Workers’ Compensation Fundamentals and Cost Savers

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Laura K. Collins, Esq. VEC Richmond Area Employer Conference

September 10, 2013

Fundamentals The basics of workers’ compensationClaim coverage and denialInsurance policy fundamentals

Cost Savers Proactive Claim cost saversInsurance cost savers

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Workers’ compensation is complicated Knowledge is the first step to understanding

and controlling costs. • The law is complex• The Insurance line is complex• Many parties are involved • Employer is removed or uninvolved in much of it

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Created due to an increase in work injuries

Created as a compromise to alleviate uncertainty for both employers and workers • Created out of need• Industrial revolution• Increase in work injuries, lawsuits and uncertainty• Present in every state by 1948• Still needed*

*Each day ,more than 12 workers die on the job – over 4,500 a year

Each year, more than 4.1 million workers suffer a serious job related injury or illness

OSHA Injury and Illness Prevention Programs White Paper Jan 2012

An injured worker may receive one or more benefits for a covered work injury or disease*:1. Medical 2. Wage replacement 3. Permanent impairment 4. Death benefits

*Entitlement depends upon the nature and severity of injury

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No compensation for punitive damages

Employers enjoy advantages under the

law Enjoys limited liability; pays limited benefits• Exclusive remedy (cannot be sued for work injury)• Limited compensability• Limited benefits

No compensation for non-economic damages such as pain, suffering or loss of consortium

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Not all injuries that occur at work are covered

Injury must arise out of and in the course of work

Injured worker must demonstrate:1. An identifiable incident;2. That occurs at a reasonably definite time;3. An obvious sudden mechanical or structural bodily change; and4. A causal connection between the incident and the bodily change

Employer is not responsible for all injuries that occur at work

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The law provides for denial of certain claims

Burden of proof is on the party issuing a denial Examples:• Willful misconduct• Intentional self-injury• Intentional injury to another• Intoxication• Use of a non-prescribed controlled substance• Willful breach of employer’s reasonable rules or regulation

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How good are your work rules?

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Failure to follow an employer’s safety rule is a common reason for a claim denial

Caveat, many denials do not hold up at hearing Employer and carrier’s burden to demonstrate:

Rule was reasonable Rule was know to the employee Rule was for the employee’s benefit Employee intentionally engaged in a forbidden act

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Coverage is required - for a business with more than two workers and if a business hires a subcontractor with employees to

perform the same trade or profession, or fulfill a contract, then the business must count the subcontractor’s employees when counting employees and determining coverage needs.

Consider also • If a business uses an “independent contractor” and has the power to control how the

work is performed, the worker is more likely an employee • Corporate officers are employees under the law• Temporary and seasonal workers are considered workers • Family members performing work are considered workers• Minors, aliens and trainees are all considered workers

A business that performs work by hiring subcontractors with their own coverage must also have its own workers’ compensation

coverage

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The Act does not define independent

contractor Courts look to the nature of the work relationship and

particularly employer control as follows:

1) Selection and engagement of the employee2) Payment of wages3) Power of dismissal; and 4) Power of control of the employee’s actions

Not all factors must exist. *Factor #4 is given the greatest weight

Payment on a 1099 or designating a worker “independent”

does not alter “employment” facts

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Employee Misclassification: when an employer improperly classifies a worker as an independent contractor• Studies indicate 30% or more of employers misclassify• Employers misclassify to save money – up to 40% • Honest employers cannot compete

US Labor Dept Wage and Hour Division mounted an enforcement initiative in the construction industry • Use investigations, litigations and penalties to ensure compliance• Recovered $1.6 million in back wages for 1,800 workers• Exponentially costly – often many similarly situated workers

Workers’ compensation repercussions• Penalties for coverage avoidance $• Audit premium $$• Risk of civil suit $$$

Learn insurance requirements and policy basics to see where you can save

Understand premium calculations, three main

factors: 1. Type of work - classification code 2. Payroll3. Experience rating (loss/safety)

Insurance helpers:• Keep good business records• Locate a knowledgeable agent• Select a good carrier if possible• Avoid audit premium• Provide a Drug Free Workplace – 5% insurance credit

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Know your class code(s), ensure they are

correct One of the primary pricing components for a policy• Class codes are established by NCCI• Virginia has 640 classification codes• Each code is assigned a rate based on industry hazard• Rate listed is per $100 of payroll• A clerical worker, code 8810, has a low assigned rate – 0.17/$100 of

payroll• A roofer, code 5551, is high hazard with a higher assigned rate –

25.97/$100 payroll Assigned rate is used in calculating premium Class code errors result in a significant premium overcharges

Assigned Risk Rates Online: www.scc.virginia.gov/boi/co/pc/ar_wcomp.asp

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Employer has greatest control over experience

Experience rating analyzes employer’s loss data over 3

years• For renewal 1/12, the loss experience for policies 1/08–1/09, 1/09–1/10,

and 1/10–1/1 is applied• Claim frequency matters more than severity, losses capped

Know and begin to control your Experience Mod • Experience Mod of 1.00 is a “unity” mod, it is neutral• Experience Mod of less than 1.00 is more desirable• Experience Mod of greater than 1.00 is undesirable

