Claims Management: Back to Work Programs

Effective claims management can help mitigate the long term impact and ultimately the affect workers compensation claims will have on a companies premiums down the road.  Aise from that, claims management can have an indirect affect on a number of areas beyond the balance sheet (ie. workers morale, reputation, etc).  Having a back to work program is an essential tool in getting injured workers back to work and minimizing the financial impact of workers compensation claims.

When combined with quality safety programs, training programs, proper accident notification systems, proper safety equipment and procedures, and established relationships with medical providers, back to work programs can save a business owner tens of thousands of dollars a year.

What is an Experience Modification Rating?

The experience modification rating compares workers compensation claims experience against industry standards for similar size and type operations.  The rating, which usually starts once a firm runs $ 3,000 in annual premium, is calculated by the National Council on Compensation Insurance (NCCI).  Each year, the insurance carriers report class codes, payrolls and losses for the last five years to NCCI, which in turn throws out the most recent years data (considered to “green” to include in the analysis) and uses a three year window of time to determine the current rating.

For example, a rating calculated in 2010 would include data from 2006, 2007, and 2008.  In this sense, claims can still effect an experience modification rating four years later.  Every business starts out with a 1.0 experience modification rating.  If your loss experience is 20% better then average, your rating would be 0.80, while loss experience 20% worst then average would result in a modification rating of 1.20.

A company that ran $ 66,000 in base workers compensation premiums, would incur an additional $ 13,200 in premium if they had just a 1.20 modification rating, while a company with a 0.80 modification rating would incur a $ 13,200 premium reduction.  The difference between the two companies is more than $ 26,000 in workers comp expenses, and if those companies are competing against each other, the company with the higher workers compensation expenses is also going to have higher overhead and either (1) cut profit margins and overhead and hope to be competitive or (2) lose market share.

The Affect of Claims on the Experience Modification Rating

The types of claims a company has, in terms of frequency and severity, and measures taken to control the cost of claims have a significant effect on the experience modification rating.  Claims that involve medical treatment only, and no lost time, are less severe and therefore are reduced by 70% before entered into the formula for computing the experience modification rating.  This is where effective claims management, relationships with medical providers, safety planning and training, proper accident notifications and procedures and back to work programs can limit the amount of missed time an injured employee incurs.

When it comes to lost time claims, the first $ 5,000 is counted at full value.  After $ 5,000, the dollar amounts are discounted.  This is largely done to give more weight to frequency of claims as opposed to severity, which is considered to be a better indicator of a company’s safety performance and risk management systems.

For example, one claim at $ 40,000 has less effect on your experience modification then 10 claims at $ 4,000.  Because of this variable, safety efforts should be focused on reduction of the frequency of lost time claims.

Back to Work Programs

Back to work programs offer a number of benefits to both the employer and the injured employee.  For the employer, back to work programs can reduce the likilhood of fraudulent workers comp claims, reduces the likilihood of claims stretching out over time, saves in hiring and training costs, recieves some production from injured employee, facilitates contact between the employee and the employer and improved communication lines, and may assist in a quicker recovery from the injury.  For the employee, back to work programs allow them to retain self esteem and minimize guilty feelings they may have about getting hurt, it allows them to maintain contacts with their fellow employees which can lead to quicker returns to regular duty, it helps keep an employee on a regular work schedule and may assist in returning to work quicker, and it promotes better morale among all workers.

Ultimately the time to establish a back to work program is before injuries occur.  This program should be written and formalized, and employees made aware of its procedures.

Additional Resources

Creating a Return to Work Program

Why Establish a Return to Work Program?

Return to Work Program Self Assessment Checklist

Return to Work Program Template