WHAT TO DO ABOUT WORKERS' COMP The costs are killing business. Managers can save plenty by focusing on safety and showing concern for injured employees. How about a call to that laid-up worker?
By Mark D. Fefer REPORTER ASSOCIATE Sandra L. Kirsch

(FORTUNE Magazine) – THE WORKERS' compensation system is socking it to companies, and they are howling. Last year employers had to pour more than $70 billion into this insurance program, which covers workers hurt on the job. That's twice the bill of only six years ago. The average cost of a ''comp'' claim has more than tripled over the past ten years, exceeding $19,000 and bruising even large employers. A FORTUNE 500 behemoth can easily pay out $50 million to $100 million a year in comp claims. Small companies have it especially rough. They often can't afford to self- insure as many large companies can, and their insurance premiums took annual double-digit jumps through much of the Eighties. In some states their premiums will do so again this year. The economy as a whole is feeling the pain in slower growth. Workers' comp premiums are tied to a company's payroll, rising as employees are added or salaries increase. Recent surveys by the National Federation of Independent Business, the nation's largest small-business organization, reveal that in some states as many as one-fourth of the federation's members say they have laid people off or postponed new hiring and expansion specifically because of comp costs. Even La-Z-Boy Chair, the big furniture maker, felt the pinch last fall when it wanted to expand its plant in Neosho, Missouri, and add 200 to 300 workers to the 1,000 already on the payroll. Once the company took a look at the comp costs, the entire project was put on hold. For several years now, reform of the workers' comp system has been near the top of the legislative agenda in many states. Business groups have been lobbying intensively for ways to slow the growth in benefits and for other structural changes that only lawmakers can put in place. But while these bills crawl through state assemblies, managers can effect dramatic cost savings on their own by focusing anew on safety and the care of injured employees. Workers' compensation insurance pays medical expenses and part of lost wages to workers hurt on the job, whether the employee or the employer was at fault. It is a state-mandated program: Almost all employers are required to carry the coverage, and most get it through private insurers. (Big companies that can afford to self-insure sometimes do.) Premium rates are regulated by state insurance departments and vary from state to state and from one occupation to another. In Florida, for example, insuring secretaries costs about 70 cents per $100 of payroll, while protecting roofers costs a vertigo-inducing $48 per $100. Premiums also tend to rise with the number of claims. Benefits are set by state law, but a worker whose injury keeps him off the job usually receives about two-thirds of his regular weekly pay until he recovers. If he's found to have some kind of permanent impairment, he may receive additional benefits. His medical treatment costs are always fully paid. FOR MANY DECADES the system worked with something close to the efficiency its designers intended. But swelling medical costs, changes in the types of injury that are compensated, and disputes over awards for permanent disability have turned this quiet business backwater into a swamp of contention. First off, medical costs. As nightmarish as the rise in total health care spending was in the Eighties, when it went from $1,063 per capita at the beginning of the decade to $2,566 in 1990, the cost of care under the comp system shot up some 50% faster. Why? In part because many of the cost containment strategies used by group health plans are either prohibited or neglected under workers' comp. For instance, in about half the states employers cannot require their injured people to see selected doctors. Comp is also first-dollar coverage: no deductibles or co-payments for the workers and therefore no incentive to think twice about paying the doc a visit. The push for cost containment in group health has left comp the last blank check in medical care, and doctors may be turning to it to recoup losses elsewhere. A 1990 study by the Minnesota Department of Labor and Industry found that treatment for ailments such as back problems can cost more than twice as much when paid for by workers' comp as by Blue Cross. Meanwhile the nature of worker injuries has changed. Once these had a terrible simplicity that was plain to the eye, like chopped fingers and broken bones. Today there are disorders that are more complicated and harder to assess. They can also lend themselves more easily to exaggeration or fraud. Back strain, for example, is both the most common workers' comp claim and one of the most nettlesome and expensive. It is hard to diagnose with any certainty, and two doctors can easily disagree about the severity of injury. Unequivocal answers are impossible for such questions as, How badly is the person hurt? What treatment does he need and for how long? When can he go back to work? ! The comp system is also increasingly tripped up by claims for ailments that may have little to do with the workplace. Back problems, joint diseases, hearing loss, stress, and cancer can all be influenced by a worker's personal habits and genetic makeup. These disorders often arise gradually rather than through a single incident and may be due as much to aging as to job conditions. The result: expensive disputes between the worker and the company about the cause or nature of the illness. In 1990, California workers collected $7 billion in compensation claims, but the amount spent litigating disagreements was $1.5 billion. Further contributing to all the litigation has been the rise of awards for permanent disability. Fair as such payouts may be, they are spawning battles for the best disability rating a worker can get. Each side enlists expensive forensic physicians to present diagnoses at the state workers' comp hearings because most states have no consistent guidelines for deciding how disabled a person is. Says Eric Oxfeld of the American Insurance Association: ''Two workers with the same jobs and the same injury may end up with very different disability ratings. It's a crapshoot.'' And not for peanuts, either. Benefit payments for a permanent partial injury can last a lifetime and reach into the hundreds of thousands of dollars. How do insurers keep up with this galloping payout rate? They don't. Though premiums have leapt, the increases in many states still fall short of what property and casualty insurers say they need to turn a profit. The industry's overall operating loss on the business came to $1.4 billion last year, and a number of insurers, including Liberty Mutual, the nation's largest workers' comp carrier, and USF&G, have stopped providing coverage in certain states. Reform efforts are under way in many parts of the country. In Oregon and Colorado, for example, guidelines from the American Medical Association are now used for a more consistent and objective evaluation of disability. Colorado has also frozen doctors' fees for comp cases temporarily and limited the number of chiropractic visits a worker can indulge in. Several states are trying to discourage ambulance chasing by capping contingency fees for lawyers. But reform will take time, and even then the manager at the work site will be the person best able to wrestle down costs. Here's how:

-- Communicate with workers. Jerry A. Miccolis, who heads the workers' comp + consulting practice at Towers Perrin, says, ''Most employees are completely in the dark about comp.'' A faded notice on the cafeteria bulletin board is usually the only thing that tells them about the system, while glossy brochures tout other benefits. ''Some employers say, 'We're getting ripped off as it is. Why should we tell them more about workers' comp?' '' Miccolis notes. The reason is that if the employer doesn't explain it, a TV ad for a lawyer will. And once an employee becomes an adversary, costs balloon.

-- Show concern in an emergency. The next critical point at which to communicate is right after an injury. Management needs to care for the worker, while maintaining some control over the case. One good way to do both is to have an on-site nurse who can provide immediate attention and help get the employee back to work. If he needs to be referred to a doctor, the nurse can also serve as a gatekeeper, guiding him toward sensible care. Marriott Corp. has adopted this strategy. The company installed an elaborate medical facility at its seven-year-old Atlanta hotel and runs smaller clinics in other cities. Says Chad Callaghan, Marriott's director of loss prevention: ''We've found that the clinics reduce by 50% the frequency of injuries that result in lost time.'' For an employee who does require outside care and time away from work, a sympathetic phone call or two letting him know he's missed can do a lot to assure his loyalty to the company. At Weyerhaeuser, which is self-insured, corporate safety director Ken Gipson encourages foremen to visit hospitalized employees and phone them periodically. Otherwise, Gipson says, ''they tend to feel like someone's mad at them for getting hurt, like it will spoil the safety record or something.''

-- Penalize careless managers. Another of Gipson's tactics, in addition to the bedside foreman, is to charge claims to the operating units where the injured employees work. Weyerhaeuser used to pay comp claims out of the corporate pool. Now every individual sawmill and plywood plant has to cover its own expenses. ''We saw a tremendous increase in accident prevention activity,'' Gipson reports.

-- Get employees back to work fast. Ed Welch, a former workers' comp commissioner in Michigan and now a consultant in East Lansing, says that in his experience, ''most men and women can't wait to get back during the first two or three weeks after they've been hurt. They feel bored and anxious. But ! if you leave them sitting idle for a few months or more, everything changes. Their attitude toward work and toward themselves deteriorates, and they never go back.'' And a dropout can leave an employer paying lifetime disability benefits. Gipson is pushing for a speedier return of Weyerhaeuser's hurt workers. Says he: ''The prevailing attitude of the company used to be that if you didn't have a full, unconditional release from your doctor to return to your regular job, then we had no place for you.'' That attitude is shared by the vast majority of employers. But Gipson has started a program of transitional work to ease an employee back into his regular job. A forklift driver with a sprained ankle, for example, can tally lumber or do office work. ''The jobs have to be productive,'' Gipson warns. ''We weren't just going to let someone sit in the tool room and read Playboy.'' Weyerhaeuser is formalizing its return-to-work program with ''task banks.'' Each department is responsible for finding assignments that an impaired person can handle and for contributing them to the bank. Says a human resources manager: ''If you hit a supervisor when he's got 50 other things going on and say, 'What can this person do?' the response tends to be, 'I don't have anything for him.' You've got to have up-front planning.'' Moreover, if an employer has a job available and the worker refuses it, the company can usually cut his benefits. Since Weyerhaeuser began getting its comp costs in hand in 1984, Gipson says, overall savings have come to $197 million. The cost of workers' comp claims has been chopped to 19 cents per man-hour, half what it was eight years ago.

-- Find out what's causing injury. A.T. Cross, the penmaker, began a systematic analysis of its workers' comp costs in 1988 with the help of consultant Michael Follick of Abacus Management Group in Providence. The company's insurance premiums for covering 1,300 workers at its Lincoln, Rhode Island, plant were tripling, and Cross decided to find out which parts of its operation were causing which injuries. Among the villains: safety buttons on a stamping machine. To make sure their hands did not get caught in the machine, workers had to push the buttons with both hands in order to stamp. The result was cumulative trauma, pain, and comp claims. So Cross invested in buttons that require mere touching rather than applied pressure. The analysis also turned up pockets of frequent back strain among people doing bench work, such as assembling pen cartridges. Too much sitting was the problem. In response, the company raised chairs and benches so that workers could sit or stand. The impact in the first year was dramatic: a 43% reduction in injuries involving lost time and a 71% drop in total lost workdays. With that kind of control over safety, Cross could afford to self-insure beginning in 1990 at a savings of close to $1 million so far in comp costs. ''Self-insurance in itself is not the solution,'' Follick emphasizes. ''You've got to change your method of operation.'' Change it soon, because the workers' comp system is only getting knottier. As the work force ages, those ailments that are already stymieing the system -- back problems, joint diseases, hearing loss -- will continue to increase. Legal reforms will be essential, but so will aggressive, compassionate management.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: NCCI CAPTION: COMP CLAIMS MARCH ALONG

CHART: NOT AVAILABLE CREDIT: FORTUNE TABLE/SOURCE: NATIONAL COUNCIL ON COMPENSATION INSURANCE CAPTION: WHAT WORKPLACE INJURIES COST