Entrepreneurs are trying anything and everything to manage
rising workers' comp costs. "I'm not buying new
capital equipment, and I'm trying not to lay off employees
I've had for a long time," says Hamman. He says he
isn't taking on new hires, yet still fears that if workers'
comp continues to rise, he may go out of business.
Other small companies are adopting similar strategies.
"Some have held back salary increases or say they're not
going to add employees," says Hauge. At worst, he says,
entrepreneurs are entering the underground economy-not carrying
workers' comp or giving cash payoffs to injured employees and
not reporting the claims to insurers, both of which are
illegal.
Others are shopping around. Colleen Galli, president of InfoPac International
Inc., a Burnsville, Minnesota-based Internet integration firm,
says, "We are aggressive in our [insurance] shopping, and we
try to buy from our own clients." Buying from local insurers
who use her IT services, Galli says, gives InfoPac leeway to
negotiate a better rate, because she can give them a deal on IT
services.
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Like other employers, Galli also tries to inculcate into
employees the idea that everyone in the company must work together
to keep workers' comp costs down because no one benefits if the
company incurs huge workers' comp losses. "We try to get
the message across that we're all on the same page," says
Galli, 47.
Meanwhile, other entrepreneurs are removing themselves from
workers' comp (laws don't require employers to cover
themselves), increasing employees' contributions to other types
of health insurance, and considering self-insurance for
workers' comp or joining other small companies to create group
self-insurance plans. But self-insurance can be risky, and group
insurance makes every entrepreneur in the group liable for
others' problems. "If you're going into
self-insurance, be careful," warns Eric Oxfeld, president of
UWC-Strategic
Services on Unemployment & Workers' Compensation, a
national business association. "You might be able to get a
lower upfront cost [because you're not dealing with an
insurer]. But a catastrophic cost can hurt you more."
Other entrepreneurs are trying to keep their workers' comp
rates low by upgrading safety precautions. Paul Darley, president
and COO of W.S.
Darley & Co., a Melrose Park, Illinois, emergency equipment
manufacturer with about $50 million in annual sales, hired a safety
director in 1999. "Before that, workers' comp costs had
been going through the roof," he says. "At the time, I
didn't feel we were large enough to support a permanent safety
director."
Darley was wrong: The new director proved he was worth his
salary. He implemented safety programs, instructed employees in
safety compliance, installed new equipment to reduce the amount of
manual labor, and even combed through W.S. Darley's old
accident reports to look for patterns. "It showed employees we
were taking a serious interest in their health-and it became a
collaborative effort," Darley says. "We put into place
reward programs for hitting milestone dates without an
accident." When Entrepreneur spoke with Darley in
October 2003, his company was celebrating 800 days without a
serious workplace accident. Says Darley, "[Our] workers'
comp premiums were a fraction of what we paid four years
ago."
Small firms can improve workplace safety by inviting an expert
from the insurance company to assess their work environment, says
Oxfeld. "Many insurers will provide free inspections if
asked," he says. Oxfeld also suggests that employers increase
scrutiny of drug use and abuse-particularly of prescriptions
covered by workers' comp.
Other entrepreneurs feel they can't do anything about
workers' comp costs individually. And to some extent,
they're right. Millman, who has shopped for better rates and
improved safety in his workplace, still watched helplessly as his
workers' comp expenses increased precipitously.
"Workers' comp is an uncontrollable expense," he
says.
| Laying Down the Law |
To address the workers' comp crisis, state legislatures have
begun to pass reform bills. Missouri stimulated competition in the
workers' comp insurance market by forcing the state
workers' comp insurer to compete with private carriers, and
Oregon pioneered the use of managed-care controls in workers'
comp health insurance. In the past year, Florida passed a reform to
reduce 2004 workers' comp rates by nearly 14 percent, by
defining injuries more objectively and preventing lawyers from
receiving hourly workers' comp litigation fees. In October
2003, California passed a reform to control medical costs by
increasing fraud penalties, encouraging generic drug use and
promoting workplace safety. And at press time, Gov. Schwarzenegger
proposed to slash $11 billion from California's workers'
comp system to decrease insurance premiums. Still, Eric Oxfeld of UWC-Strategic Services on Unemployment
& Workers' Compensation says it's too early to say how
effective the reforms will be. And some entrepreneurs are concerned
that clauses in reform bills will mean more costs to them.
"One problem with the legislation [in California] is every
[business] now has to have an injury and illness prevention program
in writing," says Scott Hauge, president of CAL Insurance
& Associates Inc. "The cost of this will be $1,000 to
$1,500 per company." |
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