Staying alive: how your business can survive the killer costs of workers' compensation

Entrepreneur, Jan, 2004 by Joshua Kurlantzick

WHAT CAUSED THE CRISIS?

* Rising health-care costs: According to Eric Oxfeld, president of UWC-Strategic Services on Unemployment & Workers' Compensation, costs rose because workers' comp insurance doesn't include solutions to expensive health care, such as co-pays and deductibles, which traditional medical insurance uses. And since workers' comp provides unlimited lifetime medical care, employees are tempted to claim all medical problems under workers' comp.

* The aging work force: Older employees get hurt and sick on the job more often, increasing workers' comp costs. According to the National Academy of Social Insurance, injured workers aged 45 to 64 were bedridden for an average of five weeks, compared to about three and a half weeks for those aged 25 to 44.

* Lack of competition: According to the Insurance Information Institute, 15 of the 39 insurers that failed in 2002 were in the workers' comp insurance business. "Now we put out 10 bids to cover us and only get two [responses]," says expert William S. Custer with Georgia State University in Atlanta. That's because so many insurers are out of business.

* 9/11: September 11 decimated the balance sheets of reinsurers that provide insurance for insurance carriers. Reinsurers passed on costs to insurance companies, who passed them on to clients. September 11 also showed office workers could be at just as much risk as manual laborers. As a result, some insurance firms raised workers' comp premiums for professional businesses, making them equal to those paid by manufacturing firms, which traditionally paid more for workers' comp.

ONLINE EXCLUSIVE

For a link to the workers' compensation office in your state visit www.entreprenuer.com/ features/workerscomp.

JOSHUA KURLANTZICK is a writer in Washington, DC.