Corralling runaway workers' comp costs: for some companies, a hands-on strategy has headed off cost stampedes at the pass - includes analysis of Workers Compensation Research Institute report, and information on the Memphis Business Group on Health - Cover Story

Business & Health, April, 1991 by Pamela Taulbee

Corralling runaway workers' comp costs

Americans have moved from one crisis to another: the federal deficit . . . AIDS . . . the homeless . . . the current recession . . . the crisis in the Persian Gulf. In the face of these macro events, what's happening in workers' compensation may not seem like much of a disaster. Unless you're an employer.

"The average medical cost for a lost-time injury today is approaching $10,000 per case and is rising at 15 percent per year," notes Richard Palczynski, vice president and head of The Travelers workers' compensation division. Employers have had to face premium increases of more than 10 percent a year for the past six years. Despite that, insurance companies still can't make money on workers' compensation, Palczynski says. "For every premium dollar the industry collected in 1990, insurers paid out about $1.19 in losses and expenses," he notes.

Employers fear that spiraling workers' compensation costs are cutting into already slim profit margins. A survey of 576 employers by Tillinghast, a New York City-based management consulting firm, found that 19 percent said workers' compensation costs were threatening the company's financial results "a great deal." Half said the problem posed "somewhat" of a threat to financial results.

So what's causing all the trouble? Much of the inflation in workers' compensation costs can be traced to medical fees. With its first-dollar coverage and employees' unrestricted choice of providers often mandated by state laws, workers' compensation is viewed by many as the last bastion of provider cost-shifting. Medical costs have grown from just 30 percent of workers' compensation costs in the 1970s to more than 40 percent today. In many states, such as Georgia and California, medical costs already account for more than 50 percent of the workers' compensation tab. "By the end of this decade, medical costs will likely exceed indemnity costs in every state," Palczynski says.

Add to that an increasingly litigious environment, broader definitions of a job-related injury, and state regulations that appear to offer employers few options for cost containment. One might well ask, as the Tillinghast study did, "What's an employer to do?"

The answer, according to risk managers, insurers, and workers' compensation specialists who spoke with Business & Health for this article, is to become more active in preventing injuries, to take a greater role in getting people back to work once an injury happens, and, to the extent state law allows, use the managed care tools that have helped control health care costs.

Wellness works

In 1985 employees represented by the United Auto Workers at Walbro Corporation, an automotive supplier in Cass City, Mich., asked for a fitness center. "I didn't know how we could justify a fitness center because we were such a small company," says Don Tonti, Walbro's human resource director at the time. Walbro had five facilities within a 60-mile radius, employing roughly 800 people. Even though the company already had a decent workers' comp record (its cost per employee was $112, compared with Michigan's average of $235), Tonti persuaded the company that the cost of a fitness center and athletic trainer would be more than offset by savings in workers' compensation and other health benefits. What's more, he was right.

The company opened a fitness center at its main facility in Cass City in the summer of 1985. "Our workers' comp costs dropped 55 percent in the first full year (1986)," says Tonti, "to $57 per employee per year. Within three years it had dropped to $35 per employee. The cost savings were so great we put up smaller fitness and rehab facilities at the other sites as well, and the trainers would go to those sites one or two days a week. We started with one trainer, part time, and ended up hiring four, two employees and two interns," says Tonti.

For job injury cases, the trainers work with the employees' personal physicians, getting the doctors' diagnoses and recommendations, and follow up with rehabilitation work at the fitness centers. "One of our maintenance men, 35 years old, was slated for back surgery," says Tonti, who is now a disability management consultant in Cass City. "He came in twice a day for whirlpool, stretching, and a range of motion exercises. After the therapy, a second doctor's opinion was that surgery wasn't needed. Here's a fellow who probably would have been off work the rest of his life. He was at risk, and we were able to change that."

At the time Walbro opened the fitness center, the company was experiencing an "inordinate" amount of carpal tunnel syndromes, a problem most often found in the wrist, in which nerves are pinched by a narrowing of the bone and cartilage "tunnels" through which the nerves pass. "We were averaging two to three carpal tunnel surgeries a year," notes Tonti. The trainers took a proactive approach, giving employees exercises to build up muscle groups most associated with the syndrome. Since 1986, Walbro has had only one surgery for carpal tunnel syndrome.