Why A Burger Flipper Knows More About Controlling Work Comp Costs Than You Do

That decision you made to take your workman’s compensation into a self insured plan made perfect sense at the time didn’t it? Your team thoroughly investigated the concept, a solid risk benefit analysis was performed, legal cleared it, human resources bought into it and given the wildly unpredictable work comp insurance market, becoming self insured seemed like the only viable option. The icing on the cake came from risk management and their "conservative" estimate that the organization should experience at least a 15% to 20% reduction in cost.

So what happened?

The number of claims is down and that’s a testament to the proactive policies that were put in place to reduce the company’s exposure to risk. The more comprehensive background checks on potential new hires, participating in the "Drug free workplace" program, frequent safety audits performed by your own people and by risk management consultants and an effective and well received incentive program for staying injury free all have had their impact. Claims are down but the costs of those claims are up. Actually they are up substantially and the trend does not indicate that it’s going to reverse itself anytime soon.

Your "premium" is determined by the manual rate times the MOD and the MOD is determined by frequency and severity of claims. You have the frequency under control but the severity is on a runaway horse. How can that be? There’s nothing unusual about the accidents that are occurring they are all run of the mill typical events. Nobody has been injured to the point that they are permanently disabled, there have been no deaths so how can it cost so much more to handle what in your mind, are routine claims.

One of the selling points of self insurance was better control of the process but it’s becoming apparent that just didn’t happen isn’t it? You’ve done a good job on the preventive side but managing workman’s compensation claims is not one of the organization’s core competencies.

And that is exactly why the organization hired a professional third party administrator (TPA) to mange the claims process. So how’s that working out for you?

What makes this such a frustrating situation, aside from the fact it’s costing much more than budgeted, is that work comp is not a core function and you cannot apply the same problem solving methodologies. The truth of the matter is you can’t apply any problem solving methodologies because you don’t know what to measure.

The insurance industry, particularly workman’s compensation and health care, thrive on a culture of complexity and lack of accountability. This isn’t a new phenomenon it’s been in place for decades upon decades. In fact their business model relies on complexity and an unclear, murky accountability system to profit.

This industry has no standards of practice. Your industry does, why shouldn’t they? They don’t even have standardized naming conventions or billing codes making it nearly impossible to decipher just what was rendered by whom, for what, when and how much. In short the system is broken and the industry is just fine with it.

Think about it for a moment. What is the financial incentive for any vendor involved in your self insurance program to reduce claim costs? Does a clinic make more money or less money when it orders an unnecessary test? Does a physical therapist make more money or less money when he or she schedules a patient for an additional session they don’t need? And as for the TPA, which costs them the least to perform, simply process the claim or actively investigate it and manage the medical care received.

Would you be surprised to learn that a major fast food company that is renowned for its management initiatives, that is admired for their innovative marketing, that makes bushels of money, discovered that they were overpaying for their self insured work comp program to the tune of nearly 30%? Can you imagine what that meant to a company that is as labor intensive as it gets. Thousands of employees, millions in payroll and they were paying almost a third more than they should.

How could this company, as sophisticated as they are, be so lost when it came to their work comp expense? Simple, they know burgers not the inner workings of work comp.

Right now you have to be asking yourself "How did they know they were spending 30% too much?" and the answer is they got proactive and called in a consulting firm that actually understands the industry and can dissect it process by process. They use a proprietary system that measures seven critical elements or "impact points" in a self insured program and then compares that measurement to best practices. The company’s name is CXO7 and their audit platform is called S.C.O.R.E.

The real value of CXO7, the real product that they deliver senior leadership, is knowledge and control. CXO7 measures what was previously un-measurable. S.C.O.R.E. establishes performance benchmarks, identifies cost drivers and functions that are in non-conformance with best practices. For the first time, C Level executives have the knowledge they need to make more informed, intelligent decisions regarding their insurance program and can apply the talent they already have to attack an expense that heretofore was simply an enigma.

If at this point you are thinking your organization ought to at least investigate this solution, you’re probably also wondering how much it costs. The answer to that depends on just how good a job COX7 does for you. You see their fee is based on a percentage of your savings! Isn’t that refreshing?