Learn the 13 Hidden Costs of Workers Compensation Claims

The true cost of workers’ compensation includes a lot of hidden cost and is much higher than the insurance premiums or benefits paid. This is often referred to as the “iceberg” concept.

Each and every workers’ comp accident incurs an additional hidden costs to the employer having significant and sometimes devastating effect on the employer. Unlike the payment of doctor bills, prescriptions and indemnity benefits, the hidden cost of the workers’ comp claim are much more difficult to quantify, but is very real. The hidden cost of a workers’ comp claim is not covered by the workers’ compensation insurance, but are absorbed by the employer.

Each workers’ comp accident results in the reduction of profits due to the various hidden cost paid by the employer. This can include:

1. The time lost and the productivity lost by the employee’s supervisor and co-workers responding to the accident and providing immediate aid.
2. The time lost by co-workers’ distraction—watching the emergency response and/or standing around discussing the accident after the employee is transported to the medical provider.
3. The time lost by the employee for the remainder of the workday, which is normally paid by the employer.
4. A reduction in morale as co-workers realize and think about the risk related to the job.
5. The continuation of the employee’s benefits while the employee is off work due to the accident.
6. The supervisor’s time, management’s time and co-worker’s (witnesses) time in the reporting and paperwork.
7. The time spent handling the accident investigation.
8. The time spent handling the workers’ comp claim.
9. The loss of production from the injured employee.
10. The expense of rescheduling the work the employee would have performed.
11. The cost of overtime pay to other employees to do the work the injured employee, or
12. The cost of hiring and training either a temporary or a permanent employee to replace the injured employee.
13. The lower productivity of the replacement employee until the replacement employee is up to speed or the injured employee returns to work.

The employer in addition to the cost associated with the loss of production also incurs other cost including:

1. An increase in the experience modification factor when calculating the workers’ comp premium.
2. For publicly traded companies, lower profits which result in lower stock value.
3. Damage to equipment, tools, machinery or vehicles being used by the employee at the time of the accident.
4. Spoiled work that has to be replaced.
5. Occupational Safety and Health Administration (OSHA) or state imposed penalties and/or fines.
6. Delays in purchasing new equipment or delays in expansion plans due to the lost profits.
7. Missed delivery dates due to the disruption in the workflow.
8. Missed sales if the injured employee is a salesperson.
9. Legal expenses.

According to a study by OSHA, the hidden cost of a workers’ comp claim is 4.5 times the direct cost (the medical and indemnity benefits). Other studies place the hidden cost as low as 3 times the direct cost and as high as 10 times the direct cost.

If the employee is easily replaced or returns to work shortly after the accident, without a disruption in the business, then the low end of the range [with hidden cost being 3 times the direct cost] would be accurate. If the employee is difficult to replace and the replacement employee then needs extensive training, the high end of the range [with hidden cost being 10 times the direct cost] would be accurate.

While the hidden cost of a workers’ comp claim cannot be eliminated, they can be significantly reduced through a safety program. A properly structured safety program reduces the number of work place injuries and all the hidden cost the employer would incur. This will result in higher production/productivity for the employer creating higher profits.

And, remember the mantra: “Every effective workers’ compensation program rides in tandem with a fully functional safety program.” If you want to reduce the number of workers’ comp claims and all the associated hidden costs absorbed by the employer, look closely at your safety program.

Author Rebecca Shafer, Attorney/Risk Consultant, President, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers’ Compensation costs, including airlines, healthcare, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. Contact: [email protected] or 860-553-6604.

WC Books: http://www.LowerWC.com/workers-comp-books-manuals.php
WC Calculator: http://www.LowerWC.com/calculator.php
TD Calculator: http://www.LowerWC.com/transitional-duty-cost-calculator.php

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers’ comp issues.

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