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Reduce Workers Compensation Premiums and Increase Employee Benefits

By Michael Martinez

American employers have generally been required to carry Workers Compensation Insurance, or provide a suitable alternative coverage for their employees, since the early 1900s. The early benefit employers received from participating in Workers Compensation plans -- a reduction in litigation -- is no longer self-evident. In fact, new causes for litigation addressing job-related illness and injury have risen over the decades.

Workers Compensation typically covers three expenses: medical treatment for job-related injuries (they may not have to occur on the job, but each state's laws govern specific criteria) or illnesses, providing for the support of disabled workers, and (in some cases) providing for rehabilitation of injured and disabled workers. Each state sets the criteria under which its compensation act is to be applied.

Although the states mandate basic Workers Compensation premium rates, other factors which affect your premiums include the industry classification of your company, the size of your payroll, job classifications for your employees, and the frequency and severity of filed claims. In the early 2000s, the cost of Workers Compensation as a percentage of payroll rose from about 1.6% to 1.8%, according to the U.S. Bureau of Labor Statistics.

As Workers Compensation claims and costs continued to rise in the 1990s, many employers pressured their states to take action. Insurers responded by arguing they paid more for claims than they were receiving in premiums. Some state legislatures therefore allowed insurers to raise premiums and to reduce benefits. And attorneys who actively sought Workers Compensation claims often earned contingency fees from settlements. So, both insurers and employers received some relief, but workers came out worse.

The incentive to reduce Workers Compensation costs remains strong. Although employers benefit from implementing accident prevention programs and developing worksite safety strategies, insurers may in some cases adjust Workers Compensation premium rates up or down if employers do or do not carry health insurance.

Health insurance includes major medical, dental, and accident plans (among others). The more options employees have for treating injuries and illness, the fewer Worker Compensation claims employers experience.

In states where employers may elect not to particpate in Workers Compensation insurance, the employers may retain liability for worksite-related injuries and illnesses. States which allow employers to opt out of Workers Compensation insurance may require those employers to prove their capability for meeting liability.

Some insurance agents may suggest that an accident plan combined with disability may replace Workers Compensation. Not every agent agrees with that point of view. But let's see how accident plans can help employers in other ways.

A basic accident plan provides some health coverage, may cover off-the-job injuries (eliminating "Monday Morning Syndrome"), and may help reduce employer Workers Compensation premium rates if it is qualifying health insurance. The more comprehensive the plan, the more benefit both employer and employee realize from it. An employer may be required to pay the premiums for accident insurance in order to qualify a reduction in Workers Compensation premium. Employers should consult their Workers Compensation providers to learn how to reduce their premiums.

However, even voluntary accident plans, where employees pay the premiums, may have an impact on Workers Compensation costs. For illustration purposes, let's examine a hypothetical 100-employee company that wants to reduce its Workers Compensation expense without self-insuring or replacing Workers Compensation completely. The company's employees earn an average of $2000 per month, so the Workers Compensation premium is based on 2000 units of $100 dollars each.

Various job classifications are applied as appropriate. Instead of having the employer pay for accident plans for all employees, let's assume the employees are encouraged to join a voluntary insurance plan. The national average for participation in voluntary benefits is about 50%. And let's assume this company allows its employees to pre-tax their premium deductions.

Depending on features, a voluntary accident plan may cost each employee between $20 and $60 per month. 50 employees accept the minimum accident plan ($20 per month), so the after-tax payroll is reduced by $1000 per month. The company may save from $12 to $100 per month on Workers Compensation premium. Annual savings may range from about $144 to $1200.

And the company may realize other savings. If they match employee F.I.C.A. contributions (6.2% for Social Security and 1.45% for Medicare), they realize a monthly savings of $153, or about $1800 per year (assuming no caps are reached). The company may save between $2000 and $3000 per year just by allowing employees to purchase a low-cost voluntary accident plan. If a Disability plan is also offered to employees, another $2000 to $3000 in savings may be realized (but pre-taxing Disability Insurance premium deductions is not recommended because employees' benefits will be taxable).

While an employer must still cope with lost productivity and possibly having to train a replacement for a disabled employee, the prospect of litigation may be reduced. Claims may still be contested or investigated by providers, but disputes would be resolved between employees and the provider. Some providers don't raise rates on voluntary plans. They just market new plans when they need to adjust premiums. Existing coverages are not affected.

Disability insurance, sometimes called "Paycheck Protection", may be more flexible than Workers Compensation. For example, qualifying employees may use Short-Term Disability plans to pay for maternity leave. Disability insurance doesn't replace the employee's entire salary, so employees who can return to work have financial incentive to do so. Also, coordination between Disability insurance and Workers Compensation prevents employees from "double dipping". They cannot profit from Disability insurance.

Regardless of whether you self-insure or pay the Workers Compensation insurance premium, you as an employer will be held accountable for job related illnesses, injuries, and disabilities. Relying solely upon Workers Compensation may prove to be more expensive than offering employees access to voluntary plans which offer benefits they won't receive from Workers Compensation.
About the Author
Michael Martinez is a licensed Life and Health insurance agent in the state of Texas. Insurance and benefits programs may be subject to both Federal and state regulations in your state. This article does not offer legal, tax, or financial advice. Workers Compensation insurance, or a suitable alternative, is mandated by various state laws for most employers. Consult your state government or Workers Compensation insurance provider to understand your obligations and options under the law and your Workers Compensation insurance. Consult a licensed supplemental benefits broker in your area to learn more about how supplemental or voluntary plans may help reduce your expenses.

http://www.michael-martinez.com/

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