payments, the wage continuation must come from your general operating assets, and can’t be paid out from the employee’s sick, vacation or PTO time.
Of course, you don’t want to pay someone 100% of their pay to sit at home indefinitely, and in most cases, you’d only want to consider doing so for 1-3 weeks, during which you look for ways to find light duty work as part of your RTW efforts. However, as a temporary bridge, salary continuation might help you avoid incurring any indemnity payments, and thus keep the claim as medical-only.
I should note that your ability to offer a straight wage continuation program may be limited depending on the state the employee works in, as well as your specific insurance carrier. So, for instance, many insurance carriers in Minnesota won’t accept wage continuation programs, will classify them as indemnity claims and will reimburse the employer for the continued wages. Wisconsin insurers, would likely follow an approach similar to Minnesota’s.
Point being: if you’re going to consider implementing some sort of wage continuation program, make sure to check with your insurance carrier to see whether they will treat this practice as a non-indemnity claim.
For more information, contact us.
James provides guidance to employers on a variety of topics with a focus on employment, risk management and liability issues. In addition to working directly with employers, he regularly conducts in-depth training through webinars, at client sites, and through the University of Minnesota’s Continuin
James provides guidance to employers on a variety of topics with a focus on employment, risk management and liability issues. In addition to working directly with employers, he regularly conducts in-depth training through webinars, at client sites, and through the University of Minnesota’s Continuing Ed program. He previously was a plaintiff’s attorney and brings that perspective into his advice to employers. James received his law degree from the University of Minnesota and his BA from Washington University in St. Louis.
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