Occupational Health & Safety

Many companies attempting to navigate the choppy waters of out-of-control worker's compensation costs fail to see what a certain luxury liner also overlooked: total accident costs in the workplace. The direct accident costs of a claim, incurred by an insurance carrier, are like the part of the iceberg visible above the ocean's surface. The larger, indirect costs of a workplace claim--those not covered by insurance and assumed by the employer--remain hidden beneath the water's surface. And it is these indirect or hidden costs that can do the real damage to your company's bottom line.

Workplace accidents have obvious, direct ramifications. These include medical, hospital, and rehabilitation expenses, worker's compensation payments, higher insurance premiums, or even total loss of insurability. But there are less obvious, indirect costs that are usually uninsured: time lost from work by the injured employee, loss in earning power, damage to company morale, cost of breaking in new employees, loss of production, and possible damage to equipment, to name a few.

"Even with something seemingly as innocuous as a back strain, the payroll costs can be enormous." -- Lance Couture, Claims Management Specialist,
HIH Insurance, Sacramento, Calif.

In fact, most insurance loss control experts agree the indirect costs of workplace injuries (costs usually not covered by insurance) can range anywhere from two to 10 times the cost of the face value of the claim. According to Lance Couture, Claims Management Specialist for HIH Insurance in Sacramento, California, almost
40 percent of worker's comp claims carry significantly more indirect costs than actual direct costs. "A large percentage of the claims that go through our office deal with lower back strain," says Couture. "In many of these cases, if a back sprain initially cost $5,000 to heal, the indirect costs of the injury could range up to $25,000.

"Payroll expenses are the largest profit-draining expenditure a company has," he adds. "Even with something seemingly as innocuous as a back strain, the payroll costs can be enormous. For starters, you have to hire someone else to complete the injured worker's task, so the company must pay the salaries
of two employees to do the task
of one.

"Secondly, the paper trail associated with claims can be quite costly. There are labor costs involved with investigating the accident, with creating the paper work that has to be sent to the insurance company and to CAL-OSHA (in the case of California companies), and with developing a new safety program that minimizes the chance of the accident occurring again."

Tracking the Damage

Mary Murray, President of Work Smart, a company that specializes in loss cost analysis software, agrees there is a significant knowledge gap when it comes to hidden costs of claims.

"What is lacking is a full consideration of the complete costs of work-related injuries on employer's insurance premiums," says Murray.

"Over the long term, each workplace injury that results in a claim drives up employer costs through increases in worker's comp premiums. These premium increases are very hard to track because they are buried in the complicated maze of insurance
rating system.

The department's ergonomic team makes regular evaluations of workstations and conducts seminars on CTD prevention. Employees are screened for early identification of injuries.

Murray cites two common workplace injuries as examples of exorbitant hidden costs. A $29,000 carpal tunnel claim, when fully calculated, can actually cost an employer $37,400 in premiums over three years. Adding the indirect costs to the picture can push the employer's total costs to $71,450. A lumbar injury, costing $65,000 in direct costs, can generate $58,645 in additional premiums over three years. Adding in the indirect costs can push the employer's total injury costs to $131,385.

Murray, who recently tracked losses in the trucking industry, presented her findings in a language that was easily understood: To cover the bottom line total (indirect and direct) costs of a dozen $500 comp losses for a trucking company, a trucker would have to drive almost 450,000 miles--or 17 times around the earth.

Reducing Injury Claims

Capt. Luther Hert of the Monterey County, California, Sheriff's Department is an ardent convert to ergonomics--and with good reason. Several years ago, an administrative assistant in Hert's department incurred a wrist injury that eventually mushroomed, through spiraling indirect costs of the injury, into a $200,000 claim.

"The situation was really amazing," Hert says. "The employee had been sent to the doctor several times and was given time off. That was the initial prescription. But nothing was being done to address the causes of the injury, such as replacing poor workstation equipment. Eventually, the employee had to have surgery on several nerves below her elbow. At that point, taking into consideration all the medical costs, the costs due to lost productivity, and the expenses of hiring and retraining, the total costs of that one injury became staggering."

Armed with the glaring statistics, Hert approached the department's top brass and convinced them of the need to institute a sound ergonomic program to avoid similar problems. Initially, however, Hert encountered a very skeptical audience. "It was a very hard-nosed environment. A lot of things around county government are very political, and common sense can go out the window."

Hert hired Alison Heller, of Insite PT, in 1994 to institute an ergonomics program from the ground up. Heller has tracked significant savings in worker's comp costs over the past five years, but she also acknowledges there were hurdles to overcome.

"One of the major impediments in building a program at the sheriff's department, besides the outdated equipment, was the aura

of fear around filing a claim," says Heller.

"Before we had the ergonomics program, an employee of the sheriff's department had two options with regard to injuries: keep quiet and deal with the pain or file a claim. There was no early prevention program or intermediate steps. Because of that, you had a lot of people who choose to deal with the injury on their own, until it finally got so bad they were forced to file a claim. By that time, the total severity and subsequent cost of the injury, both in direct and indirect terms, had grown tremendously."

It is important to track and allocate claims, both to determine the real cost of a company's injuries and to identify the source of the problem.

In 1992-1993, before Heller came on board, 76 out of 125 administrative employees had filed claims for CTDs. The following year, although the total number of claims increased to 86, there were only nine claims that were actually classified as CTDs. These claims cost the department $136,000. In 1994-1995, both the total amount of claims and the claims classified as CTDs fell sharply. There were five CTD claims that year, costing the department $36,000, a 74 percent reduction from the previous year.

Since being hit with the exorbitant claim, Hert and Heller have worked together to implement both rudimentary and advanced ergonomic improvements and policies. "Financially, there are certain pieces of equipment out of our price range, so we have had to be creative," Hert says, "If desks are too low to be comfortable, we take discarded two-by-fours and stick them beneath the desk. It may not be pretty, but it's a heck of a lot better than staring down the wrong end of a $200,000 claim."

The sheriff's department has since formed an in-house ergonomic team that makes regular evaluations of workstations and conducts seminars on CTD prevention. The department's employees also are given demonstrations on self-care of the neck and back and are screened for early identification of injuries. The changes have been so dramatic that the County of Monterey is using the sheriff's department as a model for its own ergonomic program.

Smooth Sailing

When developing an ergonomics program it is important to track and allocate claims, both to determine the real cost of a company's injuries and to identify the source of the problem. "It may seem like an inconvenience to track losses across an entire company," says Murray. "But if you consider that just one $500 class on lifting techniques or one $500 software package that tracks and allocates losses can potentially eliminate a $100,000 claim, I think it's easy to see that this is not only an ergonomics issue, but an investment companies can't afford to pass up."

Indeed, the benefits the sheriff's department reaped from developing a sound ergonomic program were numerous: higher workplace morale, improved productivity, and enormous savings from cutting down on claims and premiums. But there was another, less obvious benefit: As a reward for saving his department so much money, Lt. Luther Hert became Capt. Luther Hert.