5 ways wellness reduces costs – Part 3: workers’ comp costs

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From Flickr & dthomasd

 

I am doing a five-part series on how to measure the impact of your wellness program on five key employer costs. I started with health plan costs, and last week covered sick leave costs. Today’s post is on measuring the impact of your wellness program on workers’ comp costs.

 

All employees are covered by some form of workers’ compensation. This state-specific, legally required coverage has been around for more than 100 years and protects all of us when we experience an illness or injury related to our work. It is “no-fault” in nature so that employees and employers don’t have to prove who was at fault in order to get medical expenses covered and a paycheck while away from work. Workers’ comp coverage is usually provided by state government through very large pools made up of many employers. Some types of businesses have very high costs associated with workers’ comp while others have minimal cost.

 

Researchers at the Health Management Research Center at University of Michigan found that employees with lots of health risks use a great deal more workers’ compensation dollars than those with minimal health risks. One landmark study showed that high risk individuals with multiple health risks used almost 20-times the average amount of workers’ comp dollars per year than someone without those risk factors!

 

Executives can be skeptical about the tie between workers’ comp and wellness, thinking that workers’ comp claims is basically what happened ‘that time Joe fell into the milling machine’. What most executives (and many wellness professionals!) don’t realize is that about 50% of workers’ comp claims are strains, sprains and back injuries. When your wellness program gets more employees exercising (and taking care of their back), they get injured less, and bounce back faster from injuries. This is just one intuitive story behind the empirical findings.

 

Generally, wellness programs that are effective in helping employees reduce their health risks will lower workers’ compensation costs. If your company pays into these state pools in a way that is influenced by your actual claims expense then there is measurable employer cost savings attributable to your wellness program.

 

In simple terms, and in the same way we did with sick leave, we need to compare the trends in per-employee workers’ compensation costs incurred by employees who participate in wellness programs to those of employees on the sidelines. We also want to look at the business-wide use of workers’ comp over time. By making these comparisons, we can infer the effect our wellness programs is having on workers’ compensation. Here again, gathering the data to make this comparison can be tricky depending on how your organization is handling workers’ compensation costs—a factor that is strongly related to how aggressive these costs are currently being managed.

 

If your organization is not doing much to manage or minimize these costs (and the illness and injuries that employees experience!) then there may be some real opportunity for savings. If your workers’ comp experience is already tightly controlled and managed then don’t expect a lot of savings associated with your wellness program.

 

 

Are you big enough?

You probably want to begin by determining if you have enough employees and enough time to conduct any kind of meaningful analysis. You probably need at least 500+ employees in each group (wellness participants and non-wellness participants) and a year of data to start with. That is necessary for you to derive a rough baseline regarding your workers’ comp experience.

 

You usually want to look at two issues. The first is the frequency of workers’ compensation (WC) claims. This is simply a count of the WC claims filed during a set period of time, such as a year. Typically this might be 2-8 claims filed per 100 FTE employees per year. I want to go back in time 2-5 years before introducing the wellness program and then plot these numbers out as a trend over the years. I also want to monitor in the coming years the rate of WC claims filed by the work force using these same frequency measures. Ideally I would like to see the frequency trend diminish over time as the wellness program helps employees be healthier (and perhaps more safety conscious!).

 

The second thing I want to do is examine the pattern of average cost of each closed claim (remove claims that may have additional costs). You can appreciate if I only experience 2 or 3 WC claims per year then the average cost of the claims is going to vary tremendously and I won’t be able to use the data to demonstrate the economic value of the wellness program. However, if I am big enough to have 20 -100 WC cases each year then I can get some meaningful data out of changes in the average case cost. If the data shows that the frequency of WC cases is down by 15% and the average case cost is down by 23% after the wellness program has been introduced and there was no change in our safety activities or WC management process then I would feel reasonably comfortable suggesting that the wellness program had produced some WC savings that should be included in the economic return analysis. I can monetize that return by multiplying the cases avoided times the reduced average case cost.

 

As with the sick leave costs example, if you can measure any other costs such as hiring a temporary worker to replace the injured employee then you have some additional economic savings to include if that is reduced as the wellness program is introduced.

 

This approach doesn’t necessarily address the pain, discomfort, disability, work and family disruption, quality of life effects of fewer injured or ill employees due to healthier lifestyles brought about by the wellness program, but you can certainly mention it!

 

Remember: always make your methods for estimating savings transparent so that critics can follow your methodology. If they poke holes, they can always be asked “Well how would you suggest we do it?”

 

Check out our wellness economics series courses on measuring the impact of wellness on workers’ compensation to go deeper on this topic.

2 Comments

    • Hi Mark, Good question to ask. Wellness programs cost between $50 and $500 per employee per year. The national average cost of Workers Compensation per employee per year in 2012 was $454 according to the BLS. However that’s an average and many industries and businesses have a much higher average cost per year. Also don’t forget that its not just WC cost but health plan, sick leave, disability insurance and presenteeism costs employers incur each year. The national average for all five costs based on the work of Ron Gozetel is approximately $28,000 per employee per year. So the cost of a wellness program even at the high cost threshold of $500 per year is about 2% of the present health costs. Not a big investment against a very big current cost to employers. Make sense?

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