Employee Involvement as a Prerequisite to Reduce Workers' Compensation Costs: A Case Study

By Ariss, Sonny S. | Review of Business, Spring 2002 | Go to article overview

Employee Involvement as a Prerequisite to Reduce Workers' Compensation Costs: A Case Study


Ariss, Sonny S., Review of Business


If recent trends persist, worker's compensation costs will continue to rise -- as current methods for lowering them have proven ineffective. In the form of a case study, this article describes a four-stage employee involvement model, which has led to improved safety in the workplace. By incorporating the principles of employee involvement, the model offers both a proven method for reducing injuries and accidents in the workplace and a process for building a productive team environment within an organization.

Introduction

Workers' compensation came into being as a reaction by most American states to increasingly dangerous working conditions during the Industrial Revolution. The workers' compensation system was designed as a compromise between the interests of employees and their employers -- in exchange for an absolute, but limited, payment for injury incurred on the job, an employee waives all rights to sue his or her employer for further damages.

Today, all 50 states have enacted workers' compensation laws. Additionally, certain types of employee injury and illness are covered by federal laws, such as the Harbor Workers' Compensation Act and the Federal Coal Mine Health and Safety Act Nearly 90 percent of American workers are covered by some form of workers' compensation law, excluding only those 10 percent who are self-employed, farm workers, or domestic workers (18).

While the structure of workers' compensation shields employers from potentially costly lawsuits, it forces them to expend money and resources to deal with insurance premiums, the administration of benefits, and lost employee work time. The topic of reducing workers' compensation costs has received only cursory attention in the business literature, although it can have a devastating effect on a business's bottom line if ignored. Every year, employers pay tens of billions of dollars in workers' compensation costs (4). Even though workers' compensation benefit payments and costs have started to decline slightly since 1994', they are still considered prohibitive, and existing methods for reducing them have been ineffective.

As Exhibit 1 illustrates, the cost to employers per hour of their employees' work time has fluctuated slightly in recent years, but has risen overall since 1988. As demonstrated by the data, the total amount of money expended on workers' compensation does not necessarily correlate with the cost to employers. An employer's workers' compensation premiums are dictated by insurance companies who adjust their rates based on trends over time, combined with job classifications, which rank the risk of specific jobs, and a firm's accident record (2). Additionally, workers' compensation rates are heavily regulated by most states, so that the normal effect of competition is mitigated somewhat To significantly reduce workers' compensation costs, therefore, employers must develop a more effective and consistent system for lowering the number and amounts of workers' compensation claims.

Methods to Lower Workers' Compensation Costs

Lenscis (18) speculates that one reason for the recent decline in workers' compensation costs is the advent of managed care. Managed care refers to the use of increasingly stringent coverage and claim payment controls in an effort to reduce costs. In 1995, Cowans (7) reported that employers were saving 10%40% on workers' compensation medical costs by using managed care networks. In more recent years, however, several problems with managed care have emerged. Many people feel that managed care programs deny certain treatments, services, or reimbursements to which people should be entitled (18). Moreover, when employers send injured employees to health care facilities, there is no way for the employer to retain control over the treatment that will be provided or its cost (21). Finally, due to the many variables that impact the system, very few studies have been able to determine whether or not managed care has had any impact on the workers' compensation industry at all. …

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