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April 11th, 2014

Workers Compensation Settlements In – Return to Work Programs Out – The Economic Reality!

Margaret Spence, CWC, RMPE
May 19, 2009

Imagine if everyone shared your vision of getting ill or injured employees back to work? In today’s tough economy, it may be difficult to sell your company on the benefits of continuing to offer injured employees viable light duty jobs especially if you are considering a layoff.

A recent headline in the Lancaster Sunday News read “City Pays 1.2 Million to Cover Injuries in Change of Policy – Light Duty Programs for Those Hurt on the Job Out – Settlements In. According to the reporter, the new City administration made the decision to stop transferring injured employees to positions that were light; instead they were planning to offer all of them a settlement to leave the City. The City Administrator said “this approach will cost the city more now, but we will save money in the long term.” Article Scource:

So, Are Return to Work Programs Still Viable?

The answer is easy – in tough economic times businesses can not afford to overlook return to work programs because indemnity or lost wage payments are one of the key drivers of workers compensation cost. If you opt to keep the employee out of work, you risk paying for lost wages or indemnity benefits until the employee exhausts the state mandated benefits. Indemnity payments impact your experience modification and ultimately drive up the cost of your workers´ compensation premiums as well as, your cost of doing business.

The average company can not afford to take the position that the City of Lancaster, a self-insured organization, took because multiple settlements and lack of return to work programs will find your company uninsurable. Several years ago, when I first started my consulting practice, I received a frantic phone call from an insurance agent who advised me that his client received a Notice of Cancellation and that he had sixty days to find them new coverage. Apparently, the company had numerous accidents, large settlements and their idea of injury management was – injury, terminate, settle, a cycle that earned them the Notice of Cancellation.

This employer did not attempt to quantify the impact of allowing injured employees who could return to work, the option to stay at home, nor did they evaluate the long term cost of offering a settlement to every injured employee versus retaining the employee with some job accommodation. If this employer had asked two simple questions—what is the cost of leaving these employees at home? And what is the long term cost of settling these claims? —they might not have been so quick to say, “We have nothing available – let’s settle.”

The reality for this insured, his agent could not secure replacement coverage. The agent advised me that he contacted several underwriters to find out if they would be interested in issuing a quote for this client. After he relayed the fact that the company’s paid-in premium amount was $280,000 and the claims paid-out total was $850,000 the underwriters broke into hysterical laughter. No one was interested in providing workers´ compensation coverage for this company. The client faced the real issue of closing his business because he could not secure coverage. In today’s economic climate and as employers make decisions to terminate or layoff or refuse to offer light duty positions to injured employees, they must evaluate the long term cost of this adverse decision.

Workers Compensation is not forgiving and the system is built to punish employer’s long term for decisions they make now. Frankly, employers are not in a win-win situation when it comes to workplace injuries. If you leave the employee at home, the insurance carrier pays them to be there. This, in turn, affects the amount of money you pay for premiums. If you refuse to bring the employee back to work you may be in violation of the Americans with Disabilities Act – ADA. If you bring the employee back to work in a nonproductive light-duty position that has them counting paperclips, you are paying state and federal taxes as well as benefits for an employee who is not contributing anything to your bottom line. While settlements seem like the best immediate option for employers this does not eliminate their long term cost.

An argument could also be made that the cost associated with injured employees remaining off work does not stop when companies, like the City of Lancaster, make the decision to settle the worker compensation claim. The settlement actually transfers the cost of the injury to the general public, the next employer or the social security system in the form of disability payment, when the settlement money runs out.

What can you do to keep your organizations return to work program viable?

Quantify the cost – everyone especially today, understands dollars and cents – your only option is proving that the return to work program is financially beneficial to your company’s bottom-line. Imagine if everyone shared your return to work vision – the only way to share your vision – speak to your management team in financial terms. “It cost X to keep the employee at home, it cost Y to settle them out of the system, the long term impact on our profits is Z, the three year impact on our workers compensation cost is XYZ. Based on my evaluation I recommend that we implement a proactive return to work program instead” – This vision will sell even the most skeptic managers. Settlements may seem like the best option, return to work is the most cost effective solution.

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