Note: some government and other contracts disallow subcontracting to those with experience mods over 1.00

Once you understand your e-mod you will want to lower it

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Classification Code

Occupation Payroll Rate Experience Rating

Basic Manual Premium

8810 Clerical $100,000 0.17 0.70 $1,190.00

8810 Clerical $100,000 0.17 1.00 $1,700.00

8810 Clerical $100,000 0.17 1.50 $2,550.00

5551 Roofing $100,000 25.97 0.70 $18,179.00

5551 Roofing $100,000 25.97 1.00 $25,970.00

5551 Roofing $100,000 25.97 1.50 $38,955.00

Experience rating is where greatest savings can be realized, or costs added

factors employer cannot alter One factor employer can

alter

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Audit is common with premium pricing Obtain proper coverage at outset and be prepared Audit premium can be costly and unexpected

• Can be more costly than original policy• Keep good business records• Properly classify employees• Maintain records of all subcontractor’s coverage (POC)• At audit time be helpful and prepared• Noncompliance can result in additional fees; getting dropped• Compare your class codes, e-mod and premium each year

Bureau of Insurance in SCC regulates underwriting; audit

disputes• Contact the Bureau via email at: bureauofinsurance@scc.virginia.gov or by

phone at (804) 371-9741

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Proactive efforts Actions to prevent claims Actions before a claim

occurs

Claim related efforts

Actions to reduce claim costs

Other cost savers

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Accidents occur but most are preventable Make workplace safety an important issue

A high hazard business should make safety a higher priority Workers’ compensation is not an H.R. only issue - it is a significant

workplace safety issue Safety should be a top-down issue with everyone’s involvement Everyone should be involved in identifying workplace hazards

Make workplace safety a priority in your workplace

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Invest in training, especially for new hires Studies show younger workers and new workers

have more injuries so investing in training can reduce injuries• Essentially important for more hazardous work• Develop training manuals or materials for workers and

supervisors to rely on• Training is the first step to establishing a safety rule• Offer defensive driving class for workers who drive on the job*

*NCCI study indicates motor vehicle incidents are increasing;

and expensive – make up 2% of claims but 5.6% of losses

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Educate staff about workers compensation Staff must be instructed to report and treat promptly • Provide staff workers’ compensation information • Introduce it to new staff at staff orientation• Advise prompt medical treatment

Provide work injury reporting instructions• Include in staff handbook• Provide reporting protocol• List who when, where & how to report• Designate a person to receive reports• Provide panel of physicians

Select a desirable insurance carrier Some control costs better than others In the event of a claim you must rely on your carrier for

reporting, investigating, adjusting and settlement • Why is your carrier good?• Do they have online tools?• Case load of 125 or lower?• Do they settle claims?• Medical case management?• Prompt reporting & payment?• Ask their adjusting points.

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Employer is required by law to keep a record of all work injuries and deaths and report promptly

Late reporting increases claim costs• Report promptly using carrier’s preferred method• Delayed reporting can jeopardize claim investigation• Wait 7-14 days to report – claim costs increase 18%• Wait 15-28 days and claim costs jump 30%• Late reporting raises the potential for litigation• Late reporting is a violation of law with civil penalty

Prompt reporting can reduce costs in many ways

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Communication is essential Communicate before, during and after an injury Ensure managers knows how to properly respond to an injury Communicate well during an injury to ensure swift and proper

treatment for the worker and hazard correction Communicate promptly with injury witnesses to obtain details Communicate regularly with injured worker while recuperating Communicate with your Claims Administrator

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The safest employers have few to no injuries =

reduced cost Establish a workplace safety program with employee involvement• Reduces costs on average 28%• Productivity increases 43%• Workers feel valued; increases morale, job satisfaction and job

retention

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Create a “Return-to-Work” program Return to Work is good for the worker and the employer In the event of work injury, return to work reduces indemnity payout

and claim costs• Do not require full duty, no restrictions – that prohibits return• Offer transitional or light duty work• Stay at home establishes unusual family dynamic• Return helps worker – employer contact • Boosts worker self-esteem• Return utilizes worker’s skill and experience

Studies indicate the longer a worker is out the more likely it is they will never return to work

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Health & wellness efforts reduce claim costs

Healthier, fit employees recover more quickly Consider support or reimbursement for:• Health club membership• Weight reduction programs• Smoking cessation

Claim costs increase with obesity NCCI study indicates claim costs rise with rise in BMI• Healthy BMI claim costs per 100 workers was $7,500• Moderately obese claim costs per 100 workers was $23,300

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Review injuries that occur in your workplace Required reporting so they should be on file• They are unique to your workplace • What is the cause of your injuries? Identify and correct hazards• Identify training needs• Identify injury patterns, problematic equipment, people,

places, or shifts What can you do to avoid such an injury?

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Any Questions?

Laura K. Collins, Esq.Insurance Manager

Virginia Workers’ Compensation Commission1000 DMV Drive

Richmond, VA 23220Laura.Collins@workcomp.virginia.gov

W (804) 482-5304 M (804) 441-2038

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